DIVAN J. - In this reference under section 27 (1) of the Wealth-tax Act, 1957, the following four question have been referred for the opinion of the High Court.
'(1) Whether, on the facts and in the circumstances of the case the life interest of the assessee in the Ahmedabad trust was a right to an annuity, the terms and conditions relating to which precluded the commutation of any portion thereof into a lump sum grant and as a consequence had to be excluded from the net wealth of the assessee ?
(2) Whether, on the facts and in the circumstances of the case, the life interest of the assessee in the two Bombay trusts to the extent of one-half of such interest was a right to an annuity, the terms and condition relating to which precluded the commutation of any portion thereof into a lump sum grant and as a consequence had to be excluded from the net wealth of the assessee ?
(3) Whether, on the facts and in the circumstances of the case, the life interest of the assessee in the two Bombay trusts to the extent of one-half of such interest was a right to an annuity, the terms and conditions relating to which did not preclude the commutation of any portion thereof into a lump sum grant and was in consequence includible in the net wealth of the assessee ?
(4) Whether, on the facts and in the circumstances of the case, the assessee was entitled to exemption under section 5(1) (viii) in respect of ornaments and jewellery worth Rs. 55,003 ?'
The assessee is an individual and the questions have arisen in respect of her assessment for wealth-tax for assessment years 1957-58 and 1958-59, the corresponding valuation dates being December 31, 1956, and December 31, 1957. By a deed of settlement, dated September 7, 1945, the father of the assessee settled certain shares of the estimated value of Rs. 5,50,325 of certain Indian companies upon the trusts mentioned in the deed of settlement. The trusts were for the benefit of his two sons, Arvind and Yogendra, and his daughter, the assessee. By another deed of settlement, dated October 12, 1945, the father of assessee settled certain other shares upon trusts and the language of this second deed of trust, dated September 7, 1945. On the record of this case, these two deeds of settlement are referred to as 'Bombay Trust'. By a deed of settlement, dated December 30, 1945, the mother-in-law of the assessee settled upon certain trusts a sum of Rs. 3,88,931 and certain shares of the aggregate market value of Rs. 11,81,670. The assessee is one of the beneficiaries named in the deed of settlement executed by her mother-in-law. On the records of this case, this deed of settlement created by the mother-in-law is referred to as 'Ahmedabad Trust'.
The first three questions referred to us by the Tribunal arise out of the provisions of the Ahmedabad trust, so far as question No. 1 is concerned, and the two Bombay trusts so far as questions Nos. 2 and 3 are concerned. The fourth question relates to the value of jewellery and ornaments valued by the assessee at Rs. 80,030.
Regarding all these three deeds of settlement, the contention of the assessee before the Wealth-tax Officer was that the interest which she had under each of these three deeds of settlement was an annuity which was not computable and was, therefore, exempted under the provisions of section 2(e)(iv) of the Wealth-tax Act. As regards the ornaments and jewellery, the contention of the assessee before the Wealth-tax Officer was that these ornaments and articles of jewellery were articles of personal use and, therefore, the ornaments and jewellery valued by her at Rs. 80,030 were exempt under the provisions of section 5(1) (viii) of the Wealth-tax Act. The Wealth-tax Officer rejected all the contentions of the assessee. He held that the interest of the assessee in the two Bombay trusts and in the Ahmedabad trust was not entitled to exemption under section 2(e) (iv) of Act. and as regards the ornaments, he held that under section 5(1) (xv) of the Act as then in force, the assessee was entitled only to exemption up to the extent of Rs. 25,000; and he therefore, included the sum of Rs. 55,030 under the head 'Ornaments & Jewellery' in her total wealth. Against this decision of the Wealth-tax Officer, there was an appeal and the Appellate Assistant Commissioner rejected all the Commissioner held that the interest which the assessee had got under the two Bombay trusts and the Ahmedabad trust was not entitled to exemption under section 2(e) (iv) of the Wealth-tax Act; and as regards ornaments, he confirmed the decision of the Wealth-tax Officer. In the further appeals before the Tribunal, the same contentions were urged on behalf of the assessee as had been urged before the Wealth-tax Officer and the Appellate Assistant Commissioner. The Tribunal came to the conclusion that the interest of the assessee in the Ahmedabad trust was a right to an annuity, the terms and conditions relating to which precluded the commutation of any portion thereof into a lump sum grant and hence was entitled to exemption under second 2(e) (iv) of the Act. As regards the two the two Bombay trusts, the Tribunal came to the conclusion that under the different clauses of the two deeds of settlement pertaining to the two Bombay trusts, the assessee was entitled to withdraw from the trusts, at her own discretion after she attained majority and after she gave birth to one child, corpus to the extent of one-half of the entire corpus covered by each of these two Bombay trusts and to the extent of one-half therefore, communication was possible under the terms and conditions relating to her interest in the two Bombay trusts. The Tribunal, therefore, held that to the extent one-half under the two Bombay trusts, the assessee was not entitled to exemption under section 2(e) (iv) of the Act but was entitled to exemption as to the other half. As regards the claim in connection with the ornaments, the Tribunal rejected the contention of the assessee and confirmed the conclusions of the Wealth-tax Officer and the Appellate Assistant Commissioner and held that she was not entitled to exemption in respect of jewellery and ornaments to the extent of Rs. 55,030. We may mention at this stage that in question No. 4, as formulated by the Tribunal, there is a typographical error; and the exemption is claimed under section 5(1) (viii) not in respect of ornaments worth Rs. 55,003 but in respect of ornaments worth Rs. 55,030. Thereafter, at the instance of the Commissioner, the first three question have been referred to us by the Tribunal at the instance of the assessee.
