COMMISSIONER OF WEALTH TAX Vs. LADY VATSALABAI CHANDAVARKAR

JUDGEMENT

(1.) THIS is a reference under section 27(1) of the Wealth -tax Act, 1957, arising out of the wealth -tax assessments of the assessee for the assessment years 1959 -60 and 1960 -61, for which the corresponding valuation dates were March 31, 1959, and March 31, 1960, respectively.

(2.) THE dispute involved in the reference relates to whether the right of the assessee to receive a certain payment of Rs. 1,500 per month for her life, excepting certain circumstances, is exempt from the payment of wealth -tax under section 5(1)(vii) of the Wealth -tax Act.

(3.) THE further part of this clause provided for what was to happen if Lady Chandavarkar did not survive him and the effect of the said provisions was that in that event the first two sums mentioned in sub -clauses (a) and (b) would be paid to his heirs, executors and administrators in consideration of the long and faithful services rendered by him to the company. Sir Vithal died on the 23rd January, 1959, and in the wealth -tax assessment of the present assessee for the assessment years 1959 -60 and 1960 -61, the Wealth -tax Officer included the capitalised value of the right of the assessee under sub -clause (c) of clause 14(1) of the agreement in the computation of her net wealth and subjected it to wealth -tax. Against the assessment order made by the Wealth -tax Officer, the assessee appealed to the Appellate Assistant Commissioner and contended before him that the right of the assessee was dependent on many contingencies and, consequently, it was not possible to capitalise the value of the said right and include the capitalised amount in the net wealth of the assessee. Secondly, it was contended that the right was exempted from the payment of wealth -tax and from inclusion in the computation of the net wealth under section 5(1)(vii) since it was a right to receive a pension or other life annuity in respect of past services under an employer. The Appellate Assistant Commissioner did not accept the first contention raised on behalf of the assessee. He pointed out that the contingencies pointed out were not only not certain to occur, but on the other hand were such that they were not likely to occur at all. There was, therefore, no risk of the right or the payments in respect thereof being terminated in the near future or before the end of the assessee's life. The right, therefore, was an asset, which was capable of being valued on the basis of its capitalisation. He, however, accepted the second contention because, in his opinion, the right of the assessee under sub -clause (c) of clause 14(i) of the agreement fell within the terms of section 5(1)(vii) of the Wealth -tax Act. He, therefore, allowed the assessee's appeal for the two assessment years and directed the Wealth -tax Officer to exclude the life interest as it was exempt under section 5(1)(vii) of the Wealth -tax Act. Against the appellate decision the department appealed to the Income -tax Appellate Tribunal and raised two contentions before it. Firstly, that the annuity contemplated under subclause (c) of clause 14(i) of the agreement was a term annuity and not a life annuity and, consequently, was outside the ambit of section 5(1)(vii). Secondly, it was contended that the right contemplated under section 5(1)(vii) was the right of the employee himself and of no one else. Since the assessee herself was not the employee, nor had she rendered any past services to Messrs. N. Sirur and Co., the right to receive the payment which she got under subclause (c) of clause 14(i) was not a right which fell under section 5(1)(vii). It was argued before the Tribunal that before the assessee could take advantage of the exemption it was necessary that the past services in lieu of which the life annuity was being paid must have been rendered by the assessee and not by any other person. On behalf of the assessee it was contended that the right bring contingent was not capable of being valued as an asset at any rate, the value of the asset, if any, on the facts and circumstances of the case would be very small and negligible. Moreover, the payment could not be treated as an asset in view of section 2(e)(iv) under which the term 'as set' did not include a right to any annuity, in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum payment. The argument of the assessee was that under sub -clause (c) the assessee could not have asked for a commutation of the life annuity and the right, therefore, was of the kind mentioned in section 2(e)(iv) and consequently not an asset. It was also contended on behalf of the assessee that the right was exempted under section 5(1)(vii).