BANERJEE,J. - (1.) THIS reference, under s. 27(1) of the WT. Act, has been made in circumstances hereinafter related. The assessee, Mrs. Dorothy Martin, is the daughter of one Arratoon Stephen, now deceased. By his will, dt. 15th Aug., 1925, the deceased settled certain properties in several trusts and appointed three gentlemen as trustees. He appointed his wife, Ella, as the guardian of his infant children during her lifetime and after her death the trustees were to be the guardians of the said children.
(2.) THE settlement in trust, which the deceased made in favour of his wife and children, is recited in paragraphs 7, 8, 9 and 10 of the will, which are quoted below: "(7) I give all my property of every description whether movable or immovable not hereby otherwise disposed of unto my trustees upon trust at such time and in such manner as they shall in their absolute discretion think fit to sell and realise such part thereof as shall not consist of money and out of the net proceeds of sale and any other money belonging to my estate to pay my funeral and testamentary expenses and debts and the legacies bequeathed by this my will or any codicil hereto and to stand possessed of the said residuary trust moneys and the investments for the time being representing the same (hereinafter called "the residuary trust funds"). Upon the trusts following (that is to say): In trust either to purchase investments of the nature hereinafter authorised of the market value exclusive of all expenses of investment at the date of such investment of rupees seven lakhs or to set aside out of my residuary estate securities or property of the value in the opinion of my trustees at the date of such setting aside of rupees seven lakhs but so that such securities or property shall yield at least an income of six per cent. per annum and to pay the income arising therefrom to my wife so long as she shall remain my widow and if she shall marry again then from and after her second marriage in trust to set aside out of the said fund of rupees seven lakhs investments sufficient at the time to produce by the annual income thereof the yearly sum of rupees six thousand and to apply such income and if necessary the corpus of the fund so appointed in payment to my said wife during the remainder of her life of the monthly sum of rupees five hundred as from the date of her marriage and I declare that the remainder of the investments representing the said fund of rupees seven lakhs shall on such remarriage and also the said fund so set aside to meet the said monthly payment-of rupees five hundred or so much thereof as shall then remain shall on the death of my said wife fall into and form part of the remainder of the residuary trust funds and be held upon the trusts hereinafter declared concerning the same. (8) I declare that my trustees shall stand possessed of the remainder of the residuary trust funds upon the following trusts (that is to say): Upon trust to divide the same into as many equal shares as I shall leave children surviving me and so that for the purposes of such division all the children of each deceased child of mine shall represent and be entitled to one of such equal shares only. (9) I direct that my trustees shall hold such equal shares of and in my residuary trust funds upon trust to apply the income or so much thereof as may be necessary of one of such shares for the support and maintenance of each of my children until such child shall attain the age of twenty-one years or if a daughter marry under that age and on the happening of either event to pay the, said income to him or her for his/her life but so that during coverture no daughter of mine shall have power to anticipate her share of income and subject also as to all such shares to the power of revocation and appointment and settlement hereinafter given to my said wife and my trustees respectively, and from and after the decease of each of my children I direct my trustees to stand possessed of one of each equal shares both original and accruing in trust for the children of such deceased child of mine in such shares (if more than one) and in such manner as such deceased child of mine by any deed or deeds or by his or her last will or any codicil thereto shall appoint and in default of such appointment and so far as any such appointment shall not extend in trust for the children of such deceased child who being male shall attain the age of eighteen years or being female shall attain that age or marry in equal shares and if there shall be one such child the whole to be in trust for that one child but so nevertheless that no child who shall take a share under any such appointment shall (in the absence of appointment to the contrary) take any part of the trust funds remaining unappointed without bringing the share appointed to him or her into hotchpot and accounting for the same accordingly and in case there shall be no child who being male shall attain the age of eighteen years or being female shall attain that age or marry in trust for my other children living at my death and the children of my deceased child of mine per stirpes and not per capita in equal shares upon the trusts and subject to the powers and provisions herein declared in their favour and so that such shares shall be added to their respective original shares in the residuary trust funds and shall follow the destination of such original share. (10) Provided always and I hereby declare that in case any of my children shall act in such manner that my said wife or after her death my trustees shall consider it advisable or expedient to cut off and deprive such child of his or her life interest in a share of my residuary trust funds or any part thereof then and in every such case it shall be lawful for and I hereby authorise and empower my said wife with the approval and consent of my trustees and after her death I authorise my trustees alone by any deed or writing recoverable or irrecoverable (revocable or irrevocable?) attested by not less than one witness to revoke in whole or in part the trusted (trust ?) hereinbefore declared in favour of such child of or consigning such share original as well as accrued or accruing and either as to the whole or any part of such life interest and in lieu thereof during the remainder of the lifetime of such child of mine to pay or apply the income that arises from such shares for or towards the maintenance during minority of any of the children of any such child of mine and after minority to pay the same to any of such children in such shares, as my trustees may think fit or to appoint the whole or any part of such income during such lifetime as aforesaid to any of my other children who shall not have so misbehaved in such shares if more than one and in such manner as my said wife or any said trustees respectively shall by such deed or writing appoint." The share of the residuary trust fund, held by the trustees for the benefit of the assessee, consisted of securities, debentures and cash. For the asst. yrs. 1957-58, 1958-59 and 1959-60 (the respective valuation dates being 31st March, 1957, 31st March, 1958 and 31st March, 1959), the value of share of the assessee in the said trust fund aggregated Rs. 7,29,241, Rs. 7,35,211 and Rs. 7,35,666 respectively.
(3.) ALTHOUGH the assessee was entitled to receive the annual interest only, accruing upon her share in the trust fund, the WTO included the entire value of the said share in the assessable wealth of the assessee and subjected the same to tax under s. 16(3) of the WT Act. Aggrieved by the order, the assessee appealed before the AAC and contended that: "(1) She was not the owner of any part of the trust fund and no tax was therefore, chargeable on the value thereof. (2) She had only a right to an annuity for the term of her life and the terms and conditions relating thereto precluded the commutation of any portion thereof into a lump sum grant and as such she was entitled to claim exemption of the annuity from the net value of the wealth, under s. 2(e)(iv) of the WT Act." ;