# Ahmed G. H. Ariff & Ors v. Commissioner of Wealth-tax, 1.6 l,T_R

- **Citation:** [1972] 1 S.C.R. 707
- **Court:** Supreme Court of India
- **Decided:** 1971-09-14
- **Case number:** Civil Appeal No. 2149 of 1968
- **Bench:** K. s. HEGDE, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ahmed-g-h-ariff-ors-v-commissioner-of-wealth-tax-1-6-l-t-r-5435
- **Pages:** 7

## Headnote

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-clf 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 income of the trust fund.
Since neither the
·trust fund nor the amount payable to the assessee was a fixed SUQl, what
the assessee -.va3 entitled to was ,hot an annuity but an allquot share in
the income of the trust fund.
The fact that in the particular assessment
year there was no change in the .trust fund was irrelevant because the
question whether a particular income. is an annuity or not does not depend
upon the amount received in a particular year. [712 D-H]
Hence the assessee had a life interest in the trust fund which could be
brought to tax under the Wealth-tax Act. [713 A-BJ
Ahmed G. H. Ariff & Ors. v. Commissioner of Wealth-tax, 1.6 l,T_R.
471 and Commissioner of Wealth-tax, Gujarat Arundhati Balkrislma, 71
l.T.R. 505, followed.
. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2149 of
1968.
Appeal from the judgm~nt and order dated January 3, 1967
of the Rajasthan High Court in D. B. Wealth Tax Reference No.
6 of 1963. '
·
S. Mitra, 0. P. Malhotra, R. N. Sachthe.v and B. D. Sharma,
for the appellant.
M. C. Setalvad, H. f'. Gupta and B. R. Agarwala, for the
respondent.
The Judgment of the Court has delivered by
Hcgde, J.
This appeal by certificate arises out of the wealthtax assessment of the assessee-respondent, an· individual, for the
,·ear 1959-60, the corresponding valuation date being March
'io s
SUPREME CoURT REPORTS
[1972] 1 S.C.R.
31, 1959. The assessee is the wife of Maharaja of Jaipur. On
September 9, 1953, the Maharaja made a settlement at Lbndon.
Under the deed of settlement, he appointed Sir Harold Augustus
Warner as the trustee of the property detailed in the deed of
settlement. The settlement is an irrevocable one and the properties mentioned in the schedule to the trust deed stood transferred to the name of the trustee. The trust deed provides that
the trustee should pay to the assesss:e during her life time 50 per
cent of the income of the trust fund. The question arose whether
the assessee can be held to have any sbare in the corpus of the
trust and whether the same can be brought to tax under the provisions of the Wealth Tax Act, 1957 (to be hereinafter referred
to as the Act). The Wealth-tax Officer came to the conclusion
that the assessee's
interest in U.K.
Trust amountil)g
to
Rs. 15,75,694/- plus the income-tax reserve thereon Rs. 1,75,401/-
have to be included in the assessee's total wealth. This decision
was confirmed by the Appellate Assistant Commissioner in appeal. Thereafter the assessee took up the matter in second appeal
to the Income-tax Appellate Tribunal. The Tribunal for reasons
set out in paragraphs 6 to 10, 12 and 13 of its order held that
the assessee did not get any life interest in the corpus but it held
that her interest was an interest whicb was an asset under the Act,
but for s. 2(e)(iv) of the Act.
In other words, it held that the
assessee had only a right to get annuity from out of the trust fund
,and as such her right is exempt from wealth tax in view of s. 2(e)
(iv) of the Act. In t

## Text

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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-clf 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 income of the trust fund.
Since neither the
·trust fund nor the amount payable to the assessee was a fixed SUQl, what
the assessee -.va3 entitled to was ,hot an annuity but an allquot share in
the income of the trust fund.
