Miss Lata Mangeshkar Vs. First Wealth-tax Officer - Court Judgment

SooperKanoon Citationsooperkanoon.com/63689
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided OnSep-07-1988
JudgeS Kapur, L Aggarwal, S
Reported in(1990)32ITD68(Mum.)
AppellantMiss Lata Mangeshkar
RespondentFirst Wealth-tax Officer
Excerpt:
Notice (8): Undefined variable: kword [APP/View/Case/amp.ctp, line 123]
Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 123]
1. the assessee, a resident individual, and the revenue are in appeals involving assessment years 1982-83,1983-84 and 1984-85 for which the respective valuation dates are 31-3-1982, 31-3-1983 and 31-3-1984.since these are cross-appeals arising out of the common order of the learned commissioner of wealth-tax (appeals), central-ii, bombay, at our level also, these are being decided by this common order. (i) on the facts and in the circumstances of the case, whether annuity policies are/constitute, taxable wealth of the assessee and if so what should be the valuation thereof; and (ii) royalty in the hands of the assessee is taxable asset/wealth or not and if sovaluation thereof - what should be.2. parties have been heard at length on two dates viz., 10-8-1988 and 25-8-1988. orders of the.....
Judgment:
Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]
1. The assessee, a resident individual, and the Revenue are in appeals involving assessment years 1982-83,1983-84 and 1984-85 for which the respective valuation dates are 31-3-1982, 31-3-1983 and 31-3-1984.
Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Since these are cross-appeals arising out of the common order of the learned Commissioner of Wealth-tax (Appeals), Central-II, Bombay, at our level also, these are being decided by this common order.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

(i) On the facts and in the circumstances of the case, whether annuity policies are/constitute, taxable wealth of the assessee and if so what should be the valuation thereof; and (ii) Royalty in the hands of the assessee is taxable asset/wealth or not and if sovaluation thereof - what should be.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

2. Parties have been heard at length on two dates viz., 10-8-1988 and 25-8-1988. Orders of the learned lower authorities have been duly noted. The assessee has placed on our file photostat copy of a 'Policy' issued by the Life Insurance Corporation of India as also assessee's Advocate's letter dated 19-10-1984 addressed to M/s. Music India Ltd. and the reply thereof which is dated 16-11-1985.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

3. As regards the first issue, the narration in the Assessment Order reads as under: In lieu of her professional remuneration, the assessee had received Annuity Policies. These polices were taken out by the Cine-producers in lieu of the remuneration which was to be paid by them to the assessee who had sung songs for their films. Instead of cash down payment for the services rendered by the assessee, they purchased annuity policies from the L.I.C. in the name of the assessee so as to ensure a steady income to the assessee for a fixed number of years in future. The assessee has shown the value of these policies at Rs. 1,20,000 in Note (1) to her statement of total wealth attached to her return. But she claims exemption from W.T. on that amount on the ground that her accounts are on cash basis. However, in view of the Supreme Court's decision in the case of CWT v. Vysyaraju Badreenarayana Moorthy Raju [1985] 152 ITR 454, this claim of the assessee is not tenable. That annuity policies constitute valuable asset of the assessee and is taxable as wealth on valuation date in spite of the fact that the assessee may be keeping her accounts on cash basis.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

4(ii) Further, these annuity policies are also not covered by the exemption provided Under Section 2(e)(2) in view of the amended Clause (ii) of that Section w.e.f. 1-4-1975. Assessee's annuity policies will be outside the scope of exemption. Exemption is also not available Under Section 5(l)(via) or 5(l)(vii) either since, the assessee's annuity policies are not of the type and character of the policies spoken of in those two sections. Further more, the exemption provided by Section 5(l)(vi) for policy of insurance, is also not available to the assessee in respect of these annuity policies. This is because, the policy does not insure any risk on the life of the annuitant, nor is the life of the annuitant insured under it. The age, the health, the health history of the family of the annuitant, which play very important role in deciding the amount of premiums and the benefits to accrue to the person insured in the case of life insurance policies simplicitor - which are spoken of in Section 5(l)(vi) do not have any bearing either on the amount of the premium to be paid or on the benefits to accrue to the annuitant-assessee. Assessee's annuity policy is a product of a pure and simple contract between the producer concerned on the one hand and the LIC of India on the other and such contract predetermines the period for which the annuity (income) is to accrue to and is to be paid to the beneficiary of that contract. The life of the annuitant is not insured and is in no way concerned in that policy.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