Before the Tribunal at the time when the reference was made to the High Court, it was contended on behalf of the revenue, that question No. 4, which was formulated at the instance of the assessee could not be referred to the High Court in proceedings which arose out of an application of the revenue and that as the assessee herself had not filed any application under section 27(1) to have this particular question referred within the time laid down by section 27 (1) of the Wealth-tax Act, any reference at her instance had become time-barred and, therefore, the Tribunal should not refer this particular question to the High Court. However, relying on the decision of the Bombay High Court in Girdhardas & Co. Ltd. Commissioner of Income-tax the Tribunal held that it was open to the assessee to ask for a reference since this question arose out of the same order as that in respect of which the Commissioner was asking for a reference on questions Nos. 1 to 3. At the hearing of the reference before as us, the learned Advocate-General also raised a preliminary objection, but in view of the decision of the Bombay High Court in Girdhardas & Co.s case, which is binding on this High Court, the learned Advocate-General has not pressed that preliminary objection though he has not given it up.
In Income-tax Reference No. 23 of 1965, which we decided on July 10, 1967, the same question arose before us in a slightly different form; and there, following the decision of Chagla C.J. in Girdhardas & Co.s case, we held that even a losing party might ask for a reference on questions of law which arise from the same order of the Tribunal as that from which the other party had asked for a reference on some other questions of law, even though this particular losing party so asking has not field an application within the period of limitation prescribed under the Income-tax Act and satisfied the other conditions laid down by that section. In our decision in Income-tax Reference No. 23 of 1965, we have referred to an unreported decision of the Madhya Pradesh High Court and have observed that we are bound by the decision of the Bombay High Court in Girdhardas & Co.s case, which was delivered prior to the partition of the bilingual Bombay State and hence is binding on us. This preliminary objection therefore must be decided, in the light of the authorities as they stand against the Commissioner and in favour of the assessee and we hold that, where a losing party applies under section 27(1) of the Wealth-tax Act for a reference, the other party may also ask for a reference of other questions of law, which arise from the same order without filing an application for reference, within the period of limitation prescribed by section 27(1) and without satisfying the other conditions laid down by section 27 of the Act.
Coming now to the merits of the case, we first set out the relevant sections of the Wealth-tax Act, which require to be considered for the purpose of dealing with questions Nos. 1, 2 and 3. Section 3 of the Act provides thus :
'3. Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of April 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule.'
Section 2(m) of the Act provides as follows :
'2. (m) Net wealth means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than...
(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits or the Estate Duty Act, 1953 (34 of 1953), the Expenditure-tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958),...'
Under section 2(e) of the Act, 'assets' have been defined to include property of every description, movable or immovable; but certain categories of assets have been excluded under various clauses of section 2(e). Under clause (iv) of section 2(e), 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 grant is not to be included in the assets of the assessee. The main question which has been argued before us in this reference is whether the right which the assessee has got under each of the three trusts, viz., the two Bombay trusts an the Ahmedabad trusts, can be said to be an annuity. It is clear that only if her right under each of these three deeds of trust can be said to be an annuity that the further question would require consideration whether under the terms and conditions relating to her right under these different trust deeds, the commutation of any portion of this annuity into a lump sum grant is precluded. We will, therefore, first examine the provisions of the three deeds of trust under each of which the assessee has got a right to receive certain payments from year to year.
The first of the two Bombay trusts was executed on September 7, 1945. The trust deed was executed by the father of the assessee and her two brothers were appointed as the trustees of the deed of trust. By the deed of trust, shares described in the schedule to the deed of trust and of the estimated market value of Rs. 5,50,325 were settled upon trust. Under clause 3(a) of the trust deed, until the first day of January, 1948, the trustees, after deducting from the income of the said shares all costs and expenses incurred in or about the administration of the trust, were directed to pay the whole residue of the income of the trust fund to the two brothers of the assessee, Arvind and Yogendra in equal shares absolutely, at the end of every calendar year. Under clause 3(b) from and after the first day of January, 1948, the trustees were directed to pay the whole residue of such income after deducting all costs and expenses in the administration of the trust to the assessee during her life at the end of every calendar year and this residue was to be paid to her absolutely. Under clauses 3(c) and 3(d), provision was made by the settler for disposition of the corpus of the trust after the lifetime of the assessee and various eventualities which could possibly happen were provided for in these two clauses. Under clause 3(e), it has been provided that notwithstanding anything contained to the contrary in the deed of trust, after the assessee attained her majority and after the birth of the first child of the assessee, when and so often as might be required by the assessee, the trustees were to pay a part of the corpus of the trust fund, not exceeding on the whole one-half thereof, to the assessee; and this payment of the corpus was to be absolutely freed and discharged from the trusts and provisions of the trust deed. The rest of the clauses of this trust deed are not material for the purposes of this judgment.
