COMMISSIONER OF WEALTH TAX, GUJARAT Vs. E D ANKLESARIA
LAWS(GJH)-1983-9-56
HIGH COURT OF GUJARAT
Decided on September 28,1983

COMMISSIONER OF WEALTH TAX, GUJARAT Appellant
VERSUS
E D ANKLESARIA Respondents

JUDGEMENT

- (1.) A short but interesting question of law arises on this Reference made at the instance of the Commissioner of Wealth-tax under sec. 27(1) of the Wealth Tax 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 section 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 dated 8th May 1934the 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 dated 25th April 1944. Dr. Anklesaria had also executed during his life time a deed of trust dated 24th June 1937 under which a sum of Rs. 1 0 0 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 dated 2nd December 1938 making certain alterations in the dispositions made under the deed of trust dated 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 dated 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 dated 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 dated 25th April 1944 declared various testamentary dispositions of Dr. Anklesaria. The draft deed of trust was also therefore probated along with the two wills dated 8th May 1934 and 25th April 1944. By reason of the draft deed of trust and the will dated 25th April 1944 a further sum of Rs. 8 0 0 was added to the funds forming part of the deed of trust dated 24th June 1937 and certain alterations were effected in the dispositions effected under the deed of trust dated 24th June 1937. Out of the total amount of Rs. 9 0 0 made of Rs. 1 0 0 being the original fund forming the subject matter of the deed of trust dated 24th June 1937 and Rs. 8 0 0 added by the draft deed of trust read with the will dated 25th April 1944 a sum of Rs. 2 0 0 was to be applied for the purpose of a Pharmacy College whereas the remaining sum of Rs. 7 0 0 was to be held on the trusts contained in the deed of trust dated 24th June 1937 as altered by the draft deed of trust and the will dated 25th April 1944. Clause 5 of the deed of trust dated 24th June 1937 as altered by the draft deed of trust and the will dated 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 clause Thereof. Clause 7 of the deed of trust dated 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 Settler Dr. Dhanjisha Edalji Anklesaria during his life time. (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 life-times, the said sum 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 0 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 Shirinbal Dungaji Daruwala during her life time 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 installments 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 Zoroastrian 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 Zoroastrian 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-clauses (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 Settler and of the Settlers brothers and sisters. (2) The children and grand-children and other lineal descendants of the brothers and sisters of the Settlers wife Bai Gulbai. (3) The children and grand-children and other lineal descendants of the Settlers uncles both paternal and maternal. (4) The children and grand-children and other lineal descendants of the uncles of the Settlers said wife Bai Gulbai both paternal and maternal. (5) Any other Zoroastrian ParSecs. Of course since the draft deed of trust became effective as a testamentary disposition only from 27th April 1954 when Dr. Anklesaria died Clauses 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-clauses (b) and (d) of Clause 7 were concerned a further change was made by Dr. Anklesaria by the will dated 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 lacs 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 same draft to be given to my children. My three sons 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 par month and my other three daughters shall each be paid Rs. 100/ in words rupees one hundred per month. After the death of Dr. Anklesaria question arose whether the increase of the amount of the annuity given to the sons from Rs. 300/to Rs. 500 also endured 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 dated 10th February 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 endured 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 life time 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 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 Commissioner 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 Commissioner.
(2.) In the course of the assessment of the assessee to wealth-tax for the assessment 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 section 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 section 2 and was accordingly exempt from wealth-tax. The Wealth Tax Officer 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 assesSec. The assessee carried the matter in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner 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 section 2(e)(iv). The assessee thereupon preferred an appeal to the Tribunal. The Tribunal rightly observed that the Appellate Assistant Commissioner had completely fallen into an error in considering the matter from the point of view whether the annuity was one which could be commuted 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 sec. 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 assessees claim to exemption in respect of the value of the annuity. We may point out at this stage that the Wealth Tax Officer 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 Appellate Assistant Commissioner 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 section 2(e)(iv). It was this challenge based on section 2(e)(iv) which was upheld by the Tribunal and on this Reference made at the instance of the Commissioner of Wealth Tax the view of the Tribunal upholding this challenge is assailed before us.
