Judgment

VENKATARAMIAH, J.:- These appeals by special leave under Article 136 of the Constitution are directed against the judgment dated March 15, 1971 of the Allahabad High Court in Wealth Tax Reference No. 232 of 1964*.

* Reported in 1971 Tax LR 628.

2. The facts of the case may be briefly stated thus: The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad referred under S. 27 (1) of the Wealth Tax Act, 1957 (hereinafter referred to as the Act) to the High Court of Allahabad for its opinion the following question of law arising out of the assessment orders made under the Act in respect of the assessment years 1957-58 to 1961-62 :

"Whether the interest of the assessee in the trust fund amounted to an annuity exempt under Section 2 (e) (iv) of the Wealth Tax Act?"

3. The assessee concerned in this case is Shri P. K. Banerji. Under a deed of trust dated October 26, 1937 executed by his father, Shri Pyarey Lal Banerji (hereinafter referred to as the settlor), the assessee became entitled to receive the income arising out. of the trust fund during his (assessees) lifetime after the death of the settlor subject to the liability to pay out of such income certain specified sums periodically as mentioned in the deed to two other persons. After the death of the assessee, the income of the trust fund was directed to be paid in equal shares to the two other persons referred to above and if either of them should die before the death of the assessee then the whole of such income had to be paid to the survivor of them during his or her life. There were certain other directions in the trust deed with regard to the disposal of the income arising out of the trust fund with which we are not concerned in this case. The trust fund consisted of certain India Government loan bonds or securities issued from time to time under which certain specified interest was payable. The total face value of such bonds amounted to Rs. 10 lacs. The Imperial Bank of India, Calcutta (hereinafter referred to as the trustee) was appointed as the trustee under the trust deed and the Government loan bonds or securities referred to above were transferred and endorsed in favour of the trustee with a direction to discharge the obligations referred to in the trust deed. Under clause (1) of the trust deed, the settlor directed the trustee to retain with it the said Government loan bonds or securities and upon redemption of any of them to invest the proceeds thereof in the purchase of three and a half per cent Government promissory notes (old issue) or if this was not practicable in any other security of the Government of India or if this too was not practicable then in any other securities authorised for the investment of trust funds by the Indian Trusts Act, 1882 or any statutory modification thereof and to hold and stand possessed of the Government loan bonds or securities referred to above or any other investments representing the same as the trust fund to be used in accordance with the directions contained in the deed. The following are the relevant recitals of the trust deed dated October 26, 1937 containing directions regarding the manner in which the income arising from the trust fund should be appropriated or spent :-

"(a) The Bank shall pay the net income of the Trust Fund to the settlor during his life and may instead of paying the same to him direct, credit the same to the current account of the settlor with the Bank, so long as there shall be any such current account.

(b) From and after the death of the settlor, the Bank shall pay the net income of the trust fund to the settlors son Pranab Kumar Banerji during his life, if he should survive the settlor subject to the payment thereout every six months on the thirtieth day of April and thirty-first day of October in every year of a sum of Rupees Nine hundred to the settlors son Sunabkumar Banerji and a sum of Rupees six hundred to the settlors daughter-in-law Purnima Banerji during his or her life, if he or she s