Supreme Court of India
COMMISSIONER OF WEALTH TAX, PUNJAB, J & K, CHANDIGARH, PATIALAversusYUVRAJ AMRINDER SINGH ETC
- Citation
- 1985 INSC 225
- Decided
- 8 October 1985
- Disposal
- Dismissed
- Bench
- V D TULZAPURKAR
Holding
A deferred annuity policy based on human life is a policy of insurance and its value is exempt from wealth tax under section 5(1)(vi) of the Wealth Tax Act, 1957.
Summary
The assessees purchased deferred annuity policies and claimed exemption from wealth tax under section 5(1)(vi) of the Wealth Tax Act, 1957, arguing that such policies fell within the phrase "any policy of insurance". The Wealth Tax Officer rejected the claim, but the Appellate Assistant Commissioner, the Income Tax Appellate Tribunal and the High Court allowed the exemption. The Revenue appealed, contending that a deferred annuity is not an insurance contract, that the proviso to the provision limits the exemption, and that the definition of assets excludes such annuities. The Supreme Court held that a contract of insurance based on human life includes deferred annuity policies, that the definition of "life insurance business" under the Insurance Act expressly covers annuities, and that the phrase "any policy of insurance" in the wealth‑tax provision must be given its wide meaning, with the proviso merely scaling the exemption when premiums are payable for less than ten years. Consequently, commutable annuity policies are exempt from wealth tax under s.5(1)(vi). The Court dismissed the Revenue’s appeals.
Issues considered
- Whether a deferred annuity policy constitutes a "policy of insurance" within the meaning of section 5(1)(vi) of the Wealth Tax Act, 1957.
- Whether the proviso to section 5(1)(vi) narrows the exemption to exclude annuity policies.
- Whether the definition of "life insurance business" in section 2(11) of the Insurance Act, 1938 includes annuities on human life.
- Whether the exclusion of non‑commutable annuities from the definition of assets precludes exemption for commutable annuities.
Legislation cited
- Finance Act, 1974s. Proviso to s.5(1)(vi)
- Income Tax Acts. 280D
- Insurance Act, 1938s. 2(11)
- Wealth Tax Act, 1957s. 2(e)(iv), s. 5(1)(vi), s. 5(1)(vi-a), s. 5(1)(vii)
Subjects
Wealth taxAnnuityPolicy of insuranceExemptionStatutory interpretationCommutable annuityInsurance ActDeferred annuityDefinition of assets
Judgment
565
COMMISSIONER OF WEALTH IAX, A
PUNJAB, J & K, CHANDIGARH,
PATIAIA
v.
YUVRAJ AMRINDER SINGH ETC,
OCTOBER 8, 1985 B
[V;D. TULZAPURKAR AND SABYASACHI MUKHARJI, JJ,]
Wealth Tax Act, 1957, ss. 5 (1) (vi) and 2 (e) (iv) - "Any
policy of insurance" - Interpretation of - Computable annuities
dependent on human life - Whether exempt from wealth tax. c
Insurance Act, 1938, s. 2 (11) - "Life insurance business"
- Contract of insurance based on human life - How effected.
Interpretation of statute - Proviso - Effect of.
D
The two assessees are individually assessed to wealth tax
under the Wealth Tax Act, 1957, They had purchased one annuity
policy each, and claimed exemption of the value thereof under
s. 5 (1) (vi) of the Act, alleging that the annuity policies fell
within the expression "any policy of insurance" occurring in that
provi,sion. E
The Wealth Tax Officer rejected the claim and included the
value of the annuity policies in the assessees' net wealth on the
ground that the exemption was allowable only to insurance policy
whereas the policy taken out by the assessee was an annuity
policy whe~eunder the assessee had made lumpsum payment and he
would be getting periodical returns after the lapse of a number
F
of years and as such annuity policy could not be considered as
insurance policy.
The Appellate Assistant Colllllissioner allowed the
assessees' appeals holding that the annuity policies were covered
by the term "ar.y policy of insurance" and, therefore, they were G
entitled to exemption under s. 5, (1 ) (vi) •
This view was confirmed by the Appellate Tribunal in
appeals 8nd in Reference by the High Court.
In the appeals by the Revenue to this Court it was
contended: (1) that a contract for deferred annuity is quite H
566 SUFRE.1-.E COURT REPORTS (1985] SUPP.3 s.c.R.
A distinct from a "policy of insurance"; an annuity contract is
operative from the date on which annuity vests and thereafter
there is no element of insurance in the contract covering the
risk of human life and, therefore, a contract for deferred
annuity cannot be treated as a policy of insurance and the value
thereof would not be exempted under s. 5 (1) (vi) of the Act; (2)
B that the ambit or scope of the expression "any insurance policy"
occurring in s. 5 (1) (vi) should be confined to the usual life
policies or endo'Wlllent policies; (3) that the proviso to
sub-clause (vi) suggests that the legislature intended to confine
the expression "any insurance policy" to the exclusion of
annuities on life and that since non-commutable annuities only
have been excluded from the definition of 'assets' given in s. 2
c (e), the legislature could not have intended to exempt annuities
based on human life under s. 5 (1) (vi) by bringing them within
the expression "any policy of insurance" and (4) that it wuld.be
incongruous for the legislature to include commutable annuities
on life within the expression 'assets' under s. 2 (e) on the one
hand and at the same time to exempt such annuities from the
charge including them within the expression "any policy of
)
insurance" under s. 5 (1) (vi).
