Income Tax Appellate Tribunal - Delhi
Wealth-Tax Officer vs S.D. Nargolwala on 18 February, 1983
Equivalent citations: [1983]5ITD690(DELHI)
ORDER
O.P. Garg, Judicial Member
1. This appeal has been preferred by the revenue against the order, dated 7-1-1981, of the AAC.
2. 1978-79 is the assessment year concerned. 31-3-1978 is the corresponding valuation date. The assessee is an individual. The assessment was completed by the WTO as per order dated 14-12-1978, determining net wealth at Rs. 11,13,700 as rounded off, as against declared net wealth of Rs. 10,71,300.
3. The said assessment order came to be slightly amended by the WTO under Section 35 of the Wealth-tax Act, 1957 ('the Act'), as per order dated 31-1-1979 and, consequently, assessed net wealth came to be reduced to Rs. 10,95,000 as rounded off. The said amendment order held that as on 31-3-1978, the assessee did not have two cars, but he had only one car and that the written down value thereof was Rs. 28,004. Thus, the value of professional assets came to be reduced by the said amendment from Rs. 59,207 as in the original assessment, to Rs. 40,084.
4. In the computation of the assessee's net wealth, the WTO included, inter alia : (i) Rs. 28,004 as the market value of car despite the assessee's claim that the same being below Rs. 30,000 was exempt from tax under Section 5(1)(viii) or was in the alternative exempt under Section 5(1)(x) of the Act (subject to Rs. 20,000 ceiling) and (ii) Rs. 11,840 as being an amount standing as balance deposit in the assessee's name in his Compulsory Deposit Scheme ('CDS') account (despite the assessee's claim as to its non-taxability).
5. In appeal to the AAC, the assessee successfully challenged the WTO's finding as to includibility of the said two items in the assessee's net wealth.
6. The revenue came in appeal to the Tribunal. The Tribunal as per common order dated 27-3-1982 (relating to three assessment years) allowed the revenue's appeal for the assessment year 1978-79 as respects both the said wealth items.
7. The said order dated 27-3-1982 of the Tribunal came to be later recalled on 23-9-1982 under Section 35(1)(e) in its entirety on the assessee's miscellaneous application dated 10-7-1982.
8. The revenue's appeal was, consequently, heard afresh. Under the provisions of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 ('the CDS Act'), the assessee had been from year to year depositing certain amounts by way of compulsory deposits. Accordingly during the financial year 1977-78 the assessee freshly deposited on 1-3-1978 a sum of Rs. 11,840. The WTO held the said fresh deposit to be the assessee's asset of the nature of a deposit with a banking company covered by the Banking Regulation Act, 1949, but he declined to grant benefit of exemption under Section 5(1)(xxvi) (presumably) on the reasoning that the said fresh deposit had been owned by the assessee up to the valuation date 31-3-1978 for a period of less than 6 months and that, therefore, the bar in Section 5(3)b), came in the way of benefit of exemption.
9. Actually as up to 31-3-4978 the assessee had made following deposits in the CDS account :
Rs.
15-3-1975 3,500
13-3-1976 4,500
23-2-1977 9,893
1-3-1978 11,840
_________
29,733
__________
On the other hand, the assessee had received payment of Rs. 700 on 18-5-1977 out of the said deposits by way of repayment of one-fifth of initial deposit dated 15-3-1975 (of Rs. 3,500) and the assessee had received further payment of Rs. 700 on 18-5-1977 itself by way of interest due on the said initial deposit of Rs. 3,500 for the period of two years from 1-4-1975 to 31-3-1977. Above picture would show that if the balance standing to the credit of the assessee out of the deposits made by him is to be found, irrespective of element of interest, that balance as on 31-3-1978 stood at Rs. 29,033.