The benefit of that policy will continue to accrue annuity for predetermined and fixed number of years irrespect of the fact whether the life of the annuitant continues till the end of the period of annuity or not. The benefit will go no accruing for predetermined period and if the annuitant is alive it will be paid to him/her and if he/she is not there, it will be paid to his/her legitimate heirs. But the life of annuity will not whither away with the extinction of the life of the annuitant. It should thus be clear that the assessee's annuity policies are not policies of insurance spoken of Under Section 5(l)(vi). Hence, no exemption is available for these policies under any of the provisions of the W.T. Act and their value as to be taxed.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

4(iii) The question therefore that now remains as to how is the value of these policies to be determined. The assessee has no right in the capital sum paid for taking out the policy, but has interest in getting a fixed annual income for a fixed number of years. It is seen from the particulars given by the assessee that the assessee has two set of policies as under: - (1) giving fixed income of Rs. 22,000 per year for the 12 years next to valuation date 31-3-1982.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

(2) giving fixed income of Rs. 22,000 p. a. for the 16 years next to valuation date 31-3-82.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Hence, what the assessee has interest in is the future income.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

According to me, the value of that income to be received after a definite number of years as on today will represent the value of the assessee's interest. Rs.20,000 to be received after 12 years will not be worth that amount today. That value will have to be discounted. Considering the drop in the real worth of the money every year, I am of the view that discounting the above given yearly instalments of Rs.22,000 @ 4% per year will give the near correct today's worth of that future income. As stated above, the assessee has got two sets - one giving income for 12 more years from 31-3-82 and the other for 16 more years from 31-3-82. So, for the first 12 years subsequent to 31-3-82, she will be getting income of Rs.44,000 p.a. and for the balance 4 years Rs.22,000 per annum only. I would determine the value as under: -----------------------------------------------------------Future yearly No. of years Discounted Present valueIncome from valua- @ - rate future income tion date on valuation (Rs.) date (Rs.)----------------------------------------------------------44,000 1 4% 42,24044,000 2 8% 40,48044,000 3 12% 38,72044,000 4 16% 36,96044,000 5 20% 35,20044,000 6 24% 33,44044,000 7 28% 31,68044,000 8 32% 29,92044,000 9 36% 28,16044,000 10 40% 26,40044,000 11 44% 24,64044,000 12 48% 22,88022,000 13 52% 10,56022,000 14 56% 9,68022,000 15 60% 8,80022,000 16 64% 7,920 --------- I will, therefore, tax Rs.4,27,680 as the value of assessee's interest in the annuity policies.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

The reasoning of the learned first appellate authority is to the following effect: Coming to the valuation of the same, it is seen that the W.T.O. has adopted the discounting rate of 4% only. It is rather low. It is seen that even the National Savings Certificates give an interest rate of 12% per annum. Having regard to this it would reasonable to adopt a discounting rate of 12%. By adopting this discounting rate at 12% for the annual payments of Rs.22,000 for 12 years and also for another sum of Rs. 22,000 for 16 years, the valuation has to be arrived at by applying the corresponding numbers of years purchase as indicated in Table II of the Law and Practice of Gift-tax and Wealth-tax, 1984 Edn., by C.A. Gulanikar. The relevant number of years purchase are 6.974 (for 16 years) and 6.194 (for 12 years).