Dismissing the Appeals,
HELD: 1. Commutable annuities on life, like the ones in the
instant case, would fall under s.5(l)(vi) of the Wealth Tax Act
E 1957 and the value thereof would qualify for the exemption from
the charge. [581 D]
2. The exemption contemplated by s.5(l)(vi) covers interests
of an assessee in all types of insurance policies and the
expression" any policy of insurance" in that provision would a
F fortiori attract within its ambit or scope a deferred annuity
policy based on human life, it being a species of life insurance
policies and, therefore, unless there is some warrant to cut down
the ambit or scope of that expression, the right of intereat of
an assessee in such a policy would be exempt from the charge of
wealth tax unless any moneys thereunder have become due and pay-
G able to the assessee on the valuation date. (577 E-G]
3. The definition of "life insurance business" as given in
s.2(11) of Insurance Act, 1938 clearly includes, by a deeming
provision, the business of granting of annuities upon human life
within the expression "life insurance business". [575 F]
H
4. A contract of insurance based on human life can be
effected ln two ways, (a) the insurer, in consideration of
c.w.T. v. YUVRAJ AMRINDER SINGH 567
A
payment of periodical premia, undertakes to pay the person for
whose benefit the insurance is made a stipulated lumpsum upon the
death of the person whose life is iosured or the happening of any
contingency dependent on human life (e.g. usual life policies or
endowment policies) and (b) the insurer, in consideration of
payment of a gross sum premium undertakes to pay the person for
B
whose benefit the insurance is made annuity equifalent (either
annual or mnthly instalments) after a certain age on the
happening of a contingency depending upon the duration of human·
life (e.g. deferred annuity policies). In either case it is
insurance against the risk of penury and as such is a contract of
insurance. [574 D-F]
c
In the instant case, each annuity policy stipulates that
the mnthly payments are guaranteed for a period of 35 years
COlllDellCing from 22.1.1984 even if the death occurs before the
expiry of the period but in case the annuitant lives beyond the
period of 35 years the mnthly payments shall continue to be made
D
till he dies. Thus the annuity policies evidence a contract of
insurance covering the risk of human life and as such would fall
within the expression a "policy of insurance" occurring in s. 5
(l) (vi) of the Act. (576 D-F]
C.I.I. Yo General Fully Pemion Fuad, (1952) 22 Com. Cas
E
89, approved.
QwndnJpl Barjivandaa v. C.._.Jesiouer of mcc- tax,
GujEat, 63 !TR 627, ill'lsbury's Laws of England, Fourth Edition,
Vol. 25, P• 13 and Bouvier's Law Dictionary (Rawle's Third
Revision) Vol. 2, p.· 1619, relied on.
5. The object of the provision in s. 5 is the encouragement of F
thrift which element is present in both types of life insurance.
The provision should hence be interpreted as not to nullify that
object. Moreover, s. 5 deals with exemptions in respect of
certain assets and one of such exempted assets under sub-el. (vi)
of sub-11. (1) thereof is "the right or interest of the assessee
G
in any policy of insurance before the mnies covered by the
policy become due and payable to" the assessee". While granting
this exemption the legislature has used the expression "any
policy of insurance" which is of very wide import. The exemption
ia not confined to rights or interests in life insurance policies
alone, but extends the rights or interests of an aesessee in
other typea of insurance policies also, such as a mari!M! or life
H
insurance policy etc. [577 A~]
568 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
6. The proviso to sub-cl. (vi) has the effect of cutting down
A the exemption contained in the sub-cl.Buse to s...t extent. The
main provision creates an exemption in respect of the assessee's
"right or interest in any policy of insurance" snd the proviso
seeks to cut down thst exemption to a limited extent, namely,
whenever there is a policy of insurance in res pee t whereof
periodical premia are payable for a duration of leas thsn 10
B years then , in such a case a proportionate exemption specified
therein will be avail.Bble to the assessee irrespective of what
type of policy it is; the proviso hss no other effect. Thst such
was the object or purpose of inserting the proviso will be clear
if regard is hsd to the Notes on Cl.Buses accompanying the Bill
snd the speech of the Finance Minister while introducing the
Bill. There is therefore, no warrant to put a narrow construction
c on the expression "any policy of insurance" occurring in sub-cl.