10. The learned departmental representative urged that the impugned amount of Rs. 11,840 stood to the assessee's credit in his CDS account in the branch of the State Bank of India and that, hence, it could not be said that the assessee had no right whatsoever in respect of that amount. The departmental representative submitted that the fact that the assessee was not free to operate the said bank account and to withdraw the said amount or any portion thereof at his will, did not take away the assessee's right completely and that at best it deferred to later dates the assessee's right to be repaid that amount by the bank together with interest. We see force in said contention of the revenue and agree that it would be wrong to take the view that the assessee had no right whatsoever as respects the impugned amount or as respects the four deposits made by the assessee, as detailed hereinabove. Material portion of the definition of the term 'assets' as contained in Section 2(e)(2)(ii) of the Act runs as under :
2. In this Act, unless the context otherwise requires,-
** ** ** **
(e) 'assets' includes property of every description, movable or immovable, but does not include,-
** ** ** ** (2) in relation to the assessment year commencing on the 1 st day of April, 1970, or any subsequent assessment year-
(i) ** ** ** **
(ii) a right to any annuity (not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee) in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant;
11. The opening portion of the definition of the term 'assets' being widely worded, is held to include the assessee's right as available under Section 8 of the CDS Act in respect of four deposits detailed hereinabove. Said Section 8 of the CDS Act runs as under :
Repayment of compulsory deposit.-(1) The amount of compulsory deposit made by or recovered from a depositor in any financial year shall be repayable in five equal annual instalments commencing from the expiry of two years from the end of that financial year, together with the interest due on the whole or, as the case may be, part of the amount of the compulsory deposit which has remained unpaid :
Provided that nothing in this section shall prevent earlier repayment of the deposit or any instalment thereof together with the interest due in any case in which the Income-tax Officer is satisfied that extreme hardship will be caused unless such repayment is made.
12. The decision as to the includibility of the said right of the assessee under said Section 8 in respect of the deposit of Rs. 11,840, as well as the inclusion of all the four deposits, in the opening portion of the definition of 'assets' does not bring an end to the controversy between the parties. The point is that text of Section 2(e)(2), in relation to the assessment year under consideration, contains three exceptions in items (i) to (iii) and the assessee's alternative contention is that even if the assessee's right under Section 8, as aforesaid, is held to be a property, the same has to be excluded from the definition of 'assets', inasmuch as that right is a right to an annuity in a case where terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant.
13. Whereas the revenue contests the said contention of the assessee regarding the assessee's right under Section 8, being a right to an annuity, as aforesaid, the revenue further contends that even if the said right of the assessee under Section 8 of the CDS Act is held to be a right to annuity, as aforesaid, it would constitute an asset as defined in Section 2(e)(2) of the Act, all the same, inasmuch as the annuity in question has been purchased by the assessee as contemplated in the portion within the parenthesis in item (ii) of Section 2(e)(2) as reproduced above.
14. We first proceed to determine whether the assessee's right under Section 8, is a right to an annuity and in any case not permitting of commutation of any portion of the annuity into a lump sum grant. At this stage, it is made clear that in respect of the four deposits detailed hereinabove, the assessee had, according to his line of argument, rights to four annuities each right separately related to each of the four deposits.
15. By way of instance the assessee submitted that a reading of Section 8, would show that as regards the initial deposit of Rs. 3,500 made on 15-3-1975, the assessee immediately acquired a right to a deferred annuity commencing from 1-4-1977 ; that the annuity was a capital-cwm-income annuity, inasmuch as under the said Section 8, the assessee acquired a composite right to receive on 1-4-1977 one-fifth of Rs. 3,500 plus interest on Rs. 3,500 for two years at specified rate. The assessee also referred to CWT v. P.K. Banerjee [1980] 125 ITR 641 (SC) and submitted that the said right under Section 8, satisfied all the ingredients as spelt out by the Supreme Court in the said ruling.
16. At this stage it is to be noted that the present case is not one of usual annuity where there exists a trust fund to which a settlor annexes legal obligation. This case involves the determination of the character of certain rights accruing to an assessee, who under the provisions of a certain statute, namely, the CDS Act and in compliance of his statutory obligation under that Act made deposits in the bank as contemplated thereunder.