The fact that in the particular assessment
year there was no change in the .trust fund was irrelevant because the
question whether a particular income. is an annuity or not does not depend
upon the amount received in a particular year. [712 D-H]
Hence the assessee had a life interest in the trust fund which could be
brought to tax under the Wealth-tax Act. [713 A-BJ
Ahmed G. H. Ariff & Ors. v. Commissioner of Wealth-tax, 1.6 l,T_R.
471 and Commissioner of Wealth-tax, Gujarat Arundhati Balkrislma, 71
l.T.R. 505, followed.
. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2149 of
1968.
Appeal from the judgm~nt and order dated January 3, 1967
of the Rajasthan High Court in D. B. Wealth Tax Reference No.
6 of 1963. '
·
S. Mitra, 0. P. Malhotra, R. N. Sachthe.v and B. D. Sharma,
for the appellant.
M. C. Setalvad, H. f'. Gupta and B. R. Agarwala, for the
respondent.
The Judgment of the Court has delivered by
Hcgde, J.
This appeal by certificate arises out of the wealthtax assessment of the assessee-respondent, an· individual, for the
,·ear 1959-60, the corresponding valuation date being March
'io s
SUPREME CoURT REPORTS
[1972] 1 S.C.R.
31, 1959. The assessee is the wife of Maharaja of Jaipur. On
September 9, 1953, the Maharaja made a settlement at Lbndon.
Under the deed of settlement, he appointed Sir Harold Augustus
Warner as the trustee of the property detailed in the deed of
settlement. The settlement is an irrevocable one and the properties mentioned in the schedule to the trust deed stood transferred to the name of the trustee. The trust deed provides that
the trustee should pay to the assesss:e during her life time 50 per
cent of the income of the trust fund. The question arose whether
the assessee can be held to have any sbare in the corpus of the
trust and whether the same can be brought to tax under the provisions of the Wealth Tax Act, 1957 (to be hereinafter referred
to as the Act). The Wealth-tax Officer came to the conclusion
that the assessee's
interest in U.K.
Trust amountil)g
to
Rs. 15,75,694/- plus the income-tax reserve thereon Rs. 1,75,401/-
have to be included in the assessee's total wealth. This decision
was confirmed by the Appellate Assistant Commissioner in appeal. Thereafter the assessee took up the matter in second appeal
to the Income-tax Appellate Tribunal. The Tribunal for reasons
set out in paragraphs 6 to 10, 12 and 13 of its order held that
the assessee did not get any life interest in the corpus but it held
that her interest was an interest whicb was an asset under the Act,
but for s. 2(e)(iv) of the Act.
In other words, it held that the
assessee had only a right to get annuity from out of the trust fund
,and as such her right is exempt from wealth tax in view of s. 2(e)
(iv) of the Act. In the view it took, the Tribunal considered
that it was not necessary to ascertain the proper and correct
method cif valuation of the assessee's right. It directed that if and
when its conclusion on the interpretation of the clauses were set
aside, the appeal should be posted again before it for further
hearing for ascertaining the correct method of valuation.
At the instance of the Department, the Tribunal stated the
case and referred the following two questions to the High Court
of Rajasthan for its opinion.
"(1) Whether on a proper construction of the deed
of settlement the assessee has any interest in the
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corpus of the deed of settlement.
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( 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 sec. 2(e)(iv) of
the Act."
A Division Bench of that High Court answered the first
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question in the negative and the second question in the _affirmative both against the Department.
The High Court held :
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C.W.T. v. GAYATRI DEVI (Hegde, /.)
1. that the assessee was not given any interest in the
corpus of the property.
. .
' .
2. that the income that the assessee was receiving on
account of the 15/30 parts of the trust fund was in
the nature of an annuity, and
3. that the terms and conditions relating to the assessee's right to annuity preclude co=utation of any
portion thereof into a lump sum grant.
