1341. Whether annuity receivable under annuity deposit scheme is covered within the meaning of clauses (e)(iv)
Circular No. 17 was issued by the Central Board of Direct Taxes on 10 June 1969. Its subject is 1341. Whether annuity receivable under annuity deposit scheme is covered within the meaning of clauses (e)(iv).
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
Reverses the Board's earlier position, in Circular No. 3(WT) dated 27-7-1968, that the value of annuities receivable on annuity deposits made under the Income-tax Act is includible in net wealth. On reconsideration the Board holds that such annuities are generally non-commutable and their value is therefore exempt under section 2(e)(iv) of the Wealth-tax Act, and says a clarificatory amendment to section 5(1) with retrospective effect is proposed by the Taxation Laws (Amendment) Act, 1970. In pending assessments the value of the annuities is not to be added to net wealth. Completed assessments are, as far as possible, to be rectified suo motu by the Wealth-tax Officer to delete the commuted value of the annuity deposit where it was included, and rectification applications from assessees are to be accepted. The superseded 1968 circular, annexed, had reasoned the other way - that the annuities could be commuted in the circumstances in the proviso to section 280D and so fell outside sub-clause (iv), their value being the commuted figure from the table in Appendix II to the Annuity Deposit Schemes of 1964 and 1966.
The Board reconsidered the question of wealth-tax liability on the value of annuities receivable on annuity deposits, which its 1968 circular had answered against the assessee.
1341. Whether annuity receivable under annuity deposit scheme is covered within the meaning of clauses (e)(iv)
1. Reference is invited to the clarifications contained in the Board’s Circular No. 3(WT), dated 27-7-1968 [printed here as Annex] regarding the liability to wealth-tax of the value of the annuities receivable on the annuity deposits made under the relevant provisions of the Income-tax Act. On a reconsideration of the matter, the Board have decided that the annuities receivable under the annuity deposit scheme are generally non-commutable and, therefore, the value thereof should be exempted from wealth-tax under section 2(e)(iv). It is proposed to make, in this respect, a clarificatory amendment to section 5(1) with retrospective effect, by the Taxation Laws (Amendment) Act, 1970.
2. In all the pending assessments, the value of such annuities will not be added to the net wealth. Besides, as far as possible, assessments which have already been completed will be rectified suo motu by the Wealth-tax Officer, so that the commuted value of the annuity deposit, if included, in each case is deleted. Applications for such rectifications by the assessees would be accepted by the Wealth-tax Officer.
Circular : No. 17 of 1969, dated 10-6-1969.
ANNEX - CIRCULAR NO. 3(WT), DATED 27-7-1968 REFERRED TO IN CLARIFICATION
1. A question has arisen whether an individual who has made an annuity deposit under the relevant provisions of the Income-tax Act is liable to wealth-tax in respect of the value of annuity receivable by him on such deposits. The position in the matter is explained in the following paragraph :
2. A person making an annuity deposit under the Income-tax Act is entitled to receive annuities in respect of the deposit over a period of 10 years commencing after the expiry of 12 months from the date on which the deposit was made. The annuities represent annual equated instalments of the principal amount of the deposit and interest thereon. The right to receive annuities in an asset within the meaning of that term in section 2(e) of the Wealth-tax Act. The term "assets" as defined in that section includes property of every description, movable or immovable, subject to certain specific exceptions. One of these exceptions specified in sub-clause (iv) of section 2(e) [before amendment by the Finance Act, 1969] of the Wealth-tax Act is "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". Annuities receivable in respect of annuity deposit under the Income-tax Act are not covered by this sub-clause as these annuities can be commuted in certain circumstances, as stated in the proviso to section 280D of the Income-tax Act. The value of annuities receivable in respect of the annuity deposit, as on the relevant valuation date, is , therefore, includible in the net wealth of an individual for the purposes of wealth-tax. Such value is equivalent to the amount that would be received by the individual if the outstanding annuities were to be commuted as on the relevant valuation date. The amount payable on the commutation of annuities in respect of annuity deposits is required to be calculated in accordance with the "Table of commuted value of annuities" set forth in Appendix II of the Annuity Deposit Scheme, 1964 and the Annuity Deposit Scheme, 1966. The table of commuted value of annuities (which is the same under both the Schemes) is reproduced below :
TABLE OF COMMUTED VALUE OF ANNUITIESWhere commutation is made
Commuted value of annuities
Where the
Where the
Where the
amount of
amount of
amount of
annuity
annuity
annuity
deposit is
deposit is
deposit is
Rs. 10
Rs. 100
Rs. 1,000
1
2
3
4
After the expiry of 1 year but before
2 years from the date of deposit
8.75
87.50
875.00
After the expiry of 2 years but before
3 years from the date of deposit
7.85
78.50
785.05
After the expiry of 3 years but before
4 years from the date of deposit
6.72
67.19
671.91
After the expiry of 4 years but before
5 years from the date of deposit
5.58
55.75
557.50
After the expiry of 5 years but before
6 years from the date of deposit
4.44
44.40
443.99
After the expiry of 6 years but before
7 years from the date of deposit
3.34
33.38
333.81
After the expiry of 7 years but before
8 years from the date of deposit
2.30
23.00
229.96
After the expiry of 8 years but before
9 years from the date of deposit
1.36
13.63
136.25
After the expiry of 9 years but before
10 years from the date of deposit
0.57
5.75
57.46
Note : The amount of the commuted annuity will be calculated in the following manner :
1. For every unit of Rs. 1,000, if any, comprised in the amount of annuity deposit, the amount of the commuted value will be calculated at the rates specified in column 4 ;
2. For every unit of Rs. 100, if any, comprised in the amount of the annuity deposit, remaining after the calculation at (1), the amount of the commuted value will be calculated at the rates specified in column 3 ; and
3. For every unit of Rs. 10, if any, comprised in the amount of annuity deposit, remaining after the calculation at (1) and (2 ) the amount of the commuted value will be calculated at the rates specified in column 2.
The aggregate of the amounts calculated as at (1), ( 2) and (3) will be the amount of the commuted value.
Only in old wealth-tax assessments and rectification records where the commuted value of an annuity deposit was brought into net wealth.
Source: the Income Tax Department’s own published text — its page for this instrument.