(vi) of s. 5 (1). [578 c; 579 A-C; 579 E]
7. The definition of 'assets' ins. 2 (e) of the Act is in two
parts; the first part defines assets as including property of
every description, moveable or imnovable, while the second part
excludes certain items of property from falling within the
D expression 'assets• and one of the item coming within this
exclusionary part is: "(iv) a right to any annuity in any case
where the terms and conditions relating thereto preclude the
commutation of any portion thereof into a lumpsum grant". This
excludes only non-conmrutable annuities from 'assets'. Cl.Buse (iv)
of s. 2 (e) does not exhaustively deal with all type of
E annuities. Two types of annuities.are separately snd specifically
dealt with under s. 5 (1) (vi-a) snd 5 (i) (vii). Section 2 (e)
defines 'assets' to include property of every description movable
or immovable excluding certain items from the purview of the
charge by excluding then from the definition of 1assets 1 ; while
s. 5 (1) (vi) exempts certain assets from the tax by decl.Jlring
F that tax will not be payable on then. In order to be covered by
the exemption under s. 5 (1) (vi) a property must in the first
instance be an asset under s. 2 ( e). The que&tion of exempting
commutable annuity policies of insurance arises only because they
fall within the definition of 'assets'. It is, therefore,
fallacious to contend that because commutable annuity policies
G fall within 'assets' they should not be exempted under •· 5 (1)
(vi). (579 G - B; 580 A - B]
8. A reading of s. 2 (e) together with s. 5 (l) (vi-a) and 5
(1) (vii) negates the view that legisl.Jltive intention was to deal
exhaustively with annuities under S• 2 (e) (iv). A eommutable
B
C.\.l.T. v. YUVRAJ AMRINDER SINGH [TULZAFURKAR, J.] 569
life annuity received from an employer . would undoubtedly be A
exempt from the charge of wealth-tax under s. 5 (1) (vii). If s.
2 (e) is coustrued as confining, by implication, the exemption
fr an wealth tax to non-cOllllllltsble annuities alone, then there
would be an obvious conflict between s. 5 (1) (vii) and s. 2 (e).
Therefore, a harmonious reading of s. 2 (e) (iv) with s. 5 (1)
(vi) and s. 5 (1) (vii) would be that while non-cOllllllltable B
annuities are wholly outside the purview of the wealth tax,
COllllllltable annuities are exempt under s. 5 (1) (vi) and 5 (1)
(vii) to the limited extent mentioned in each. [581 A-<:]
CIVIL AFFELLATE JURISDICTION: Civil Appeals l<os. 797-799
(NT) of 1974. C
From the Judgment and Order dated 30.4.1973 of the Punjab
8nd Haryana High Court in Wealth Tax Reference Nos.· 2, 3 and 4 of
1972.
Jl,Jl, Ahuja and Miss A. Subhashini for the Appellant. L
Harish Salve, F,J:i., Ram and 11rs. A.Ii.. Verma for the
Respondents.
The Judgment of the Court was delivered by
E.
1'1JLZAPDBXAR, J. The common question of law that arises for
our determination in these appeals is:
Whether on the facts and in the circun.stances of the
case, the right or interest of an assessee in an
annuity policy is exempt frOlll wealth tax under s, 5
(1) (vi) of the Wealth Tax Act, 1957? F
The facts giving rise to the question are briefly these.
Yuvraj Arminder Singh and Frincess Rupinder Kumari are individual
assessees being assessed to wealth tax under the Wealth Tax Act,
1957 (hereinafter called the Act). As regards the former the two
assessment years are 1964-65 and 1965-66 for which the respective G
valuation dates 31.3.1964 and 31.3.1965, whereas the assessment
year in the case of Princess Rupinder Kun.sri is 1965-66 for which
the valuation date is 31.3.1965. lhe two assessees had purchased
one annuity policy each and they claimed exemption in respect of
the value of each policy in each one's assessment to wealth tax
under s. 5 (1) (vi) of the Act. The value of the annuity policy
1n the case of Yuvraj Amrinder Singh was Rs. 2,13,000 while in R
570 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A
the case of Princess Rupinder Kumari it was Rs. 2,35,176.
Exemption in respect of such value was claimed under s, 5 (1)
(vi) of the Act inasmuch as the annuity policies fell within the
expression "any policy of insurance" occurring in the said
provision.
B
The Wealth Tax Officer rejected the claim and included the
above mentioned amounts in the assessees' net wealth for the
concerned assessment years on the ground that the exemption was
allowable only to insurance policy whereas the policy taken out
by the assessee was an annuity policy whereunder the assessee had
made lumpsum payment and he would be getting periodical returns
c after the lapse of a number of years and as such annuity policy
could not be considered as insurance policy. Aggrieved by the
orders passed by the Wealth Tax Officer the assessees preferred
appeals to the Appellate Assistant Commissioner who allowed their
appeals holding them to be entitled to exemption under s. 5 (1)
(vi) as according to him annuity policies were covered by the
term "any policy of insurance" used in the said sub-section. This
D view of the Appellate Assistant Commissioner was confirmed by the
Income Tax Appellate Tribunal in appeals pref erred by the
Revenue. In the three Wealth Tax References ~os. 2, 3 & 4 of 1972
made to the High Court by the Tribunal at the instance of the
Revenue the High Court confirmed the Tribunal's view and answered
the question set out above (which arose in each Reference) in
E favour of the assessee. The revenue has come up in appeals
challenging the view taken by the High Court.