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

The total works out to 13.168 years purchase of Rs.22,000 which totals to Rs.2,89,696. The W.T.O. is directed to adopted by him in A.Y. 1982-83. The assessee gets a relief of Rs. 1,37,984. This position is for assessment year 1982-83. the W.T.O. is directed to adopt the corresponding years purchase at a discounting rate of 12% for the other two assessment years 1983-84 and 1984-85 also. The years purchase figure may be worked out for the period for which the payments are due on the valuation dates per Table II referred to earlier.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

The assessee is a world famous singer of India. Hardly any place will be there in India, where her enchanting voice has not reached and is not being heard. Her admirers will have to be counted in lakhs. There is therefore almost an ever-lasting demand for playing of record of songs sung by her. Her's is perhaps the only example where the law of diminishing returns in economics has been badly suffered. The assessee is entitled to receive royalty on the records of her songs sold in a year. By virtue of her excellence in the field, this income is more or less of assured nature. To go on having this income year after year is definitely a valuable right in possession of the assessee. Whatever is valuable will form the wealth of the assessee for the W.T. assessment purpose. The assessee's right to get royalty income on the sale of her records is also therefore, taxable in her hands. For determining the monetary worth of that right, I will consider the royalty received by the assessee in this and the 4 immediately previous years and would strike an average to see the average annual income from this source.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

That income will be capitalised @ 12% interest to give the capital value of the asset capable of producing that much average yearly income.Assessment Year Royalty received by the assessee 1982-83 Rs. 5,52,137 Her average yearly income from royalty would come to Rs.5,03,861.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

For the purpose of present valuation, I take it at a round figure of Rs.5,00,000. Capitalising this income @ 12% p.a. interest, the capital worth of asset capable to produce this annual income would be Rs.41,66,666. I will therefore, adopt the value of this valuable right of the assessee at Rs.41,50,000 (round sum) for the purpose of wealth-tax assessment.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

The reasoning of the learned first appellate authority on the above issue reads as under: If the royalties of subsequent five years and also the past five years as indicated in the wealth-tax order are summed up and averaged over a period of 10 years, the average royalty per annum comes to a figure of Rs.4.44 lakhs (rounded off to rupees - thousands). If these were to be treated as the annual flow of income for a period of 10 years life with a discounting rate of 12% the years purchase to be adopted as per Table II referred in the earlier ground is a multiple of 5.65. Adopting this multiple on Rs.4.44 lakhs the value in these royalties work out to Rs.24,86,000. These are the figures for assessment year 1982-83. The W.T.O. is directed to work out the corresponding average royalty for the 10 years by adopting the correct figures for the other two assessment years 1983-84 and 1984-85 also and applying on the same multiple of 5.65, to arrive at the net value of these royalties for other two assessment years.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

5. The assessee has placed on our file the following three documents.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Since these are material for proper adjudication of the issues involved, these stand reproduced hereunder: Whereas the LIFE INSURANCE CORPORATION OF INDIA (hereinafter called "the Corporation") has received a Proposal and Declaration for the purpose of an immediate Annuity which Proposal and Declaration with the statements contained therein, the Purchaser named in the Schedule hereto has agreed shall be and are hereby declared to the basis of this Annuity Contract and has received the Purchase Price for an Annuity of the amount and on the terms stated in the said Schedule.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Now this Policy witnesseth that in consideration of the premises the Corporation will pay at its Divisional Office specified below the Annuity as specified in the said Schedule to the person or persons to whom the same is therein expressed to be payable upon proof to the satisfaction of the Corporation being furnished in respect of each instalment that the instalment in question has become payable in terms of the said Schedule and of the title of the person or persons claiming to receive the instalment.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

But where the Annuity ceases or determines on the death of the Annuitant, no part of the said Annuity shall be payable or paid for such time as may elapse between the date of payment immediately preceding the death of the Annuitant and the day of his death, the subsistence of Life of the Annuitant at twelve of the clock on the day on which the said Annuity falls due being duly certified from time to time in such manner as the Corporation may require.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

