Pathak, J. - (1.) THE Appellate Tribunal, constituted under the Wealth-tax Act, has referred the following question : " Whether the interest of the assessee in the trust fund amounted to an annuity exempt under Section 2(e)(iv) of the Wealth-tax Act ? "
(2.) THE assessee is Pranab Kumar Banerji, son of late Shri Pearey Lal Banerji, and the reference relates to the assessment years 1957-58 to 1961-62. Shri Pearey Lal Banerji created a trust by an indenture of trust dated October 26, 1937. The corpus of the trust consisted of Government securities of the face value of Rs. 10,00,000. The Imperial Bank of India, Calcutta, was constituted the trustee, and the securities were transferred to it. By virtue of a power to modify or alter the trust reserved by the settlor the trust deed was subsequently modified. A supplementary deed of trust dated April 28, 1950, was executed. Reading the two deeds together, the terms of the trust appear to be as follows: The trustee would pay the net income of the trust fund to the settlor during Ms life. Upon his death, the net income would go to his son, Pranab Kumar, during his life. If Pranab Kumar died before the settlor, then from the date of the settlor's death the net income would be paid in equal shares to the settlor's other son, Sonab Kumar, and his daughter-in-law, Shakuntala, wife of Pranab Kumar, during their life or entirely to the survivor of them. That would also follow if Pranab Kumar survived the settlor, in which case upon the death of Pranab Kumar the net income would be paid to Sonab Kumar and Shakuntala or their survivor. In case the two sons and daughter-in-law died before the settlor, then, on and from the death of the settlor, and in case any one or more of them survived the settlor then from the death of the last survivor of them, the trustee would stand, possessed of the trust fund and its income upon such trusts as Pranab Kumar appointed. In the absence of such appointment or to the extent that the appointment did not extend, the trust fund and income would be held in trust for the settlor's nephew, Manoj Kumar Banerji, and the settlor's niece, Jhuni Banerji or the survivor of them. If neither was surviving at the relevant time then the trust fund and income would be held in trust for the persons who under the law relating to intestate succession would, on the death of the settlor, have been entitled if the settlor had died possessed of the property and intestate. Shri Pearey Lal Banerji died in 1952, and the trustee began paying out the income from the trust fund to the assessee as the sole beneficiary.
(3.) IN assessment proceedings under the Wealth-tax Act, the Wealth-tax Officer treated the entire corpus of the trust estate as representing the assets of the assessee and rejected the contention that the assessee was entitled to receive an annuity only. The assessee appealed, and the appeal was dismissed by the Assistant Commissioner of Wealth-tax. The assessee then appealed to the Appellate Tribunal. The Appellate Tribunal accepted the contention of the assessee that he had no right to the corpus of the trust fund and that the Imperial Bank remained trustee of all the corpus. But the Appellate Tribunal rejected the assessee's contention that in respect of the income received by him from the trust fund he was entitled to exemption under Section 2(e)(iv) of the Wealth-tax Act. in the result, the Appellate Tribunal directed the Wealth-tax Officer to modify the assessments by valuing the life interest of the assessee according to recognised principles of valuation. And now this reference. The Wealth-tax Act charges tax in respect of the net wealth of an assessee. " Net wealth " is defined by Section 2(m) of the Act as the amount by which the aggregate value of all the assets of the assessee on the valuation date exceed the aggregate value of all the debts. What are the " assets " of an assessee has been denned by Section 2(e). They include property of every description, movable or immovable, but they do not include, among other things, " a right to an annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant. " That is Section 2(e)(iv). The assessee says that the income received by him from the trust fund constitutes an annuity and the terms and conditions of the amended trust deed preclude the commutation of any portion of the annuity into a lump sum grant.;