Under the second Bombay trust, which was executed on October 12, 1945, the father of the assessee settled on trust certain other shares belonging to him; but the trustee under this second Bombay trust were the same as under the first deed of Bombay trust; and all the clauses of the second Bombay trust were identical with the clauses of the first Bombay trust deed. The only difference between the two Bombay trust deeds was that under the first Bombay trust deed, the shares settled on trust were of companies functioning in India and having registered offices in India; under the second Bombay trust deed, the shares were of companies registered and functioning in Uganda in East Africa. Clauses 3(a), 3(b) and 3(c) of the second Bombay trust deed were in exactly the same terms as the first Bombay trust deed and the disposition of the corpus of the trust fund after the lifetime of the assessee under clauses 3(c) and 3(d) of the second Bombay trust deed was also on the same lines as the first Bombay trust deed. It is, therefore, not necessary for us to set out in detail the provisions of the second Bombay trust deed.
By the Ahmedabad trust deed, which was executed on December 30, 1945, the mother-in-law of the assessee settled upon trust for the benefit of the assessee and other a sum of Rs. 3,28,931, and shares of the aggregate market value of Rs. 11,81,670. The husband of the assessee and her two brothers-in-law were the trustee under this trust deed. Under clause (a), this trust deed provides that the trustees should pay the income of the trust funds to the assessee during the assessees lifetime for her sole and separate use. The rest of the clauses of the Ahmedabad trust deed relate to the disposition of the trust fund to different beneficiaries after the lifetime of the assessee; and provision is made in these other clauses for all the different eventualities which might happen after the lifetime of the assessee. It is not necessary for the purposes of this judgment to refer to those other clauses of the Ahmedabad trust deed.
It is, therefore, clear that under the two Bombay trusts created by the father of the assessee and under another trust created by the mother-in-law of the assessee, the income of each of these trusts is to be paid to the assessee from the year to year by the trustees of these different trust deeds; and the question is whether her right to receive these incomes from these three different trusts is an annuity.
The Wealth-tax Act nowhere provides any definition of 'annuity' and we have, therefore, to find out the exact meaning of the word 'annuity' as known to law. In Halsburys Laws of England, third edition, volume 32, at page 529, paragraph 888, it is stated :
'The right created by an instrument (whether deed, will, codicil or statute) to receive a definite annual sum of money is an interest which may be either a rent charge or an annuity. If the annual sum is charged on and payable exclusively out of land, the interest is a rentcharge, but, if there is no charge or the annual sum is charged on personal property, not being leasehold land, or on a mixed fund, then the interest is an annuity.'
Again at page 534, paragraph 899 of the same volume, it has been stated :
'An annuity is a certain sum of money payable yearly either as a personal obligation of the grantor or out of property not consisting exclusively of land; it differs from a rentcharge in that a rentcharge issues out of land.'
At page 536, para 904, Halsbury has pointed out :
'At the present day there are three modes by which both rentcharges and annuities may be created, namely : (1) by deed; (2) by will; (3) by or under statutory powers.'
As pointed out by Halsbury in paragraph 946 at page 553 of the said volume :
'An annuity created by deed commences, unless otherwise expressed, from the execution of the deed. An annuity arising under a will commences prima facie from the death of the testator; but the will may direct a later commencement. An annuity may be (1) for the life of the annuitant, or (2) perpetual, or (3) for some period other than the life of the annuitant.'
In paragraph 960, at page 560, of the same volume, it has been stated :
'An annuity may be either (1) a charge on the corpus of property; (2) a continuing charge on income either unlimited or for the life of the annuitant or other the duration of the annuity; or (3) a charge on the income only of the year in respect of which it is payable.'
Similarly in Jarman On Wills, eighth edition, page 1113, second volume, 'annuity' has been defined thus :
'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; they may be given to a man and his heirs, and may go to the heir as real estate.'
The distinction which prevailed in English law between personal estate and real estate does not apply in India and, therefore, it is not necessary for us to consider the distinction between real estate and personal estate while considering the law as to annuities in India.
In Bignold v. Giles, Kindersley, V. C., has stated that the annuities were to endure till the death of the survivor, and the representative of a deceased annuitant was entitled till the death of the surviving annuitant. The definition which we have set out above from Halsbury has been set out by Kindersley, V. C.; and Halsbury cites this decision in support of the proposition and the report of the decision fully bears out that particular definition as set out in Halsbury.
In In re Duke of Norfolk : Public Trustee v. inland Revenue Commissioners the Court of Appeal in England have considered the meaning of the word 'annuity' and Evershed M. R. in his judgment at page 475 of the report has pointed out that a yearly sum, which even though variable, is in no way dependent upon or related to the general income of the estate may still be an annuity. Therefore, the concept of a 'sum-certain' as shown in the above definitions has, to a certain extent, been explained by showing that even though the amount receivable by the annuitant may be variable if it is in no way dependent upon the general income of the estate, it amounts to annuity. It is necessary for us to refer at some length to the fact of the case in In re Duke of Norfolk : Public Trustee v. Inland Revenue Commissioner in order to explain the exit observations made by Jenkins L. J. and Evershed M. R. By a will executed in 1904, a testator devised and appointed his freehold hereditaments to his trustees for the term of 1,000 year and declared trusts thereof (inter alia), out of the rents and profits to pay any annuity bequeathed by him. By clause 24 of the will, he declared that any annuity should be deemed to be bequeathed clear of all death duties payable in respect thereof and that such duties should be paid out of his residuary personal estate. By clause 3 of the first codicil, executed in 1908, the testator gave to his trustees an annuity of Pounds 3,000, which was reduced by a second codicil to Pounds 2,000, to commence from the day of his death and to continue payable during the joint lives of his brother Edmund Bernard and his son and the life of the survivor of them and to be paid to his brother during his lifetime and after his death to his son. After the death of the brother in 1947, the question arose under the English Estate Duty Act, regarding the slice of capital required to produce the annuity on the footing that as annuitant the late brother had an interest on the capital charged with the annuity and that cesser of that interest gave rise to a benefit taxable under the law of England. At page 475 of the report, Evershed M. R. has pointed out as follows :
'To the first ground of criticism colour is undoubtedly lent by certain observations, first, of Maugham J. in In re Northcliffe and second of Lord Russell himself as a member of the House of Lords in Christie v. Lord Advocate. Both the two last-mentioned cases were instances of dispositions of aliquot shares of the general income of an estate to be enjoyed in succession, as distinct from an annuity or yearly sum, which, even though variable (as in the case of In re Cassel) is in no way dependent upon or related to the general income of the estate; and they constitute authority for the proposition that on the death of the first taker of the aliquot share of income there is a passing within section 1 of the Act of a like share of the corpus. But they are, in my judgment and for reasons which I will later give, no authority for the view that on the death of the first taker of continuing annuity there is a passing of any part of the corpus of the property out of which the annuity is raised or on which it may be charged.'