Since the question raised in these appeals concerns the
proper construction of the expression 'any policy of insurance'
occurring in s. 5 (l)(vi) of the Act read with the other connect-
F ed provisions thereof in relation to the terrus of the annuity
policies purchased by the two assessees it will be desirable to
set out the terms of the two annuity policies. In each the
annuitant is the proposer and each contains a provision for
comnutation, that is to say, neither is a non-commutable policy.
It may be stated that the terms and conditions of both the
G annuity policies are the same and hence the terms and conditions
of one (of Yuvraj Amrinder Singh) may be set out which are as
follows:
"Type of Annuity: Deferred annuity without profits
guaranteed for 35 years.
H
Date on which the lwenty-second day of January, Nineteen
annuity vests: Hundred and sixty four.
C.li.T. v. YUVRAJ AMRINDER SING!i [TULZAPURKAR, J.] 571
Event on the On expiry of 35 years calculated from A
happening of which the date on which the annuity vests or
annuity ceases or at the, death of annuitant, if later.
determines:
To whom annuity To the annuitant
payable: B
Dates when annuity On the stipulated due date of the 1st
payable Annuity instalment and monthly there-
after.
Special provisions : c
(1) If the annuitant shall die before the date on which the
annuity vests, the amount of the single premium paid but
without any interest shall be returned to the proposer or
in case he shall be then dead to his Proving Executors or
Administrators or other legal representatives who should D
take our representation to his Estate or limited to the
moneys payable under this policy from any Court of any
State or Territory of the Union of India, or in case the
Annuitant (provided he is also the proposer) shall have
appointed any nominee to receive such money or executed any
assignment in favour of any assignee to such nominee or E
assignee.
(2) In lieu of the payment of the annuity under this policy
the proposer has the option to be exercised before the date
on which the annuity vests to receive a cash payment of
Rs. 2,88,184 on 22nd January, 1964."
F
Before dealing with the rival submissions made by the
learned counsel for the parties the relevant provisions of the
Act with which we would be concerned may be referred to. Under
the charging provision contained in s. 3 of .the Act wealth tax ts
charged, subject to the other provisions contained in the Act,
for every assessment year in respect of the net wealth on the G
corresponding valuation date of every individual, Hindu undivided
family and company, at the rate or rates specified in Schedule I.
'Net Wealth' is defined in S• 2 (m) as meaning (so far as is
material) the amount by which the aggregate value of all the
assets belonging to the assessee on the valuation date is in
exceso of the aggregate value of all the debts owed by the
· assessee on that date. 'Ihe expression 'assets' is defined in s. 2 B
(e) and the relevant part thereof runs thus:
572 SUPIIDJE. COURT REPORTS [1985] SUPP.3 S.C.R.
A
"2.(e) 'assets' includes property of every descrip-
tion, movable or immovable property, but does not
include-
( i) xx xx xx
B (ii) xx xx xx
(iii) xx xx xx
(iv) a right to any annuity in any case where the
terms and conditions relating thereto preclude the
commutation of any portion thereof into a lumpsum
grant;"
c The next material provision is s. 5 (1) (vi) with which we are
directly concerned and ·it runs thus:
"Exemptions in respect of certain assets.