709
The only question that ar_ises for decision in this appeal is
whether the share of income to which the assessee is entitled to
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receive under the trust deed executed by her husband can be
considered as annuity within the meaning of that expression in
s. 2(e) (iv). If it is considered as an annuity, there is no dispute that the terms and conditions relating to the assessee's right
relating to annuity precluded commutation of any part thereof
into a Jump sum grant: Therefore all that we have to see is
D whether the income received by the assessee was an annuity or
an aliquot share in the income arising from the fund.
As seen
earlier, the High Court ]'as taken the view that the income in
question was an annuity.
In arriving at that conclusion, it has
referred to various decisions of the English courts as well as the
courts in this country.
But in view ·of the two recent decisions
E of this Court, it is not necessary for us to examine those decisions.
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In Ahmed G. H. Arif] and Ors. v. Commissioner of Wealthtax(1) one of us (Grover, J.) speaking for the Court observed
that the right of a beneficiary to receive an aliquot share of the
net income of properties comprised in a wakf-alal-aulad created
by a Muslim governed by the-Hanifi school of Mohamedan law
is "property" and is covered by the definition of "assets" in section 2(e) of the Wealth Tax Act, 1957 and the capitalised value
of that right is assessable to wealth tax.
In Commissioner of Wealth Tax, Gujarat v. Arundhati Balkrishna,(2) this Court accepted as correct the distinction brought
<.;
out between an annuity and an aliquot share in the income of a
fund by Kindersley V. C. in Bignold v, Giles('). Therein the
learned judge stated the law thus :
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"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
(1) 76, J.T.R. 471.
(2) 77 J.T.R. 505 .
. (3) (1859) 4. Drew 345; 113 Revised Reports 390.
710 -
SUPREME COURT REPORTS
p 972] t s.c.R.
about annuities, that although payable out of the personal assets, they are capable of being given for the
purpose of devolution, as real estate; they may be given
to a man and his heirs, and may go to the heir as real
estate; so an annuity may be given to a man and the
heirs of his body, that does not, it is true, constitute
an estate tail, but that is by reason of the Statute De
Donis, which contains only the word 'tenements' and
an annuity, though a hereditament is not a tenement,
and an annuity so given is a base fee."
Proceeding _further the learned judge observed :
"But this appears to me at least clear, that if the
gift of what is called an annuity is so made, that, on the
face of the will itself, the testator shows his intention
to give a certain portion of the dividend of a fund, that
is a very different thing; and most of the cases proceed
on that footing.
The ground is, that the court construes the intention of the testator to be, not merely to
give an annuity, but to give an aliquot portion of the
income arising from a certain capital fund."
Applying the principles laid down in these
decisions,
we
have now to see as to what was the nature of the right conferred
on the assessee under the trust deed ?
The trust deed starts by saying that "the settlor is abso!nt~!y
entitled to the investments specified in the Schedule hereto (hereinafter called "the Scheduled Property")" and that he is desirous
of making an irrevocable settlement of the Scheduled Property
for the benefit of his wife (the assessee) and his four sons. One
of the clauses in the deed says that :
"the settlor has accordingly transferred or intends
forthwith to transfer the Scheduled Property into the
name of the Trustee to be held by him upon the trust>
_and with and subjrct to the powers
and provisions
hereinafter declared and
contained
concerning the
same."
Clause 1 ( d) of the deed is important. It reads :
"The Scheduled Property and any
other investments or property which may from time to time be
transferred to and accepted by the Trustee as additions
to the Scheduled Property and any other capital moneys
which may be received by the Trustee in respect of the
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C.W.T. v. GAYATRI DEVI (Hegde, !.)
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trust premises and the investments and property for the
time being representing the same respectively are together called "the Trust Furid".
From this clause, it is clear that the "Trust Fund" is not a
fixed sum.
It is capable of· being augmented in several ways.
B At the time of creation of the trust, the only assets mentioned
in the schedule to the trust deed was £ 300,000 3! War Loan.
But as seen earlier this fund was capable of being augmented.