It was while considering the different English decisions on the point that Evershed M. R. observed, as pointed out above, that an annuity or a yearly sum may be variable but it can be an annuity if it is in no way dependent upon or related to the general income of the estate. Jenkins L. J. at page 488 of the report has observed :
'An annuity charged on property is not, nor is it in any way equivalent to, an interest in a proportion of the capital of the property charged sufficient to produce its yearly amount. It is nothing more or less than a right to receive the stipulated yearly sum out of the income of the whole of the property charged (and in many cases out of the capital in the event of a deficiency of income). It confers no interest in any particular part of the property charged, but simply a security extending over the whole. The annuitant is entitled to receive no less and no more than the stipulated sum. He neither gains by a rise nor loses by a fall in the amount of income produced by the property, except in so far as there may be a deficiency of income in a case in which recourse to capital is excluded.
On the other hand, a life interest in a share of the income of property is equivalent to, and indeed constitutes, a life interest in the share of the capital corresponding to the share of income. The life tenant enjoys the share of income whatever it may amount to and his interest, viewed as a life interest in capital, consists of a constant proportion of the whole property, whether the income is great or small and whether the capital value of the property rises or falls.'
In Public Trustee v. Inland Revenue Commissioner the House of Lords considered the decision of the Court of Appeal in In re Duke of Norfolk and at page 415 of the report, Viscount Simonds dealt with another aspect of the matter and it is clear that as regards the point with which we are concerned, no change has been made so far as the distinction drawn in In re Duke of Norfolk between a life interest and an annuity is concerned.
In In re Cassel : Public Trustees v. Mountbatten Russell J. was dealing with the following facts : The testator bequeathed 'Brook House and contents' and the stables held therewith, the leases of which would expire in 1995, to trustees upon trust to allow Mrs. C. to have the use and enjoyment thereof for life, and after her death upon the like trust for the benefit of Lady L for life. The testator directed : 'the rent outgoings, rates and taxes for the time being payable in respect of the said message and premises and keeping the same and the contents thereof insured against fire and burglary and in a proper state of preservation shall always be paid by my trustees out of the income of my residuary personal estate.' Mrs. C., the first tenant for life of Brook House, did on September 16, 1925, and was succeeded as tenant for life by Lady L. The question then arose as to how the annual expenditure on Brook House should be borne as between Lady L and the testators residuary estate, and how assessed; and it was under these circumstances that the question whether the interest received by Mrs. C during her lifetime was an annuity arose for consideration. At page 280 of the report, Russell J. has observed :
'In substance, the trustees are bound for a period of time to apply an annual sum of varying amount for the benefit of the person for the time being entitled under the will to the enjoyment of Brook House and contents. What passes is the right to enjoy the benefit of that annual sum. That is, the property which passed on the death of Mrs. Cases.'
It was in the light of this decision in In re Cassel that Evershed M. R stated in In re Duke of Norfolk that an annuity may be variable but must be in no way dependent upon or related to the general income of the estate.
In Shaw v. Public Trustee the House of Lords was dealing with the construction of a will and in the context of the words used in that will, the question arose as to what was the meaning of the words 'annuity' used in that particular clause of the will. There the testator by his will gave his residuary estate to the executors therein named on trusts out of the rents and profit thereof to pay W. C. F. one annuity of Pounds 100 during his life and to pay to his son one annuity or yearly sum of Pounds 150 during his life and to pay the residue of such rents and profits to his wife during her widowhood and 'on the cesser or falling in of any of the said annuities to stand possessed of the corpus of my said trust estate sufficient to answer or provide for the payment of every such annuity so ceasing or falling in as aforesaid' upon trust for such person or persons and for such purposes as his son should appoint and in default of such appointment upon trust for the child or children of his son, and if there should be no children of his son upon trust for his three brothers equally and it was held by the House of Lords that the expressions 'any of the said annuities' and 'every such annuity' included not only the annuities to W. C. F. and to the son, but also the widows life interest in the residue of the rents and profits; and it has been made clear that it was in the context of expressions used in the will that the expressions 'any of the said annuities' and 'every such annuity' included not only the annuities to W. C. F. and to the son, but also in Shaw v. Public Trustee cannot, therefore, be said to be an authority for the proposition that there is no distinction between an annuity and a life interest and that the two are interchangeable. It is not possible for us to hold on the strength of this decision that the life interest in income from any property would be an annuity as the amount is ascertainable as of a particular moment of time.