5.(1) Subject to the provisions of sub-section {lA),
weatlh-tax shall not be payable by an assessee in
D respect of the following assets, and such assets shall
not be included in the net wealth of the assessee -
(vi) the right or interest of the assessee in any
policy of insurance before the moneys covered by the
policies become due and payable to the assessee:
E
Frovided that in the case of a policy of insurance the
premium or other payment whereon is payable during a
period of less than ten years, the amount that shall
not be included in the net wealth of the assessee
under this clause shall be a sum that bears to the
F value of the right or interest of the assessee in the
policy the same proportion as the number of years
durint which the premium or other payment on the
policy is payable bears to ten;"
It may be stated that the above proviso was not there at the
G .relevant time and it has been inserted by Finance Act, 1974 with
effect from 1.4.1975 but since an argument was based on it we
have thought fit to reproduce the same. The next material
provisions are s. 5 (1) (vi a) and (vii) which run thus:
" (vi a) the right of the asses see to receive any
H
annuity payable by the Central Government under the
provisions of s. 280D of the Income tax Act;
C.li .1. v. YUVRAJ AMRINDER SINGR [ Tu'LZAPUF.KAR, J.] 573
A
(Inserted by Taxation Laws (Amendment) Act, 1970 with
retrospective effect from 1.4.1965)
(vii) the right of the assessee to receive a pension
or other life annuity in respect of past services
under an employer;''
II
Since a contention was raised that annuity policies of the type
with which '"e are concerned in the case cannot be regarded as
life insurance policies it will be necessary to refer to the
definition of "life insurance business" given in s. 2 (11) of the
Insurance Act, 1938. Section 2 (11) runs thus:
c
"2 (11) 'Life insurance business' means the bus+ness
of effecting contracts of insurance upon human life,
including any contract whereby the payment of money is
assured on death (except death by accident only) or
the happening of any contingency dependent on human
D
life, and any contract which is subject to payment of
premiums for a term dependent on human life and shall
be deemed to include -
(a) the granting of disability and double or triple
indemnity accident benefits, if so provided in the
contract of insurance,
(b) the granting of annuities upon human life; and
(c) the granting of superannuation allowances and
annuities payable out of any fund applicable solely to
the relief and maintenance of persons engaged or who
F
have been engaged in any particular profession, trade
or employment or of the dependants of such persons;"
At the outset we would like to dispose of the initial
contention raised on behalf of the Revenue that a contract for
deferred annuity is quite distinct from a 'policy of insurance' -
G
the expression used in s. 5 (l) (vi)- since there is no element
of insurance against any risk involved in such annuity policy - a
contention which found favour with the liealth Tax Officer but was
rejected by the Assistant Appellate COllllllissioner, the Tribunal
and the High Court. The contention is that in the case of a
deferred annuity policy the annuitant, on payment of a lumpsum
gets the risht to the annuity equivalent in the shape of deferred H
annual or monthly payments guaranteed for a certain period (in
574 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A the instant case for 35 years), that there is a date on which the
annuity vests in the annuitant (here 22.1.1%4), that usually
there is a provision that in the event of the death of the
annuitant before the date of vesting the single premium paid by
him would be returned to the proposer, and that the proposer may
have (as is the case here) the option, to be exercised before the
B date on which the annuity vests, to receive the comruuted value in
lieu of deferred annual or monthly payments' and such provisions
clearly show that the intention is that in essence the annuity
contract is operative froru the date on which the annuity• vests
and thereafter there is no element of insurance in the contract.
It is, therefore, urged that a contract for deferred annuity
cannot be treated as a policy of insurance and as such the value
c thereof would not be exempt under s. 5 (1) (vi) of the Act. The
gravamen of the contention is that there is no element of
insurance covering any risk on human life involved in a deferred
annuity policy.
The contention, in our view, proceeds on a misconception of
the true or real nature of a deferred annuity policy. It is well
D known that a contract of insurance based on human life can be
effected in two ways, (a) the insurer, in consideration of pay-
ment of periodical prenJ.a, undertakes to pay the person for ~hose
benefit the insurance is made a stipulated lumpsum upon the death
of the person whose life is insured or the happening of any
contingency dependant on human life (e.g. usual life policies or
E endowment policies) and (b) the insurer, in consideration of
payment of a gross sum premium: undertakes to pay the person for
whose benefit the insurance is made annuity equivalent (either
annual or monthly instalments) after a certain age on the happen-
ing of a contingency depending upon the duration of human life
(e.g. deferred annuity policies). In either case it is insurance
F against the risk of penury and as such is a contract of
insurance. That contracts of insurance based on human life are
effected in one of the two ways mentioned above will be clear
from the manner in which the concept of life insurance is under-
stood in the legal and commercial world. In Halsbury's Laws of
England, Fourth E.dition, Volume 25, page 13, the following
G passage occurs in para 7 under the heading 'Nain types of risk':
"'7. }iain types of risk. For convenience the different
types of insurance business may be classified as
follows: (1) marine, aviation and transport insurance
(2) ordinary long-term insurance; (3) personal acci-
R dent insurance; (4) property insurance; (5) liability
c.w.T. v. YUVRAJ AMRINDER SINGH [TIJLZAPUM<AR, J.] 575
A
insurance; (6) motor vehicle insurance; (7) pecuniary
loss insurance; (8) war risks assurance; and (9)
industrial ansurance."
Foot-note 2 deals with 'ordinary long term insurance business'
and says - 'ordinary long term insurance business' means the B
business of effecting and carrying out contracts of insurance on
human life or to pay any annuities on human life (s. 83 (2) (a)
of Insurance Companies Act, 1974)
In Bouvier's Laws Dictionary (Rawle's Third Revision)
Vol. 2, at page 1619, the following passages occur under the c
caption 'Life Insurance':
"LIFE INSURANCE. The insurance of the life of a person
is a contract by which the insurer, in consideration
of a certain premium, either in a gross sum or perio-
dical payments, undertakes to pay the person for whose D
benefit the insurance is made, a stipulated sum, or
annuity equivalent, upon the death of the person whose
life is insured, whenever this shall happen, if the.
