COMMISSIONER OF WEALTH TAX, RAJASTHAN vs. IIER HIGHNESS MAHARANI GAYATRI DEVI OF JAIPUR

CIVIL APPEAL No. 2149/1968Supreme Court[1972] 1 S.C.R. 70714 September 1971Bench: 2 JudgesAuthor: K.S. HEGDE, A.N. GROVER7 pages
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What were the facts?

The assessee, II Highness Maharani Gayatri Devi of Jaipur, was assessed for wealth tax for the assessment year 1959-60. Her husband had created an irrevocable trust on September 9, 1953, appointing a trustee. The trust deed stipulated that the trustee should pay the assessee 50% of the income of the trust fund during her lifetime. The trust fund was not a fixed sum and was capable of being augmented. The Wealth-tax Officer included Rs. 15,75,694/- plus income-tax reserve thereon as the assessee's total wealth. The Appellate Assistant Commissioner confirmed this. The Income-tax Appellate Tribunal held that the assessee had a right to an annuity, exempt under Section 2(e)(iv) of the Wealth Tax Act, and did not have a life interest in the corpus. The Tribunal directed further hearing if its interpretation was set aside. The High Court, on reference, answered two questions in favour of the assessee, holding she had no interest in the corpus and her right was an annuity exempt from wealth tax.

What did the Supreme Court hold?

The Supreme Court allowed the appeal, setting aside the judgment of the High Court. The Court held that the assessee was entitled to a 15/30 share from out of the income of the trust fund. It reasoned that neither the trust fund nor the amount payable to the assessee was a fixed sum; the trust fund was capable of being augmented. Therefore, what the assessee was entitled to was not an annuity but an aliquot share in the income of the trust fund. The Court relied on its previous decisions in Ahmed G. H. Ariff & Ors. v. Commissioner of Wealth-tax and Commissioner of Wealth Tax, Gujarat v. Arundhati Balkrishna. The fact that in the particular assessment year there was no change in the trust fund was irrelevant, as the question of whether an income is an annuity or not does not depend on the amount received in a particular year. The intention of the settlor was to give the assessee an aliquot share in the income of the trust fund, which cannot change its character year after year. Consequently, the assessee had a life interest in the trust fund, which could be brought to tax under the Wealth-tax Act. The Court answered the referred questions in favour of the Department.

What were the issues?

1. Whether, on a proper construction of the deed of settlement, the assessee has any interest in the corpus of the deed of settlement, as per Section 2(e) of the Wealth Tax Act, 1957? 2. Whether, in the facts and circumstances of this case, the right of the assessee derived under the deed of settlement is exempt from wealth-tax by virtue of the provisions of Section 2(e)(iv) of the Wealth Tax Act, 1957? Assessee's Contentions: The assessee argued that the income received was in the nature of an annuity, and given that there was no change in the trust fund during the assessment year, this right was exempt from wealth tax under Section 2(e)(iv). The High Court supported this view, holding that the assessee was not given an interest in the corpus and her income was an annuity, precluding commutation into a lump sum. Revenue's Contentions: The Revenue contended that the assessee had an interest in the corpus of the trust fund which was assessable to wealth tax. The Tribunal initially agreed with the Revenue that the assessee had an interest, but then classified it as an annuity exempt under Section 2(e)(iv). The Revenue's appeal to the Supreme Court challenges the High Court's interpretation.

Which sections of the Income-tax Act were involved?

Section 2(e),Section 2(e)(iv)

AI-generated summary — verify with the full judgment below

A c D E F G H 707 COMMISSIONER OF WEALTH l'AX, RAJASTHAN II, IIER HIGHNESS MAHARANI GAYATRI DEVI OF JAIPUR September 14, 1971 [K. s. HEGDE AND A. N. GROVER, )J.)

Wealth Tax 11ct (21 of 1957), s. 2(e) (iv)-Assessee entitled to half !Jiu.re of inco1ne of trust fund-Trust fund capable of being aug111ented-c- lf assessee entitled to annuity- or interest in property assessable to wealth· tax.

The trust deed executed by the husband of the respondent-asscssee provided that the tn:stees should pay to the a"cssee during her life time 50 per cent of the income Of the trust fund. cfhe settlement \\/flS ifrcvQ.o cable and the properties mentioned in the schedule to the trust rleed stood transferred to the_ name of the trustees.

Under the clauses of the deed the trust fund was not a fixed sum but was capable of being augmented, On the question whether the assessee was entitled only to an annuity within the meaning df that expression in s. 2(e)(iv) of the Wealth Tax Act or had an interest in the corpus of the trust which coi1ld be brought to tax und~r the Wealth-tax Act. · HELD : The intention of the husband was that the assessee should get 15/30 share from out of

The order continues below.

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