The observations of Evershed M. R. in In re Duke of Nor folk and other English decisions were considered by the Calcutta High Court in Ahmed G. H. Ariff v. Commissioner of Wealth-tax. There the question was whether the right of an assessee to receive under a wakf an aliquot share of the net income of the wakf was an annuity and was, therefore, capable of being excluded from the operation of the Act by reason of section 2(e) (iv) of the Act; and it was held that it could not be excluded under section 2(e) (iv) and it was an asset within the meaning of the Act. At page 236 of the report, Mitter J. observed :
'That there is a clear distinction between an aliquot share of income and an annuity is illustrated by the observations of the Court of Appeal in England in the case of In re Duke of Norfolk public Trustee v. Inland Revenue Commissioners where a question arose in respect of estate duty payable in the case of grant of an annuity to A and after his death to B.'
Then the above-quoted passage from the said decision of Evershed M. R. has been set out. Thus these different decisions which we have referred to above have been followed in India while considering the question as to what is the meaning to be attached to the words 'annuity'.
Ordinarily, as shown by illustrations to section 173 of the Indian Succession Act, an annuity indicates a specified sum but in the light of the decision in In re Cassel and as pointed out by Evershed M. R. in In re Duke of Norfolk, even though the sum may not be absolutely fixed and may be variable from year to year, if the variation in the amount to be received is in no way dependent upon or related to the general income of the estate, it can still be designated as an annuity and be dealt with on that footing. The distinction, therefore, between a life interest and an annuity exactly lies on this test of dependence or relation to the general income of the estate. Freedom from variation or absolute fixity is not the sole test though generally annuities are absolutely fixed sums of money and not capable of variation.
In Arnold v. Arnold, the testator desired that A, B and C might each enjoy, during life, the interest of Pounds 800 sterling, the principal to devolve eventually to his residuary legatees. He directed the residue of his property to be divided into three equal parts, one part to each of his brothers and his sister; and if his brothers and sister should not survive him, or have legal proportions to the survivors, as well as the shares that might have been devised to their issue. The testators estate was not sufficient to pay the legacies in full; and it was held that upon the death of one of the tenants for life, an apportionment of the legacy of Pounds 800, set apart to answer her life interest, fell into the residue, and was not given over to the residuary legatees in their individual character; and that the surviving tenants for life were entitled to have the deficiencies in their annuities satisfied out of the released fund. It is true that in the judgment, reference has been made to the amounts payable to the three legatees A, B and C as annuities and the question was that as the estate was insufficient to pay the legacies in full, how the administration of this particular legacy pertaining to Pounds 800 should be carried out. This decision is of no help in finding out as to what is the exact meaning of the words 'annuity'.
In In re Richardson : Richardson v. Richardson, the facts were similar to the facts in Arnold v. Arnold, and in that case the testator (after giving pecuniary legacies which had priority and were provided for) gave the residue of his property upon trust to pay the income of eight specified sums to eight persons respectively for life, each capital sum on the death of each of eight persons respectively for life, each capital sum on the death of each of four of the legatees to fall into the ultimate residue, the other four sums being settled. The estate was insufficient to provide the eight sums; and it was held on the authority of Arnold v. Arnold that the four legatees, the capital of whose legacies was it their respective deaths to fall into residue, ought to the treated as annuitants in accordance with the rule in In re Cottrell, their annuities and the other four legacies ought to be put on a live and abate retable and that, accordingly, the annuities must be valued as at year from the testators death and the four amounts so ascertained must be tested as pecuniary legacies, and each of those amount and of the other four legacies must bear its rateable proportion of the total abatement. Thus, this decision lays down that when an income of a definite sum of money has been given by way of life interest to any particular individual and the entire estate is insufficient to pay off the legacies, there is an ademption, the life tenant is to be treated as an annuitant; but this is far from saying that such a life tenet is in effect an annuitant.
In In re Ellis : Nettleton v. Crimmins, J. followed the decision of Eve J. in In re Richardson and held that, where the estate of a testator proved insufficient to meet all the pecuniary legacies and also to provide for the two funds out of which certain life tenets were to be provided for, the legatees entitled to life interests in the two funds were treated as annuitants. This decision in In re Ellis is again no guide for the meaning of the word 'annuitants'.
In our opinion, therefore, the true distinction between a life interest and an annuity depends upon the determination of the question whether the amount receivably by the beneficiaries is dependent upon or related to the general income of the estate. An annuity as well as a life-interest may vary from year to year but whereas in the case of a life-interest variation is dependent upon or related to the variation in the general income of the estate, in the case of an annuity the variation does not depend upon, nor is related to the variation in the general income of the estate. Mr. Kaji is right when he contends that absolute fixity in the amount receivable by the beneficiary is or is not an annuity; but at the same time it is equally clear, as pointed out by Jenkins L. J., in In re Duke of Norfolk, the annuitant neither gains by a rise nor loses by a fall in the amount of the income, in a case in which resource to capital is excluded. On the other hand, so far as the life tenant is concerned, the life tenant stands to gain by a rise or lose by a fall in the amount of the income produced by the property; and thus, what he gets is dependent upon and related to the general income of the estate.
