COMMISSIONER OF WEALTH TAX Vs. ANKLESARIA DR E D
LAWS(GJH)-1963-9-15
HIGH COURT OF GUJARAT
Decided on September 26,1963

COMMISSIONER OF WEALTH TAX Appellant
VERSUS
DR. E.D. ANKLESARIA Respondents

JUDGEMENT

P.N.BHAGWATI, J. - (1.) A short but interesting question of law arises on this reference made at the instance of the CWT under S. 27(1) of the WT Act. The question is whether the annuity granted to the assessee by his deceased father by testamentary disposition is an annuity which is exempt from computation of net wealth under S. 2(e)(iv) of the Act. Dr. Anklesaria, the deceased father of the assessee, died on 27th April, 1954, having duly made testamentary disposition contained in three testamentary papers, one a will dt. 8th May, 1934, the other a draft deed of trust which did not bear any date but appeared to have been prepared in 1944 and the third a will dt. 25th April, 1944. Dr. Anklesaria had also executed during his lifetime a deed of trust dt. 24th June, 1937, under which a sum of Rs. 1,00,000 had been transferred by him to the trustees for various purposes including giving of certain annuities to his sons, daughters and grand children. Dr. Anklesaria had also executed a supplementary deed of trust dt. 2nd Dec., 1938, making certain alterations in the dispositions made under the deed of trust dt. 24th June, 1937, in exercise of the power reserved to him under the latter deed. The draft deed of trust purported to make certain further alterations in the dispositions effected under the deed of trust dt. 24th June, 1937, but it was not executed by Dr. Anklesaria nor were the formalities of law complied with which would make it an effective deed of trust. It remained a draft until the death of Dr. Anklesaria, but by the will dt. 25th April, 1944, the draft deed of trust was given the effect of a testamentary paper and the provisions contained in the draft deed of trust together with the will dt. 25th April, 1944, declared various testamentary dispositions of Dr. Anklesaria. The draft deed of trust was also, therefore, probated along with the two wills dt. 8th May, 1934, and 25th April, 1944. By reason of the draft deed of trust and the will dt. 25th April, 1944, a further sum of Rs. 8,00,000 was added to the funds forming part of the deed of trust dt. 24th June, 1937, and certain alterations were effected in the dispositions effected under the deed of trust dt. 24th June, 1937. Out of the total amount of Rs. 9,00,000 made up of Rs. 1,00,000 being the original fund forming the subject matter of the deed of trust dt. 24th June, 1937, and Rs. 8,00,000 added by the draft deed of trust r/w the will dt. 25th April, 1944, a sum of Rs. 2,00,000 was to be applied for the purpose of a Pharmacy College whereas the remaining sum of Rs. 7,00,000 was to be held on the trusts contained in the deed of trust dt. 24th June, 1937, as altered by the draft deed of trust and the will dt. 25th April, 1944. Clause 5 of the deed of trust dt. 24th June, 1937, as altered by the draft deed of trust and the will dt. 25th April, 1944, was, when translated in English, in the following terms : "5. The trustees shall as from the 1st day of January, 1945, utilise only the net income arising out of the trust property for the purposes mentioned in cl. 7 hereof." Clause 7 of the deed of trust dt. 24th June, 1937, was also altered by the draft deed of trust as a testamentary disposition and so altered, it read in its English translation : "7. The trustees shall as from the day of 1944 utilise the net income arising out of the trust property for the following purposes : (A) A sum of Rs. 6,000 shall be paid every year to the settlor, Dr. Dhanjisha Edalji Anklesaria, during his lifetime. (B) A sum of Rs. 3,600 shall be paid every year to each of my sons, namely, Jehangir D. Anklesaria, Rustomji D. Anklesaria and Edalji D. Anklesaria, during their respective lives and after their respective lifetimes, the said sums shall be paid to their respective children every year to be divided equally between them. (C) Upon the marriage of my sons, the said Rustomji and Edalji respectively, a sum of Rs. 15,000 shall be paid to each of them to enable them to meet with their marriage expenses. (D) A sum of Rs. 2,400 shall be paid every year to my daughter, Shirinbai Dungaji Daruwala, during her lifetime and after her death the said sum shall be paid every year to her children to be divided equally between them. (E) A sum of Rs. 600 shall be paid every year to each of my sons and daughters who may be the managing trustees hereof so long only as they shall act as such managing trustees. (F) A sum of Rs. 200 shall be paid every year to each of the trustees hereof other than managing trustee or trustees so long as they shall act as such trustees. The above annuities shall be paid by either monthly or quarterly instalments, the first of which shall be payable after one year from the date of execution hereof. The trustees shall hold the balance of the income of the trust property after payment of the above sums upon trust to utilise the same as and when they may think advisable for the following objects : (a) To provide help for poor and deserving Zorastrian Parsees, by giving them free scholarships or loans at 4 per cent. per annum, in obtaining primary, secondary or higher education in India, or scientific, technical or professional education in India or in foreign countries, or in obtaining any industrial training. (b) To provide help for poor Zorastrian Parsees by giving them medical help, food, clothes, etc. (c) To provide help for Parsee orphanages by giving scholarships or otherwise. (d) To provide help for the victims of any natural calamity such as fire, flood, famine, etc., or other calamities such as war, riots, etc., irrespective of the caste, creed or religion of the objects to be benefited : (e) For such other charitable objects as the trustees may select, irrespective of the caste, creed or religion of the objects to be benefited. Provided, however, that with respect to the charities mentioned in sub cls. (a) and (b) above the trustees shall give preference to the following classes of objects in the order in which they are hereinafter mentioned : (1) The children and grand children and other descendants of the settlor and of the settlor's brothers and sisters. (2) The children and grand children and other lineal descendants of the brothers and sisters of the settlor's wife, Bai Gulbai. (3) The children and grand children and other lineal descendants of the settlor's uncles both paternal and maternal. (4) The children and grand children and other lineal descendants