Insurance be for the whole life or in case this shall
happen within a certain period, if the Insurance be
for a limited time. E
An agreement by the insurer to pay to the insured or
his nominee a specified sum of money either on the
death of a designated life, or at the end of a certain
period provided the death does not occur before, in
consideration of the present payment of a fixed
amount, or of an annuity till the death occurs or the F
period of Insurance is ended."
The definition of 'life insurance business' as given ins. 2
(11) of our Insurance Act, 1938 clearly includes, by a deeming
provision, the business cf granting of annuities upon human life
within the expression 'life insurance business'. G
In C.I.T. v. General Family Pension Fund, (1952) 22 COm.
Cas 89 the Calcutta High Court has held that if the right to
payment under annuity contract is governed by the happening of a
contingency which depends in any way upon the duration of human
life the business of effecting such a contract is life insurance
business. When the same case came up in appeal before this Court H
this Court confirmed that view by observing that where the
576 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A business of a company oonsists exclusively in granting terminable
pensions or annuities dependent on human life in favour of the
subscribers such business is life insurance business.
In O.anclnJe! Harjiwmidas Vo ec-issioner of Incooe Tu,
Gujarat, 63 ITR 627 while dealing with a policy called
B 'Children's Deferred Endowment Assurance" issued by the Life
Insurance Corporation of India in the context of the question
whether rebate was allowable on the premia paid during the minor-
ity of the life assured under s. 15 (1) of the Indian Income-true
Act, 1922, this Court at page 631 of the Report has observed
thus:
c "Life insurance in a broader sense comprises any
contract in which one party agrees to pay a given sum
upon the happening of a particular event contingent
upon the duration of human life, in consideration of
the ilil!lediate payment of a smaller sum or certain
equivalent periodical payments by another party
(Halsbury's Laws of England, third edition, volume 22,
D page 273)."
In the instant case in each of the two annuit~ policies
there is a term stipulating the event on the happening of which
the annuity shall cease or determine and it states that the
annuity shall cease or determine "on the expiry of 35 years
E calculated from the date on which the annuity vests (22.1.1964)
or at the death of the annuitant, if later," In other words the
monthly payments are guaranteed for a period of 35 years cor
mencing from 22.1.1964 even if the death occurs before the expiry
of the period but in case the annuitant lives beyond the said
period of 35 years the monthly payments shall continue to be made
F till he dies, In view of this provision which is to be found in
each of the two annuity policies it cannot be gainsaid that the
policies evidence a contract of insurance covering the risk of
human life and.such would fall within the expresaion a 'policy of
insurance' occurring ins. 5 (1) (vi) of the Act. The contention
that no element of insurance covering any risk of human life was
G involved after 22,1,1964 (the date of vesting) was, in our view,
rightly rejected by the AAC, tha Tribunal and the High Court.
In the light of the above discussion the position becomes
quite clear that annuitieo dependent on human life constitute a
species of contracts of life insurance and would normally fall
within the expression "any policy of insurance" occurring in s, 5 ~
c.w.T. v. YUVRAJ AMRINDER SINGH [TllLzAl'URKAR, J,] 577
A
(1) (vi) of the Act. The object ·of enacting the provision is the
encouragement of thrift which element is present in both types of
life insurance and hence the provision should be interpreted in
such a manner as not to nullify that object. Moreover, s. 5 deals
with exemptions in respect of certain assets and one of such
exempted assets under sub-clause (vi) of sub-a, (1) thereof is B
"the right or interest of the assessee in any policy of insurance
before the moneys covered by the policy become due and payable to
the assessee"; It is quite clear that while granting chis
exemption the legislature has used the expression "any policy of
insurance" which is a very wide import. The exemption is not
confined to·rights or interests in life insurance policies alone c
much less any particular species of life insurance policies but
it extends to rights or interests of an assessee in other types
of insurance policies also, such as a marine or a fire insurance
policy, etc. It cannot be suggested that the right or interest of
an assessee in such other types of policies has no value or can-
not be valued. For instance, a marine or fire insurance policy D
may be for three or five years and in such a case the unexpired
value of the premium could be one of the bases for determining
the value of the assessee's interest in the policy on the valua-
tion date; similarly it is possible that the contingent event
insured against has occurred, though the claim is pending deter-
mination on adjudication, and in such a case also the assessee E
would have a valuable interest in the policy. In such case the
assessee 1 s interest would be exempt under the aforesaid clause if
the moneys under the policy have not become due and payable on
the valuation date. It is, therefore clear that the exemption
contemplated by s. 5 (1) (vi) covers interests of an assessee in
all types of insurance policies and the expression 'any policy of
insurance' in the said provision would a fortiori attract within F
its ambit or scope a deferred annuity pOlicy based on human life,
it being a species of life insurance policies and, therefore,
unless there is some warrant to cut down the ambit or scope of
that expression the right or interest of an assessee in such a
policy would be exempt from the charge of wealth-tax unless of
course any moneys thereunder have become due and payable to the G
assessee on the valuation date.