In the instant case, what has been given to the assessee under each of the three deeds of trust is the entire income of each of the three trusts. So far as the two Bombay trusts are concerned, the costs and expenses incurred by the trustees in connection with the administration of the trusts are to be deducted from the total income and the whole residue is to be handed over from year to year. Same is the position under the Ahmedabad trust. It is, therefore, clear that the income of the assessee from each of these trust deeds is solely dependent upon and related to the general income of the estate under each of the three trust deeds. It is not as if the income from any one of these three trust deeds were at all a fixed sum and the amount of variation were the amount of the deduction by way of costs, charges and expenses payable in connection with the administration of the trust. Whatever the variation in the income, the variation itself arises because the income is nothing else but the net income of the estate and is dependent upon and related to the general income of the trust. Under these circumstances, it is clear that the interest of the assessee under the two Bombay trusts and under the Ahmedabad trust is a life interest in each of the three cases and cannot be designated an annuity. Under these circumstances, it is clear that her interest in each of the three trusts is not a right to an annuity at all. Therefore, the further question whether under the terms and conditions relating thereto, the commutation of any portion of the annuity into lump sum grant has or has not been prescribed does not arise for consideration. Therefore, the right to receive the income in each of the three trust deeds cannot be excluded in the computation of the assets of the assessee. In the light of this conclusion of ours, it is not necessary for us to consider whether under clause (3) (e) in each of the two Bombay trusts, the commutation of a part of the annuity is or is not possible for the assessee; and we do not express any opinion on that aspect of the case.
The question which arose for the decision of this High Court in Commissioner of Wealth-tax v. Dr. E. D. Anklesaria, does not arise for consideration in the case before us. In that particular cases, on the facts it was clear that the amount receivable by the beneficiary was an annuity as a fixed sum payable from year to year had been provided for; and the main question before the High Court was whether, under the terms and conditions of that particular trust deed, commutation was or was not possible. The question before us is whether the right or interest of the assessee is an annuity at all; and our conclusion is that her interest is not an annuity at all.
So far as question No. 4 is concerned, we have to consider the provisions of section 5 of that Act. That section provides :
'5. (1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee.....
(viii) furniture, household utensils, wearing apparel, provisions and other articles intended for the personal or household use of the assessee;......
(xii) any works of art, archaeological, scientific or art collections, books or manuscripts belonging to the assessee and not intended for sale;
(xiii) any drawings, paintings, photographs, prints and any other heirloom not falling within clause (xii) and not intended for sale, but not including jewellery;
(xiv) jewellery in the possession of any Ruler, not being his personal property, which has been recognised before the commencement of this Act by the Central Government as his heirloom or, where no such recognition exists, which the Board may, subject to any rules that may be made by the Central Government in this behalf, recognise as his heirloom at the time of his first assessment to wealth-tax under this Act;...'
At the relevant time there was one more clause, viz., clause (xv) in sub-section (1) of section 5 of the Act. That clause has been deleted with effect from April 1, 1963, by appropriate legislation in that behalf. Clause (xv) was in these terms :
'(xv) jewellery belonging to the assessee, subject to a maximum of twenty-five thousand rupees in value;...'
It was contended on behalf of the department before us that what the assessee claims in the instant case is exemption in respect of the articles shown in the list furnished by the assessee, viz, jewellery and ornaments, and, therefore, the only clause which can be applied in the instant case is clause (xv) of section 5(1) and, therefore, the Tribunal has rightly exempted jewellery and ornaments to the extent of Rs. 25,000 and brought to charge the assets worth Rs. 55,030, under the head 'Jewellery & ornaments' in excess of Rs. 25,000.
In our opinion, under the scheme of section 5, if any particular asset or assets of the assessee fall within any one of the different clause of section 5(1), such asset or assets must not be included in the net wealth of the assessee. Under clause (xv) section 5(1), the jewellery belonging to the assessee up to the maximum limit of Rs. 25,000 is not to be included in the net wealth of the assessee; and thus, under that clause, the only test which is required to be considered is the test of ownership. Under clause (viii), the test to be considered is whether the articles in respect of which exemption is claimed are intended for the personal use of the assessee. Since section 5 is providing for exemption from liability to tax, if the assessee is in a position to point out that his case falls within any particular clause, the fact that under another clause the exemption can be claimed only up to a particular amount in respect of the same property cannot be held against the assessee. In clause (xiii), where the legislature has provided for drawings, paintings, photographs, prints and any other heirloom not falling within clause (xii) and not intended for sale, it has specifically excluded jewellery from such articles. No such exemption in respect of jewellery is to be found so far as clause (viii) is concerned; and all articles intended for the personal use of the assessee can be exempted under clause (viii).
The learned Advocate-General is right when he contends that jewellery in the case of rulers has been specifically provided for in clause (xiv). It is possible that an assessee may be the owner of jewellery, which cannot be described as an article of personal use. If an assessee is the owner of any jewellery and such jewellery cannot be described as an article intended for the personal use of the assessee, that jewellery must fall within clause (xv); and exemption to the extent of Rs. 25,000 only will apply in the case of such jewellery. But the question is whether, if there are articles of ornaments or jewellery which can be described as articles intended for the personal use of the assessee, they will or will not fall within clause (viii).