of the uncles of the settlor's said wife, Bai Gulbai, both paternal and maternal. (5) Any other Zorastrian Parsees." Of course since the draft deed of trust became effective as a testamentary disposition only from 27th April, 1954, when Dr. Anklesaria died, cls. 5 and 7 in the form set out above became operative as from 27th April, 1954, but with this modification that so far as sub cls. (b) and (d) of cl. 7 were concerned, a further change was made by Dr. Anklesaria by the will dt. 25th April, 1944, and this is what he provided in the will, according to its English translation : "Out of the said sum I have reserved Rs. two lakhs for establishing a Pharmacy College for the public and as for the remaining sum, I have directed the same to be utilised in giving annuities to my children and for certain other charitable purposes in accordance with the aforesaid draft of the trust deed. I have made the following alterations in the annuities which I have directed in the said draft to be given to my children. My three sons shall each be paid Rs. 500 (in words rupees five hundred) per month and my daughter, Shirinbai, shall be paid Rs. 300 (in words three hundred) per month and my other three daughters shall each be paid Rs. 100 (in words rupees one hundred) per month."
(2.) AFTER the death of Dr. Anklesaria, a question arose whether the increase of the amount of the annuity given to the sons from Rs. 300 to Rs. 500 also enured for the benefit of the respective children of the sons who were provided with an annuity after the death of the sons. A similar question also arose in regard to the annuity given to Shirinbai, daughter of Dr. Anklesaria. It appears that there were also certain other questions in regard to the administration of the trust which required to be solved and an originating summons was, therefore, taken out for the determination of various questions including the aforesaid two questions relating to the annuities. The originating summons was heard by Mr. Justice N. A. Mody of the High Court of Bombay and by a judgment dt. 10th Feb., 1958, the learned Judge held that the increase from Rs. 300 to Rs. 500 in the case of the sons and from Rs. 200 to Rs. 300 in the case of Shirinbai applied not only to the annuities in favour of the sons and Shirinbai respectively but also enured for the benefit of their respective children. The learned Judge observed that there was one single continuing annuity in favour of each of the sons during his lifetime and thereafter in favour of his children and similarly there was a single continuing annuity in favour of Shirinbai and thereafter in favour of her children and that when Dr. Anklesaria increased the amount of the annuity in both the cases, such increase was not only for the benefit of the sons and Shirinbai who were the the first takers of the respective annuities granted to them but also for the benefit of their children who were the second takers. We have referred to this decision at this stage because some reliance was placed upon it by the learned Advocate General appearing on behalf of the CIT, presumably with a view to distinguish the present case from the two decisions of the English Courts which were relied upon by the Tribunal in deciding the matter against the CIT.
(3.) IN the course of the assessment of the assessee to wealth tax for the asst. year 1958 59 for which the valuation date was 31st March, 1958, a question arose whether the annuity granted to the assessee under the testamentary dispositions referred to above was exempt under S. 2(e)(iv) of the Act. The assessee contended that the terms and conditions relating to the annuity were such that they precluded the commutation thereof into a lump sum grant and that the annuity was, therefore, an annuity which satisfied the description given under S. 2(e)(iv) and was accordingly exempt from wealth tax. The WTO, however, rejected this contention of the assessee holding that the assessee had a right to have the annuity commuted into a lump sum grant and that the exemption, therefore, did not apply so as to exclude the annuity from computation of net wealth of the assessee. The assessee carried the matter in appeal before the AAC. The AAC took the view that it was entirely immaterial whether or not the assessee was entitled to call upon the trustees to commute the annuity into a lump sum grant, for in any view of the matter, the annuity could always be commuted into a lump sum grant by outsiders like insurance companies and that the annuity, therefore, did not come within the category specified in S. 2(e)(iv). The assessee thereupon preferred an appeal to the Tribunal. The Tribunal rightly observed that the AAC had completely fallen into an error in considering the matter from the point of view whether the annuity was one which could be computed in terms of immediate cash by outsiders like insurance companies and that the only question which was required to be considered was whether the assessee was entitled to call upon the trustees to commute the annuity into a lump sum grant and this, observed the Tribunal, the assessee had no right to do and the annuity was, therefore, one which fell within S. 2(e)(iv). The Tribunal held that there was a continuing annuity in favour of the assessee with a gift over in favour of his children and the assessee was, therefore, prevented from receiving the cash value of the annuity from the trustees. The Tribunal in this view of the matter upheld the assessee's claim to exemption in respect of the value of the annuity. We may point out at this stage that the WTO when he decided against the assessee computed the value of the annuity at Rs. 55,770 having regard to well established principles of valuation and the AAC also confirmed this valuation. This valuation was not challenged by the assessee before the Tribunal but the only challenge was against the inclusion of this valuation in the net wealth of the assessee and the challenge was based on S. 2(e)(iv). It was this challenge based on S. 2(e)(iv) which was upheld by the Tribunal and on this reference made at the instance of the CWT, the view of the Tribunal upholding this challenge is assailed before us. The question turns not so much upon the true interpretation as upon the application of S. 2(e)(iv). That section is in the following terms : "2. In this Act, unless the context otherwise requires, . . . . . (e) 'assets 'includes property of every description, movable or immovable, but does not include . . . . . (iv) a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant." ;


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