TULZAPURKAR - (1.) THE common question of law that arises for our determination in these appeals is : Whether on the facts and in the circumstances of the case, the right or interest of an assessee in an annuity policy is exempt from wealth-tax under S. 5(1)(vi) of the Wealth-tax Act, 1957?
(2.) THE facts giving rise to the question are briefly these. Yuvraj Amrinder Singh and Princess Rupinder Kumari are individual assessee being assessed to wealth-tax under the Wealth-tax Act, 1957 (hereinafter called the Act). As regards the former the two assessment years are 1964-65 and 1965-66 for which the respective valuation dates are 31-3-1964 and 31-3-1965, whereas the assessment year in the case of Princess Rupinder Kumari is 1965-66 for which the valuation date is 31-3-1965. THE two assessees had purchased one annuity policy each and they claimed exemption in respect of the value of each policy in each one's assessment to wealth-tax under S. 5(1)(vi) of the Act. THE value of the annuity policy in the case of Yuvraj Amrinder Singh was Rs. 2,13,000.00 while in the case of Princess Rupinder Kumari it was Rs. 2,35,176.00 Exemption in respect of such value was claimed under S. 5(1)(vi) of the Act inasmuch as the annuity policies fell within the expression "any policy of insurance" occurring in the said provision. The Wealth-tax Officer rejected the claim and included the above mentioned amounts the assessees' net wealth for the concerned assessment years on the ground that the exemption was allowable only to insurance policy whereas the policy taken out by the assessee was an annuity policy whereunder the assessee had made lump sum payment and he would be getting periodical returns after the lapse of a number of years and as such annuity policy could not be considered as insurance policy. Aggrieved by the orders passed by the Wealth-tax Officer the assessees preferred appeals to the Appellate Assistant Commissioner who allowed their appeals holding them to be entitled to exemption under S. 5(1)(vi) as according to him annuity policies were covered by the term "any policy of insurance" used in the said subsection. This view of the Appellate Assistant Commissioner was confirmed by the Income-tax Appellate Tribunal in appeals preferred by the Revenue. In the three Wealth-tax References Nos. 2, 3 and 4 of 1972 made to the High Court by the Tribunal at the instance of the Revenue the High Court confirmed the Tribunal's view and answered the question set out above (which arose in each Reference) in favour of the assessee. The Revenue has come up in appeals challenging the view taken by the High Court. Since the question raised in these appeals concerns the proper construction of the expression 'any policy of insurance' occurring in S. 5(1)(vi) of the Act read with the other connected provisions thereof in relation to the terms of the annuity policies purchased by the two assessees it will be desirable to set out the terms of the two annuity policies. In each the annuitant is the proposer and each contains a provision for commutation, that is to say, neither is a noncommutable policy. It may be stated that the terms and conditions of both the annuity policies are the same and hence the terms and conditions of one (of Yuvraj Amrinder Singh) may be set out which are as follows : JUDGEMENT_608_4_1985Html1.htm Special provisions : (1) If the annuitant shall die before the date on which the annuity vests, the amount of the single premium paid but without any interest shall be returned to the proposer or in case he shall be then dead to his Proving Executors or Administrators or other legal representatives who should take out representation to his Estate or limited to the moneys payable under this policy from any Court of any State or Territory of the Union of India, or in case the Annuitant (provided he is also the proposer) shall have appointed any nominee to receive such money or executed any assignment in favour of any assignee to such nominee or assignee. (2) In lieu of the payment of the annuity under this policy the proposer has the option to be exercised before the date on which the annuity vests to receive cash payment of Rs. 2,88,184.00 on 22/01/1964."
(3.) BEFORE dealing with the rival submissions made by the learned counsel for the parties the relevant provisions of the Act with which we would be concerned may be referred to. Under the charging provision contained in S. 3 of the Act, wealth tax is charged, subject to the other provisions contained in the Act, for every assessment year in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company, at the rate or rates specified in Schedule I. 'Net Wealth' is defined in S. 2(m) as meaning (so far as is material) the amount by which the aggregate value of all the assets belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts owed by the assessee on that date. The expression 'assets' is defined in S. 2(e) and the relevant part thereof runs thus : "2(e) 'assets' includes property of every description, movable or immovable property, but does not include - (i) to (iii) xxxxxx (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;" The next material provision is S. 5(1)(vi) with which we are directly concerned and it runs thus : "Exemptions in respect of certain assets. 5(1) Subject to the provisions of subsection (IA), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee - (vi) the right or interest of the assessee in any policy of insurance before the moneys covered by the policies become due and payable to the assessee : Provided that in the case of a policy of insurance the premium or other payment whereon is payable during a period of less than ten years, the amount that shall not be included in the net wealth of the assessee under this clause shall be a sum that bears to the value of the right or interest of the assessee in the policy the same proportion as the number of years during which the premium or other payment on the policy is payable bears to ten;" It may be stated that the above proviso was not there at the relevant time and it has been inserted by Finance Act, 1974 with effect from 1-4-1975 but since an argument was based on it we have thought fit to reproduce the same. The next material provisions are S. 5(1)(vi-a) and (vii) which run thus : "(vi-a) the right of the assessee to receive any annuity payable by the Central Government under the provisions of S. 280D of the Income-tax Act; (Inserted by Taxation Laws (Amendment) Act, 1970 with retrospective effect from 1-4-1965) (vii) the right of the assessee to receive a pension or other life annuity in respect of past services under an employer;" Since a contention was raised that annuity policies of the type with which we are concerned in the case cannot be regarded as life insurance policies it will be necessary to refer to the definition of "life insurance business" given in S. 2(11) of the Insurance Act , 1938. Section 2(l1) runs thus : "2(11) 'Life insurance business' means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include - (a) the granting of disability and double or triple indemnity accident benefits, if so provided in the contract of insurance, (b) the granting of annuities upon human life; and (c) the granting of superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular profession, trade or employment or of the dependants of such persons;" At the outset we would like to dispose of the initial contention raised on behalf of the Revenue that a contract for deferred annuity is quite distinct from a 'policy of insurance' - the expression used in S. 5(1)(vi) - since there is no element of insurance against any risk involved in such annuity policy - a contention which found favour with the Wealth Tax Officer but was rejected by the Assistant Appellate Commissioner, the Tribunal and the High Court. The contention is that in the case of a deferred annuity policy the annuitant, on payment of a lump sum gets the right to the annuity equivalent in the shape of deferred annual or monthly payments guaranteed for a certain period (in the instant case for 35 years), that there is a date on which the annuity vests in the annuitant (here 22-1-1964), that usually there is a provision that in the event of the death of the annuitant before the date of vesting the single premium paid by him would be returned to the proposer, and that the proposer may have (as is the case here) the option, to be exercised before the date on which the annuity vests, to receive the commuted value in lieu of deferred annual or monthly payments and such provisions clearly show that the intention is that in essence the annuity contract is operative from the date on which the annuity vests and thereafter there is no element of insurance in the contract. It is, therefore, urged that a contract for deferred annuity cannot be treated as a policy of insurance and as such the value thereof would not be exempt under S. 5(1)(vi) of the Act. The gravamen of the contention is that there is no element of insurance covering any risk on human life involved in a deferred annuity policy.;