In G. S. Poddar v. Commissioner of Wealth-tax, clause (viii) of section 5(1) of the Act came up for consideration before the Bombay High Court. It was held by the Bombay High Court that the expression 'intended for the personal or household use' in section 5(1) (viii) means articles which are normally of common and ordinary personal household use of the assessee according to the ordinary ideas, habits, customs and notions of the class of society to which he belongs or according to the well-established habits, customs and traditions of his family. The mere possibility of articles being put to personal use would not be sufficient to treat them as intended for personal or household use. The question whether the articles are intended for personal or household use. The question whether the articles are intended for personal or household use must be considered with reference to fact as they exist at the time when the question has to be determined. In that particular case before the Bombay High Court, an exemption was claimed under section 5(1) (viii) in respect of the value of certain gold utensils like cups, saucers, trays, etc., and it was found, as a matter of fact, that the articles were kept in a show-case in the drawing-room of the assessee; and the High Court held that, as the articles though having shapes of household articles were neither regarded as household utensils by the assessee nor used or intended to be used as such, the assessee was not entitled to the exemption under section 5(1) (viii). In that case, the assessee was connected with the business in cloth manufactured by the textile mills under the management of Messrs. Tata Sons Ltd. In 1945, the assessee was appointed a Justice of the Peace, and the occasion was celebrated by the dealers and brokers in cloth manufactured by the mills, with whose business the assessee was connected, and on to the occasion of that celebration, these articles were presented to the assessee as souvenirs. Even since that time, the assessee kept these articles in a glass show-case for display in his drawing-room. It was clear, therefore, that these articles could never be said to be intended for the personal use of the assessee. Whenever a question arises as to whether any particular article is intended for the personal use of the assessee, the authority deciding this question of fact has to bear in mind the ordinary notions, habits, custom of the class and society to which the assessee belongs and also to the habits, custom, traditions and notions of the family of the assessee. If in the light of all these factors, it can be said that a particular article is an articles intended for personal use, then only the question of application of section 5(1) (vii) will arise.
It was contended on behalf of the revenue by the learned Advocate-General that in construing section 5(1) (viii), the principal of words of rank should be applied. In this connection, reliance has been placed on Craies on Statute Law, sixth edition, page 176, where Craies has pointed out that the Cardinal principal is that words of limitation are not to be read into a statute if it can be avoided. But in some cases limitation may be put on the construction of the vide words of the statute. It is on this principle of limitation that the principle of ejusdem generis has been evolved by different decisions in England and in India. At page 181, Craies has pointed out :
'The ejusdem generis rule is one to be applied with caution and not pushed too far, as in the case of many decision, which treat it as automatically applicable, and not as being, what it is, a mere presumption, in the absence of other indication of the intention of the legislature. The modern tendency of the law, it was said is, to attenuate the application of the rule of ejusdem generis. To invoke the application of the ejusdem generis rule, there must be a distinct genus or category. The specific words must apply not to different objects of a widely differing character but to something which can be called a class or kind of objects. Where this is lacking, the rule cannot apply.'
At page 182, it has been stated :
'In accordance with the principle of construction, it has always been held that general words following particular words will not include any thing of a class superior to that to which the particular words belong. This was pointed out by Coke in Archbishop of Canterburys case where he says as to 31 Hon. 8, c. 13, which discharged from payment of tithes all lands which came to the Crown by dissolution, renouncing, relinquishing, forfeiture, giving up, or by any other means, that this statute only discharged from tithes lands which came to the Crown by these or by any other inferior means, but did not discharge from tithes land which came to the Crown by virtue of an Act of Parliament, which is the highest manner of conveyance that can be. And in commenting upon the Statute of Westminster II, Coke says : Seeing this Act being with abbots and concludeth with other religious houses, bishop are not comprehended within this Act, for they are superior to abbots, and these words other religious houses shall extend to houses inferior to them that were mentioned before.'
Then Craies has cited case of Cashier v. Holmes. In that case, the court was concerned with an Act for keeping in repair a harbour, imposing certain duties enumerated in a schedule annexed, on goods exported and imported. In the schedule, under the head 'metals', certain specified duties were imposed on copper, brass, pewter, and tin; and on all other metals not enumerated, for every $ 10 value 10 d. and it was held that the words 'all other metals' did not include gold and silver; and therefore, the Commissioner were not entitled to demand for specie or bullion, 10 d. for every $ 10 value. Lord Tenterden C.J. has stated :
'I think the words all other metals in this Act of Parliament must be understood in their ordinary and popular sense; and in that sense they certainly do not include gold and silver. They are never spoken of in popular language as metals, but as the precious metals.'
Littledale J. observed :
'Undoubtedly, gold and silver are, strictly speaking, metals; but as articles of commerce, they never so spoken of as metals, but are described by name, or as the precious metal. The question is whether they are included under the word metals in the Schedule of this Act of Parliament.....
I have no doubt that those words do not include gold and silver, but refer to metals ejusdem generis with others previously mentioned under the head metal and the metals ejusdem generis, and not already enumerated, can only be compound metals and what were formerly called semi-metals.'
Parke J. observed :
'The word metals, taken in its ordinary sense, does not include the precious metals, and I am of opinion that that word must be understood in its ordinary sense in the schedule of this Act of Parliament. And, accordings to the rule which has been referred to, I think the general words following the particular enumeration in the Schedule, must be taken here as referring to an inferior class of metals such as bell-metal, Queens metal, & c.'
Thus the decision in Cashers case, which has been cited by Craies really proceeded upon the popular meaning of the words 'other metals' and not on the principle of any distinction on the ground of rank of articles.