And it is hereby declared that the following Schedule and every endorsement placed on the Policy by the Corporation shall be deemed part of the Policy.----------------------------------------------------------------------------Annuity Policy Type of Amount of Other Particulars of the PolicyNo. & Date of Annuity Annuity----------------------------------------------------------------------------18689889 Rs. P. Rs. P.1-11-71 60 145.00 2006-90 Purchase Price.Purchaser and Annuitant 30-10-71 Date of the ProposalM/s. Pooja Movies, 1-11-72 Date of 1st2, Deepali, AnnuitySt. Cyril Rd. Bandra, InstalmentBombay-50 1-11-91 Date of Last Annuity----------------------------------------------------------------------------Type of Annuity.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Immediate Annuity without Profits for 20 years certain.Event on the happening On the expiry of 20 years calculatedof which Annuity ceases from the date of Commencement,or determines.To whom Annuity payable To the Annuitant.Dates when Annuity On the stipulated date of the first Annuitypayable instalment and Yearly thereafter.---------------------------------------------------------------------------- Name of the Nominee (under Section 39 of the Insurance Act, 1938) to whom the balance (if any) of the guaranteed number of Annuity instalments are to be paid in the event of the death of the Annuitant during such period provided he is also the Purchaser:---------------------------------------------------------------------------- Special Provisions----------------------------------------------------------------------------In Witness whereof these presents have been stamped and signed on behalf ofthe Corporation at the abovementioned Divisional Office.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

As per our Agreement with Miss Lata Mangeshkar, 101 Prabhu Kunj, Pedder Road, Bombay-26, we have to pay her at the rate of Rs.145 (Rupees one hundred forty five only) per year for a period of twenty years during the month of November each year commencing from November, 1972. In pursuance to the said Agreement, we do hereby assign absolutely and irrevocably, as beneficial owner, the Policy of Assurance No. 17689889 granted to us by the Life Insurance Corporation of India, wherein we are the Annuitant, to the said Miss Lata Mangeshkar, her heirs, executors, administrators or assigns and declare that all the rights, title and interest accrued or accruing thereunder shall become payable to her, her heirs, executors, administrators or assigns and declare the receipt or receipts of the said Miss Lata Mangeshkar, her heirs, executors, administrators or assigns, shall be sufficient discharge to the Corporation for the same.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Further the benefits assured under this Policy cannot be assigned or liquidated in any manner whatsoever by the assignee Miss Lata Mangeshkar. No surrender value is payable; nor can the annuity instalments payable thereunder be commuted for a lump sum. No loan can be granted on the security of this Policy and further this also will not be a subject matter of any other deal whatsoever.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Dated at Bombay this 20th day of November, 1971.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

For POOJA MOVIES,Sd/- Proprietor.Signature of the Assignee.Witness: Signature of the Assignor.Signature: Sd/-Full Name: P.S. Kochar,Designation: LIC Agent, A/c.No.60287911Address: Sea Glimpse, 1st Floor, A Gaffar Khan Road,Worli Hill, Worli, Bombay-18.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Life Insurance Corporation of India24/30, 1ST MARINE STREET, pHOBI TALAO, BOMBAY-400 002.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

19th October, 1984.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

On behalf of our client Miss Lata Mangeshkar we have to address you as under: On 27th January, 1984 our client received from you a cheque of Rs.52,484/27 as royalty on records and cassettes along with statement of sales. It is noticed that although the Record "RAM RATAN DHAN PAYO" has been awarded a Gold Disc Royalty amount allowed to our client is very nominal. Similarly the Royalty on "GANDHI FAV-BHAJANS" Record is also too small. No royalty has been accounted for on "LATA-KISHORE LONDON" Record. Also in the statement we do not find any royalty on Delhi Show on World Cup. The Royalty on film records does not appear to have been properly accounted for.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

We therefore call upon you to let us have full statement of royalties due to our client on all records and cassettes and ensure that the Royalties are properly accounted for. We also call upon you to pay to our client the entire Royalty up-to-date without any delay.(3) THE GRAMOPHONE COMPANY OF INDIA LTD. UNIVERSAL INSURANCE BUILDING,November 16,1985.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

REGISTERED A.D.Mr. H.S. Khurana, Kindly refer to your letter of 6th November with regard to the royalties due to your client, Kum. Lata Mangeshkar.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

We are fully aware that delay has taken place in paying royalties to your client and are anxious to do so at the earliest opportunity.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Your client is fully aware of the grave financial crisis existing in the Company and has personally told the undersigned that she fully appreciates the reasons of delay.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Please be advised that at present it will not be possible for us to pay the total royalties due to your client and we shall endeavour to do so at the earliest possible opportunity, when funds become available.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