Counsel for the revenue urged a two-fold contention in
support of the plea that there is such a warrant to cut down the
ambit or scope of the expression 'any insurance policy' occurring
in s. 5 (1) (vi) and confine it to life insurance policies of the
usual type where in consideration of periodical premia the H
stipulated lumpsum becomes payable upon the death or happening
518 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A
of an event dependant upon duration of human life, that is to say
the usual Life Policies or Endowment Policies. In the first place
it was urged that the proviso to sub-clause (vi), though inserted
by Finance Act, 1974 with effect from l.~.1975, suggests that
the legislature intended that the said expression should be so
B confined and annuities on life are excluded and in this behalf
reliance was placed on Notes on Clauses accompanying the relevant
Finance Bill as also the speech of the Hon'ble Finance Minister
while introducing the Bill. Secondly it was urged that since
non-commutable annuities only have been excluded from the defini-
tion of 'assets' given in s. 2(e}, the legislature could not
have intended to exempt annuities based on human life under s. 5
c (1) (vi) by bringing them within the expression 'any policy of
insurance' used therein. For the reason which we shall indicate
presently there is no substance in either of the pleas pressed by
Counsel for the Revenue.
The proviso to sub-clause (vi) has been reproduced above. It
has the effect of cutting down the exemption contained in the
D sub-clause to some extent. It commences with the words "Provided
that in the case of a policy of insurance the premium or other
pa.}'1lellt whereon is payable dur:i,Dg a period of less than 10 years"
and the argument is that the under-lined words suggest that the
expression "any policy insurance" in the main sub-clause IlllBt
mean a policy based on human life and that too where periodical
E premia are payable and as such annuity on life which consists of
lumpsum investment followed by deferred annual or monthly
payments is excluded. It is impossible to read the under-lined
words in the proviso in this manner which has the effect of
unduly narrowing down the expression "any policy of insurance"
used in the main sub-clause, which as indicated earlier, is of
F very wide import covering all types of insurance policies like
life, marine, fire etc. In the first place the main provision
(sub-clause vi) was enacted in 1957 and continued to operate for
17/18 years till 31.3.1975 without any qualification and dS such
it will be absurd to attribute to the legislature, because of the
insertion of the proviso (containing the under-lined words) in
G 1975, an intention of having used the wide expression "any policy
of insurance" throughout all this period in a narrow sense as
suggested. Secondly, if the main provision and the proviso are
read together the under-lined words do not suggest that any
narrow construction, much less as urged, was intended and to say
so would be missing the real object or purpose of the proviso. In
H our view the proper way to read the proviso would be to treat the
main provision as creating or granting an exelllption and the
'
c.w.T. v. YUVRAJ &-JUt<llER SINGh [TUL2Af'URKAR, J.] 579
proviso carving out so1Lething from the exemption. The main· A
provision creates an exemption in respect of the assessee's
"right or interest in any policy of insurance" and the proviso
seeks to cut down that exemption to a. limited extent, namely
whenever there is a policy of insurance in respect whereof
periodical premia are payable for a duration of less than 10
years then in such a case a proportionate exemption specified B
therein will be available to the assessee irrespective of what
type of policy it is; the proviso has no other effect. That such
was the object or purpose of inserting the proviso will be clear
if regard is had to relevant part of ~otes on Clauses
accompanying the Bill and the relevant portion of the speech of
the Finance Ninister while introducing the Bill. we were taken c
through the relevant portions of Notes on Clauses [vide 93 ITR
125 (Statutes)] and the speech of the Hon'ble Finance Minister
while introducing the Bill vide [93 ITR 74 (Statutes)] and in our
. view far from supporting the contention of counsel for the
Revenue these lend support to the view which we have just
expressed. 1he relevant portion of 'Notes on Clauses' states that D
"under this amendment (the insertion of proviso) the value of the
taxpayer's right or interest in a policy of insurance will be
exempt from tax only if the premia are payable over a period of
ten years or more. In cases where premia are payable over a
period of less than ten years, only a proportionate amount of the
value of the taxpayer's right or interest in the policy of E.
insurance will be exempt from wealth-tax." The Finance Minister's
speech though strictly not relevant as an aid to construction,
substantially reiterates what has been stated in the 'Notes on
Clauses' accompanying the Bill. On this a~count therefore, there
is no warrant to put a narrow construction on the expression "any
policy of insurance" occurring in sub-clause (vi) of s. 5 (1).