(3.) The question turns not so much upon the true interpretation as upon the application of section 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 lump sum grant; The question which therefore arises for consideration is whether it can be said of the annuity in the present case that the terms and conditions relating to the annuity preclude the commutation of any portion thereof into a lump sum grant. Now the annuity is given to the assessee by the deed of trust dated 24th June 1937 as altered by the draft deed of trust read with the will dated 25th April 1944 the effective date of the provision granting the annuity being the date of the death of Dr. Anklesaria namely 27 April 1954. We must therefore see what are the terms and conditions relating to the annuity contained in the deed of trust dated 24 June 1937 the draft deed of trust and the will dated 25th April 1944. Is there anything in the terms and conditions which precludes the assessee from requiring the trustees to commute the annuity or any portion thereof into a lump sum grant The scheme of the trusts contained in the deed of trust dated 24th June 1937 read with the draft deed of trust and the will dated 25th April 1944 is that a sum of Rs. 9 0 0 is settled on trust out of which Rs. 2 0 0 are to be utilised for establishing a Pharmacy College and the balance of Rs. 7 0 0 is to be held on trust for the objects set out in the amended Clause 7 which we have reproduced above. Before we come to Clause 7 we may point out that Clause 5 in terms declares that the trustees shall utilise only the net income arising out of the trust property for the purposes mentioned in the amended clause 7. Clause 6 of the deed of trust dated 24th June 1937 which did not suffer any change as a result of the draft deed of trust and the will dated 25th April 1944 also provides that the trustees shall utilise only the net income and shall not touch any part of the corpus of the trust fund. Clause 7 then says that the net income from the trust fund shall be utilised for giving certain annuities one of the annuities being the annuity of Rs. 500/to the assessee and that the balance of the net income shall be utilised by the trustees for charitable objects set out in sub-clauses (a) to (e). The corpus of the trust fund is thus to remain untouched and only the net income is to be utilised by the trustees for giving annuities to sons daughters and grand-children and the balance of the net income is to be utilised for charitable purposes. It is therefore clear that so far as the annuity to the assessee is concerned it is to be paid only out of the net income of the trust fund and no part of the corpus is at any time to be utilised for the purpose of paying it to the assesSec. It is in this context that we have got to see whether the terms and conditions relating to the annuity permit or prevent the commutation of the annuity into a lump sum grant. Now if the assessee were entitled to call upon the trustees to commute the annuity into a lump sum grant there would obviously be a breach of trust for the trustees are expressly directed by the provisions contained in the deed of trust dated 24th June 1937 as amended by the draft deed of trust and the will dated 25th April 1944 not to touch any part of the trust fund and to utilise only the net income for the purpose mentioned in Clause 7 which would include payment of annuity of the assesSec. These provisions clearly in our opinion precluded the assessee from calling upon the trustees to pay him the value of the annuity in a lump sum. If the assessee calls upon the trustees to do any such thing the trustees can immediately rejoin by saying that they are not permitted by the trust to do that which the assessee wants them to do for all that they can do is to pay the various annuities set out in Clause 7 out of the net income alone and utilise the balance of the net income for various charitable purposes. If the trustees apply any part of the corpus of the trust fund for payment of the commuted value of the annuity they would be guilty of breach of trust and equally if they apply any part of the net income of the trust fund for such purpose then to the extent to which such payment exceeds Rs. 6 0 they would be committing breach of trust for they would be diverting the net income of the trust fund to purposes other than those provided by the trust. If therefore regard be had only to the terms and conditions relating to the annuity contained in the deed of trust dated 24th June 1937 as amended by the draft deed of trust and the will dated 25th April 1944 it is apparent that they preclude the commutation of the annuity into a lump sum grant and the annuity would in that event fall within the category specified in section 2(e)(iv).;


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