6. From the above 'Policy', it is clear that the assessee is neither Purchaser nor Annuitant. She is pure and simple 'Assignee'. In Black's Law Dictionary, Special Deluxe, Fifth Edition, at pages 108 and 109 'Assign', 'Assignee' and 'Assignor' as also 'Assignment of income' have been defined as under: - Assign : To transfer, make over, or set over to another. To appoint, allot, select, or designate for a particular purpose, or duty. To point at, or point out; to set forth, or specify; to mark out or designate; to particularize, as to assign errors on a writ of error; to assign breaches of a covenant. See also Assignment.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Assignee : A person to whom an assignment is made; grantee. Under UCC assignee is subject to all defenses which may be asserted against assignor by account debtor.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Assignee in fact is one to whom an assignment has been made in fact by the party having the right.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Assignee in law is one in whom the law vests the right; as an executor or administrator.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Assignor : A person who assigns or transfers property to another.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

See Grantor.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Assignment of income : A procedure whereby a tax-payer attempts to avoid the recognition of income by assigning the property that generates the income to another. Such a procedure will not avoid the recognition of income by the taxpayer making the assignment if it can be said that the income was earned at the point of the transfer.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

In this case, usually referred to as an anticipatory assignment of income, the income will be taxed to the person who earns it.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

If the assessee is an Assignee, then taking the definition of 'Assignment of income' as reproduced above, nothing is taxable in the hands of the assessee, qua 'Annuity Policies'. Since copies of all the Policies have not been placed on our files, we will direct the learned first Appellate authority to decide the issue afresh in accordance with law, of course, after hearing the assessee and the assessing officer and after calling for from the assessee all the Policies issued by the L.I.C. of India and alleged to be a "Annuity Policy". The decision has to be in terms of the definition of 'Assignment of income' as reproduced above. If in those Policies also the assessee is an 'Assignee'. The orders of the learned lower authorities on this aspect of the case stand set aside for doing the needful.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

7. As regards the second issue, the assessee's learned Counsel's letter dated 19-10-1984 along with the reply of M/s. Gramophone Co. of India Ltd. prove the assessee's case that royalty is becoming doubtful every year and it is on the decrease also. Here also we can do no better but to extract an 'Example' from page 2.183 horn Law & Practice of Gift Tax & Wealth Tor(1984) Edition by the eminent writer and author Shri CA.Gulanikar. It reads as under: A famous playback singer has royalty income on discs of Rs. 16,000 per annum. The life of disc is generally 2 to 4 years. Value the right in 1968.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

The royalty would be tapering with hunch, say, for second year of release, if it is a hit. The income may, therefore, be averaged out.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

Firsl it is necessary to bifurcate the income on the basis of release.Release 1st year 2nd year 3rd year 4th year Average Rs. Rs. Rs. Rs. Rs.1976 12,000 18,000 10,000 7,000 11,7501977 8,000 12,000 12,000 5,000 9,2501978 18,000 22,000 20,000 16,000 19,0001979 22,000 27,000 24,000 20,000 23,250 The hit songs have longer life than anticipated. The estimated income may be taken at Rs.15,000 though the average income is Rs.13,330. Taking the expected life of three years and rate for capitalisation at 12 per cent, the years purchase is Rs.2,402. The capitalised value is Rs. 15,000, 2.402 or Rs. 36,030.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

8. The above would be the best and most comparable example for valuing the royalty and we adopt the same in the case of this assessee also.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

The multiple to be adopted as such has to be 2.402 and the valuation shall be worked out in tune with the above quoted work out/example.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

9. The orders of learned lower authorities shall stand modified since the work oul has to be in accordance with the above quoted example.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

They are directed to revise the work out and adopt it accordingly.

Notice (8): Undefined variable: query [APP/View/Case/amp.ctp, line 144]

10. For statistics, the Revenue succeeds partially, since on the issue of annuity we have remanded back the matter. The assessee's appeals shall be deemed to have succeeded partly on merits and partly for statistics.