F
Similarly counsel's reliance 6n the definition of 'assets'
given in s. 2 (e) of the Act and particularly the exclusionary
part contained in sub-clause (iv) in relation to annuities for .
the purpose of giving a narrow construction to the expression
'any policy of insurance' occurring in sub-clause (vi) of s. 5
(1) is of no avail. ~e have already quoted above s. 2 (e) (iv). G
The definition of 'assets' is in two parts; the first part
defines assets as including property of every description,
movable or immovable while the second part excludes certain ite!IIB
of property from falling within the expression 'assets' and one
of the item coming within this exclusionary part is: "(iv) a
right to any annuity in any case where the terms and conditions
h
580 SUPRE!iili COURT RE.POR15 [1985] SUPP.3 S.C.R.
A
relating thereto preclude the commutation of any portion thereof
into a lUllipsum grant". In other words .non-comruutable annuities
only are excluded from 'assets'. The contention for the Revenue
is that if under s. 2 (e) (iv) only non-commutable annuities have
been excluded from the definition of assets then the legislature
could not have intended to exempt annuities based on human life
B
from wealth-tax charge under s. 5 (1) (vi); in other words it is
urged that it would be incongruous for the legislature to include
commutable annuities on life within the expression 'assets' under
s • 2 (e) on the one hand and at the saILe time to exempt such
annuities fro!L the charge by including them within the expression
'any policy of insurance' under s. 5(1) (vi). lhe contention in
our view, is entirely misconceived, for, in the first place it
proceeds on a wrong assumption that the topic of annuities is
c exhaustively dealt with under s. 2 (e) (iv) and secondly it
ignores the scheme of the Act emerging from the relevant
provisions. It is obvious that the postulate of the so called.
incongruity that is being suggested on a reading of the two
concerned provisions together must be that the topic of annuities
has been dealt with exhaustively by s. 2 (e) (iv). But the
postulate is non-existent. That clause (iv) of s. 2 (e) is not
D
exhaustive of all annuities is clear from the fact that at least
2 types of annuities are·spearately and specifically dealt with
under s. 5 (1) (vi-a) and 5 (1) (vii) - the forILer speaks of the
assessee's right to receive annuity payable by the Central
Government under s. 2800 of the Income-Tax Act and the latter
E
speaks of the assessee's right to receive a pension or other life
annuity in respect of past services under an employer. If that be
so, the ar 0Ull!ent based on any incongruity arising fro~ reading of
s. 2 (e) (iv) and s. 5 (1) (vi) together must fall to the ground.
Further a careful analysis of the two relevant provisions shows
what is the general scheme of the Act. Section 2 (e) defines
'assets' to include property of every descri!'tion; it however
F
excludes certain items from the purview of the charge by exclud-
ing them from the definition of 'assets', whiles. 5 (l) (vi) on
the other hand exeILpts certain assets from the tax by declaring
that tax will not be payable in respect of such assets. In other
words in order to be covered by the exeILption under S• 5 (l) (vi)
a property must in the first instance be an asset under s. 2 (e).
G
lhe question of exeILptlng commutable annuity policies of
insurance arises only because they are not excluded from the
definition but because they fall within the definition of
'assets' • It is therefore, falacious to contend that because
commutable annuity policies fall within 'assets' they should not
H be exempted under s. 5 (l) (vi).
c.w.1. v. YUVRAJ Af'.Rltl)E.R SINGH [TULZAPURl\Ak, J.J 581
A
We have already pointed out that a reading of s. 2 (e)
together with s. 5 (1) (vi-a) and 5 (l)(vii) negates the view
that legislative intention was to deal exhaustively with
annuities under s. 2 (e) (iv). liow, a collilllutable life annuity
received from an employer would undoubtedly be exempt from the
charge of wealth-tax under s. 5 (1) (vii). u' s. 2(e) is
construed as confining, by implication, the exemption frOIU wealth
tax to non-commutable annuities alone, then there would be an
obvious conflict between s. 5 (1) (vii) and s. 2 (e). Therefore,
a harmonious reading of s. 2(e) (iv) with s. 5 (1) (vi) and s.5
(1) (vii) would be that while non--corumutatle annuities are wholly
c
outside the purview of the wealth-tax, COtr..ni.utable annuities are
exempt under s.5 (1) (vi) and 5 (1) (vii) to the limited extent
mentioned in each. It is well settled that when such a harmonious
construction is possible and which furthers the object of the Act
L
namely to promote thrift and channelise private savings for
national use, the same Uiust be preferred to the construction
which leads to a conflict between s.2 (e) (iv) and s.5 (1) (vi).
The contention that a narrow construction should be placed on the
expression 'any policy of insurance' occurring in s. 5 (1) (vi)
o'f the Act, has, therefore to be rejected. In other words conmrut-
able annuities on life like the ones in the instant case, would
fall under s.5 (1) (vi) of the Act and the value thereof would
qualify for the exemption from the charge.
In the result we decide the point raised in the appeals in
favour of the assessees and confirm the view of the liigh Court.
F
The appeals are therefore, dismissed with costs.
A.P.J. Appeals dismissed.
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