COMMISSIONER OF WEALTH TAX, LUCKNOW versus P. K. BANERJEE (DEAD) BY LRS.

Citation: [1981] 1 S.C.R. 657 · Decided: 09-09-1980 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

65 7 
COMMISSIONER OF WEALTH TAX, LUCKNOW 
v. 
P. K. BA~ERJEE (DEAD) BY LRS. 
September 9, 1980 
[P. N. BHAGWATT, E. S. VENKATARAMIAH, JJ.J 
Wealth Tax Act, 1957, Section 2(e)(iv), scope of-Annuity-Nature of the 
amount to fall under the annuity, to claim exemption under the Wealth Tax 
Act, exp/ai117d. 
The respondent assessee, under a deed of trust dated October 26, 1937 
executed by his father Pyarey Lal Banerji which was modified by another trust 
'deed dated April 28, 1950, received "the net income of the trust funds" after 
the death of his father. 
The assessee treated this amount as an annuity and 
claimed exemption under section 2(e)(iv) of the Wealth Tax Act, 1957. 
The 
claim for exemption was negatived by all the authorities including the Appel· 
late Tribunal, Allahabad Bench. 
The Tribunal, however, holding that the 
inclusion of the en titre. value of the corpus in the computation of net wealth 
was not correct as the assessee had merely a life interest in it, direcled' the 
Wealth Tax Officer to modify the assessments valuing the life interest of the 
assessee according to recognised principles of valuation. 
On a reference, i1t 
the instance of the asseseee, the High Court held the interest of the assessee 
in the trust fund amounted to an annuity exempt under section 2(e)(iv) of 
the Wealth Tax Act. 
Allowing the appeal by special leave and answering against the assessee, 
the Court 
, 
HELD : (l) In order to claim that an item of property should not be 
treated as an asset for purposes of the Wealth Tax Act, by virtue of sub-
clause (iv) of section 2(e)(I), it has to be established (a) that it is an annuity 
and (b) that commutation of any portion thereof into a lumpsum grant is 
precluded by the terms and conditions thereto. 
[663 CJ 
(2) It is true that the word "annuity" is not defined in the Act. In order 
to constitute an annuity, the payment to be made periodically should be. a 
fixed or pre-determined one and it should not be liable to any variation depend· 
ing upon or any ground relating to the general income of the fund or estate 
which is charged for such payment. The intention of the settlor must be seen, 
whether he wanted that the assessee should get a pre-determined sum every 
year or whether the assessee should get the whole net income of the trust fund. 
[665 C, 671 G] 
. 
In the instant case, since the interest of the settlor was that the whole 
net income of the trust fund should go to the assessee, the right of the assessee 
cannot be treated as an annuity. The fact that under the trust deed the trustee 
had been given the power to reinvest the proceeds of the Government securities 
leads to the possibility of variation of the income and consequently of the 
amount to be received by the assessee, make it clear that 
it was not an 
annuity. The fact that no such reinvestment had taken place during -the rele· 
vant year is immaterial. [671 H-672 B] 
A 
B 
c 
D 
E 
F 
... i
658 
SUPREME COURT REPORTS 
[1981] 1 S.C.R. 
A 
Ahmed G.H. Ariff & Ors. v. Commissioner of Wealth·tax, Calcutta, (1970) 
B 
c 
76 I.T.R. 471; Commissioner of Wealth-tax, Gujarat II v. Mrs. Arundhati Bal-
krishna, (1968) 70 I.T.R. 203, explained and applied. 
Commissioner of Wealth-tax, Rajasthan v. Her Highness Maharani Gayatri 
Devi of Jaipur (1971) 82 l.T.R. 699, followed. 
Commissioner of Wealth-tax, A.P. v. Nawab Fareed Nawaz J11ng & Ors. 
(1970) 77 I.T.R. 180, overruled. 
In re Duke of Norfolk: Public Trustee v. Infond Revenue Commissioners 
(1950) Ch. 467 distinguished. 
C1v1L APPELLATE JURISDICTION: 
Ci:vil Appeal No. 1163-1167 
of 1973. 
Appeal by Special Leave from the Judgment and Order, dated 
15-3-1971 of the Allahabad High Court in Wealth Tax Reference 
No. 232 of 1964. 
S. T. Desai and Miss A. Subhashini for the Appellant. 
S. N. Kacker, V. K. Pandita and E. C. Agarwala for the Rcspon-
D 
dent. 
E 
F 
G 
H 
VENKATARAMIAH, J.-These appeals by special leave under 
Article 136 of the Constitution are 
directed against the judgment, 
dated March 15, 1971 of the Allahabad High Court in Wealth Tax 
Reference No. 232 of 1964. 
The facts of the case may be briefly stated thus : The Income-
tax Appellate Tribunal, Allahabad Bench, Allahabad referred under 
section 27 (1) of the Wealth-tax Act, 1957 (herein.after referred to 
as 'the Act') ttJ the High Court of Allahabad for its opinion the 
following question of law arising out of the assessment orders made 
under the Act in respect of the assessment years 

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