In In re Whitby : Public Trustee v. Whitby, the Court of Appeal in England was concerned with the distinction of 'personal chattels' in section 55 (1) (x) of the Administration of Estates Act, 1925. In that case, a testator by a first codicil of 1939 made a bequest to E. R. of 'all the residue of my personal chattels as defined by section 55, sub-section 1(x) of the Administration of Estates Act, 1925.' By a fourth codicil of 1940, he excluded from this bequest 'all articles of jewellery and other chattels and effects... which are now deposited for safe custody', at a named safe deposit; and it was held by the Court of Appeal in England that the owed 'jewellery' in the definition of 'personal chattels' in the Act of 1925 included cut, but unmounted diamonds belonging to the testator and that the chattels excluded from the gift in the first codicil were those deposited at the safe deposit at the date of the fourth codicil and not hose deposited there at the date of the testators death (certain additions having been made after June 13, 1940), the words used being sufficient to show a 'country intention' within the meaning of section 24 of the Wills Act. Lord Greene M. R. observed at page 213 of the report as follows :
'The definition of jewellery in the Shorter Oxford Dictionary - and for present purposes the definition in the larger dictionary is the same - is as follows : Jewellers work, gems or ornaments made or sold by jewellers; jewels collectively or as a form of adornment. From that definition it seems to me clear that in the ordinary use of English language the word jewellery would cover jewels collectively and gems sold by jewellers just as it covers any justification in this case for excluding from the meaning of the words that of jewels collectively or gems sold by jewellers. The word is wide enough to cover those things, and I see no justification for cutting it down. If the contrary view were taken, some curious results might follow, because a man might, as hobby, collect cut stones and make some of them up into articles of adornment. Would the question what stones passed by gift of jewellery in his will depend on his having made them up into a brooch or bracelet it seems to me that that would be to introduce a quite irrational distinction.'
On the strength of this decision, and particularly in view of the fact that under section 55 (1) (x) of the English Statute, the words 'personal chattels' included not merely articles of personal adornment but also articles of personal use, it was contended by the learned Advocate-General that in the instant case also jewellery and ornaments set out by the assessee in the annexure to the return must be considered to be jewellery falling within section 5(1) (xv) and not as articles of personal use. He contended that jewellery is an article of personal adornment and not an article of personal use. Adornment and use are distinct things.
These are the two different contentions, one on the principle of interpretation of statutes set out in Craies; and the other regarding the meaning of the word 'jewellery', which have been urged on behalf of the revenue.
As regards the contention based on the principle set out by Craies, so far as clause before us is concerned, it is difficult for us to find out any rank, considering the rank from any point of view in which furniture, household utensils, wearing apparel, provisions and other articles specifically enumerated in that class can possibly fall. Furniture may be worth lakhs of rupees. Similarly, wearing apparel, in the case of a very rich person, may, in the aggregate be worth a very large sum of money; but still they are excluded; and merely because jewellery and ornaments are per se things of excluded; and merely because jewellery and ornaments are per se things of value, it cannot be said that on the principle of construction, all (sic) articles of rank set out in Craies on Statute Law at page 182, 'other articles intended for personal use' must not be in value more than furniture, housed utensils, wearing apparel or provisions. There is no rank in the instant case in which the four different things specially enumerated can possibly fall. Moreover, in the case of each assessee, depending upon his personal status, class of society, habits, customs, notions, usages, etc., the category of articles intended for personal use will have to decided; but simply because some articles which can be described as jewellery and ornaments, are valuable articles and are per se things of value, it cannot be said to be excluded purely on the ground of interpretation of statute from the category of article intended for personal use of the assessee. We must emphasize that the legislature has used the words 'intended for the personal use of the assessee' and not 'the articles of personal use of the assessee'. Therefore, the intention to use the article in question for the personal use of the assessee must govern the exemption under section 5(1) (viii) of the Act.
So far as the dictionary definition is concerned, even according to the dictionary meaning, 'jewellery and ornaments' though they can be collectively described as 'jewellery', can, if they fall within section 5(1) (viii), be excluded and are not necessarily governed by clause 5(1)(xv) of the Act.
In our opinion, the decision in In re Whitby cannot be of any assistance to us in deciding the particular question before us and we must decide the matter the interpreting the stature, looking at the different clauses in section 5(1) of the Act. Reading the provisions of section 5(1) (viii) and 5(1) (xv) together, it is clear that if any particular jewellery or ornament can fall within the description of the articles intended for the personal use of the assessee, then exemption can be claimed in respect of such jewellery and ornament under section 5(1) (viii); if on the other hand, jewellery and ornaments cannot be so described; e.g., if a male assessee is the owner of certain ornaments used by females, it cannot be said that this jewellery or ornament was an article intended for the personal use of the assessee and, in that case, the particular jewellery would fall to be governed by section 5(1) (xv) of the Act. The principle of ejusdem generis, which appealed to the 5(1) (xv) of the Act. The principle of ejusdem generis, which appealed to the Tribunal while interpreting section 5(1) (viii), has no applicability to this case.
In the light this discussion, we answer the questions referred to us as follows :
Question No. 1 : In the negative and against the assessee.
Question No. 2 : In the negative and against the assessee.
Question No. 3 : In the affirmative and against the assessee.
Question No. 4 : In the affirmative, so far as those ornaments and jewellery, which are articles intended for the personal use of the assessee are concerned. The exemption would apply to all articles of jewellery and ornaments irrespective of the limit of Rs. 25,000.
Each party to bear its own costs.