J.R. Chopra, J. - (1.) THIS is a reference under Section 27(1) of the Wealth-tax Act, 1957 (for short "the Act" herein), at the instance of the Revenue for answering the following two questions of law, viz. : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct is holding that annuity of Rs. 1,000 per month is not commutable and that it should be left out of account in the calculation of the net wealth ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that initiation of proceedings under Section 17(1)(a) of the Act was perfectly justified ?"
(2.) THE facts necessary to be noticed for the disposal of this reference briefly stated are : that the assessee, Smt. Hoolas Devi, was assessed to wealth-tax for the assessment years 1965-66 to 1971-72 for different amounts of wealth pertaining to each assessment year. Those cases which were completed and finalised were reopened by the Wealth-tax Officer under Section 17(1)(a) of the Act on the following grounds : (a) that the assessee has been made entitled to receive a monthly payment of Rs. 1,000 from M/s. Mohanlal Sanghi Trust created by her husband, late Shri Mohanlal Sanghi. THE receipt of this amount represented her life interest in the said trust and thus it constituted "property" within the definition of " assets " as per Section 2(e) of the Act, (b) that the assessee had grossly undervalued the value of jewellery and ornaments possessed by her and, therefore, the increase in the value has escaped assessment within the meaning of Section 17(1)(a) of the Act, and (c) that wealth amounting to Rs. 87,720 which represented the assessee's life interest in the trust has escaped assessment. A notice was given to the assessee and the assesses contested that notice. It was contended on behalf of the assessee that she was entitled to receive a monthly payment of Rs. 1,000 from M/s. Mohanlal Sanghi Trust and this fact was in the knowledge of the assessing Income-tax Officer. It was also submitted that the assessee has been taking this amount since the inception of the Act and this fact, on the basis of which the inference of the alleged life interest was drawn by the Wealth-tax Officer, was known to him from the very beginning. For answering these questions, we are not concerned with the assessee's life interest in the trust amounting to Rs. 87,720 as also the gross undervaluation of the jewellery and ornaments. We are only concerned with the monthly payment of Rs. 1,000 to the assessee from M/s. Mohanlal Sanghi Trust. According to the Revenue, this is an asset constituting property because the annuity is commutable. The departmental nominee has frankly conceded before the Tribunal that it is an annuity. This fact was earlier disputed before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner held that it is an annuity and it is not commutable but before the Tribunal the departmental nominee conceded that although the payment of Rs. 1,000 monthly to the assessee is an annuity but as it is commutable, it becomes "property" as per Section 2(e) of the Act. To find out whether such an annuity is commutable, it will be proper to refer to the intent of the testator which has been expressed in the will (annexure-C). This particular payment finds place in para. 20(d)(1) of the will which reads as under : "20. I hereby appoint my brother, Seth Motilal Ji Sanghi and Seth Sohanlal Ji Sanghi, as joint trustees of the trust and direct the said trustees as under :...... (d) The income from Government Securities and the instalments, as expressed in (b) of this para from Sanghi Brothers, Jodhpur, which would be in liquidation of my capital invested with them, and also would be in full settlement of all my rights in the joint business with my brothers as enumerated in para. 2 above, all these sums are to be deposited in the Imperial Bank of India or Government Post Offices or any other Scheduled Bank and this income only is to be disbursed as under : (1) To pay Rs. 1,000 (Rupees one thousand only) per mensem to my wife, Smt. Hoolas Devi, during her lifetime and this shall be the first charge on the income of this trust," It is clear from para. 20(d)(1) of the will that this amount of Rs. 1000 is payable from the income of interest. It has not been made payable from the property of the trust and, therefore, if there is no income, there cannot be any payment of this sum because it has not been charged on the principal and, as such, it does not create any life interest and even if it does, it is nowhere provided that it is commutable. This payment has no relation to any specific proportion of the income from any property. When such a proportion is not specified for the payment of this monthly maintenance grant and the entitlement is of a fixed sum only and is not payable from out of the capital, then such an entitlement is an annuity which is exempted under Section 2(e)(1)(iv) of the Act. It is not the case of the Department that this annuity has been converted into a lump sum grant. No such provision has been made in the will that this annuity can be converted into a lump sum grant. Our attention was invited to a decision of the Bombay High Court in CWT v. Hirji Cowasji Jahangir [1981] 129 ItR 642, wherein a Division Bench of the Bombay High Court has held that the question whether in the case of an annuity, the value thereof could not be included in the net wealth of an assessee under Section 2(e)(1)(iv) of the Wealth-tax Act, does not necessarily get answered in favour of the Revenue merely because the terms and conditions of the grant of the annuity do not contain any positive provision which prevents commutation of the annuity into a lump sum. It is when there is no express provision which prevents commutation of annuity into a lump sum grant that a further enquiry becomes necessary in that direction and such an enquiry must necessarily be directed at finding out whether the preclusion of such a right can be inferred from the terms and conditions of the grant. It is true that even in this will (annexure-C), there is no express provision prohibiting commutation, but the contents of the will show that it being a fixed sum and not being a particular portion of profit, is only payable out of the income of the capital investment and that payment is only to be made during her lifetime. This right to get a monthly maintenance grant is neither transferable nor saleable. It is also not chargeable to any part of the capital investment and, therefore, it can very well be inferred that it is not commutable. A Division Bench of the Bombay High Court in CWT v. Bhalchamora D. Jokhakar [1978] 112 ItR 228, has held that if an annuity is such that by its terms and conditions, commutation of any part thereof into a lump sum grant is not precluded, it will be included in the expression "assets". Conversely, in the case of any annuity where the terms and conditions relating thereto preclude commutation thereof into a lump sum grant, it will not be included in the expression "assets". Such preclusion may be by the express terms of the contract or may arise by implication. In this case, the amount of Rs. 1,000 has been made payable monthly out of the income and and it has been made the first charge on the income of the trust. Thus, by necessary implication, it is very clear that the amount has to be paid only month by month and this payment will be the first charge on the income of the capital investment made by the trust, and thus, by necessary implication, its commutation is ruled out.
(3.) IN CWT v. Arundhati Balkrishna [1970] 77 ITR 505, their Lordships of the Supreme Court have been pleased to observe as follows (at page 509): "Ordinarily, an annuity is a money payment of a fixed sum annually made and is a charge personally on the grantor." Here also, the payment of money is fixed and it is made the first charge on the income of the trust. In CWT v. Arundhati Balkrishna [1970] 77 ITR 505 (SC), it was quoted with approval the observations made by Kindersley V. C. in Big-nold v. Giles ([1859] 4 Drew-345 ; 113 Revised Reports 390J which are as follows (at page 509) : "An annuity is a right to receive de anno in annum a certain sum ; that may be given for life, or for a series of years; it may be given during any particular period, or in perpetuity ; and there is also this singularity about annuities, that although payable out of the personal assets, they are capable of being given for the purpose of devolution, as real estate." ;