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Clauses of the trust deed which are relevant for our present
purpose are clauses 2, 3, 4(1) and 7. They read:
Clause 2:
The Trustee shall stand possessed of the scheduled
property and any other investments or property which
may from time to time be transferred to and accepted
by the Trustee as aforesaid UPON TRUST that the
Trustee may either allow the same to remain actually
invested so long as the Trustee thinks fit or may at any
time or times at his discretion sell call in or convert
into money the same or any pa.rt thereof and shall at
his discretion (but subject to the restriction contained
in clause 9 hereof) invest the moneys produced thereby and any other capital moneys which may be received
by him in respect of the trust premises in the name or
under the legal control of the Trustee in or upon any
investments hereby authorised with power at his discretion to vary or transpose any investments for or into
others of any nature hereby authorised."
Clause 3 :
The Trustee shall divide the Trust Fund into thirty
equal parts and shall stand possessed of such parts and
the income thereof respectively upon the trusts
and
with and subject to. the powers and provisions herein
after declared and contained concerning the same.
Clause 4( 1) :
THE TRUSTEE shall stand possessed of fifteen such
{>arts of the Trust Fund UPON TRUST to pay the
income thereof to the wife during her life and
after
her death shall hold the said fifteen such parts of the
Trust Fund and the income thereof Upon the same
powers and provisions as are hereinafter declared and
contained concerning the share in the Trust Fund which
is hereinafter directed to be held in trust for the said
712
SUPREME COURT REPORTS
[1972) 1 S.C.R.
Maharaj Kumar Jagat Singh or as near thereto as circumstances will admit.
Clause 7.
NOTWITHSTANDING the trusts hereinbefore
declared the Trustee ·if he in his absolute discretion
thitnks fit may at any time by writing under his hand
declare that the whole. or any part of the share (whether
original or accruing) in the Trust Fund to the income
whereof any Beneficiary shall then be entitled in possession or any property appropriated in or towards the
satisfaction of such share shali thenceforth be held IN
TRUST for such Beneficiary absolutely and thereupon
the trusts hereinbefore declared concerning such share
or the part thereof or the property to which such declaration relates shall forthwith determine and the Trustee
may at any time thereafter transfer such share or the
part thereof or the property to which such declaration
relates to such Beneficiary absolutely."
From these clauses it is clear that the intention of the Maharaja was that the assessee should get a half share in the income
of the trust fund.
Neither the trust fund was fixed
nor the
amount payable to the assessee
was
fixed. The only thing
certain is that she is entitled to a 15/30 shares from out of the
income of the trust fund. That being so, it is evident that what
she was entitled to was not an annuity but an aliquot share in
the income of the trust fund.
Mr. Setalvad, learned Counsel for the assessee
contended
that during the year with which we are concerned, there was no
change in the trust fund and in view of that fact and as we are
considering the liability to pay wealth-tax, we would be justified
in holding that the amount receivable by the assessee in the
year concerned was an annuity.
We see no force ii;i this· contention. The question whether a particular income is an annuity
or not does not depend on the amount received in a particular
year. What we have to see is, wh;it exactly was the intention of
the Maharaja in creating the trust.
Did he intend to give the
assessee a pre-determined sum every year or did he intend to
give her an. aliquot share in the income of a fund? On that
question, there can be only one answer and that is that he intended to give her an aliquot share in the income of the trust
fund.
As income cannot be an annuity in one year and
an
aliquot share in another year.
It cannot change its charac,ter
year after year. Frotn the facts found, it is clear that the assessee
has a life interest in the trust fund.
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C.W.T. v. GAYATRI DEVI (Hegde, J.)
713
For the reasons mentioned above, we allow this appeal, set
aside the judgment of the High Court and discharge the answers
given by the High Court to the questions referred to it by the
Tribunal and in its place We answer those questions in favour
of the Department.
The Commissioner is entitled to his costs
of this appeal from the respondent.
V.l'.S.
Appeal allowed.