17. In the Supreme Court ruling in P.K. Banerjee's case (supra) the core proposition is :
...In order to constitute an 'annuity' the payment to be made periodically should be a fixed or predetermined one and it should not be liable to variation depending upon or on any ground relating to the general income of the fund or estate which was charged for such payment.... (p. 642) Our attention was also drawn to the definition of the term 'annuity' as it exists in Vol. II, 7th edition of Kanga and Palkhivala's commentary on Income-tax, in Rule XIX(2) of the agreement for Avoidance of Double Taxation between India and Belgium. The said definition runs as under:
(2) The term 'annuity' means a stated sum payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth. (p. 988)
18. In the present case in the light of the facts brought out hereinabove, we have no hesitation in holding that payment of a fixed or predetermined sum was to be made periodically. Secondly, such payment was not liable to variation depending upon the general income of the fund charged with such payment. We would elucidate that the fund charged with the periodical payment under consideration was the Consolidated Fund of India and that general income of that fund had nothing to do with the quantum of payment in question. Thus, the tests laid down by the Supreme Court in P.K. Banerjee's case (supra) has been satisfied.
19. Though the definition of theterm 'annuity' in India-Belgium Agreement is not directly attracted for application, we hold that even in the light of that definition the assessee's right to periodical payment under Section 8 constitutes an annuity.
20. As regards the question of commutability of the annuity or any portion thereof into a lump sum grant, the learned departmental representative referred us to the provisions of the proviso to Section 8. That section is already set out in para 11 above.
21. Proviso to Section 8 contemplates cases of extreme hardships. Extreme hardships, as the assessee rightly contends, is worse than genuine hardships. As regards the proviso to Section 280D of the Income-tax Act, 1961 ('the 1961 Act'), where the expression 'genuine hardship' is used, the Board of Direct Taxes has in its Circular No. 3(WT) of 1968 dated 27-7-1968, as noted at page 194, Vol. I, 5th edition of Sampath Iyengar on Three New Taxes, laid down that the annuities receivable under the Annuity Deposit Scheme are generally non-commutable and are, hence, exempt under Section 2(e)(iv) corresponding to Section 2(e)(i)(iv) as the text stood after 31-3-1969. We, therefore, hold that on basis of proviso to Section 8, it cannot be inferred that the said provision permits of general commutability of the right in question. Thus, the objection raised on the revenue's side on the basis of commutability fails.
22. The revenue also raised an argument that for exclusion of the right to an annuity from the ambit of the defined term 'assets', such annuity must not have been purchased by the assessee. This aspect is certainly relevant in view of the portion in parenthesis in Section 2(e)(2)(ii), as extracted hereinabov e.
23. In reply, the assessee submitted that as he had not made compulsory deposit out of his volition and/or just with a view to reap any benefit from such deposit but at peril of being penalised for non-compliance of the statutory obligation on him, he cannot be said to have purchased the annuity. We agree. The assessee also pointed out that connotation of the word 'purchase' is different from the word 'acquired' and that, at best he could be said to have acquired the right to annuity. We see force in this submission also as the two words could not be used in legislative enactment interchangeably. See Section 80CC(1) of the 1961 Act where word 'acquired' is used. It is to be presumed that the Legislature has used in Section 2(e)(2) the word 'purchased' in contradistinction the word 'acquired'. In the result, we hold that the impugned sum included by the WTO in the assessment under consideration did not constitute an asset within the meaning of Section 2(e)(2). In this view of the matter, it is not necessary for us to consider the alternative claim of the assessee that the right in question should be valued at its discounted value.
24. So far as the question of exemption as to the value of the car is concerned, it would suffice to note that it is common case of the parties that as for the preceding, as also for the succeeding assessment years, the WTO himself has allowed such exemption. That being the position, we see no justification for a different approach of the WTO for the assessment under consideration is this appeal. For similar reason, we also consider it unnecessary to deal at length with the various arguments advanced on the assessee's side on the aspect of exemption of car.
25. Appeal is dismissed.