What is common to Rajnikant, NT Rama Rao, Chiranjeevi, Jayalaitha?
They were/are all super stars no doubt, and as coincidence would have it, they all had the same problem with wealth tax. It is apparently a practice in the film industry to collect remuneration in different forms. An annuity policy seems to be one such mode.
In a case we are reporting today, Rajnikant vs ASST. COMMISSIONER OF WEALTH TAX, Super star Rajnikant is in appeal before the High Court. He had claimed exemption of the annuity policies held by him which was disallowed by the Assessing Officer, who brought the annuity policies to tax. Aggrieved Rajnikant succeeded with the Commissioner (Appeals). But a persistent Revenue took the matter to the ITAT, which reversed the order of the Commissioner and upheld the assessing officer’s order. The star is in the High Court.
The High Court had on earlier occasion on the same star’s case on the identical issue had passed an order in favour of Revenue. And second time too the star lost in the High Court.
NT Rama Rao faced the same problem – interestingly after his death .COMMISSIONER OF WEALTH-TAX v. N. T. RAMA RAO (DECD.). (THROUGH LEGAL REPRESENTATIVES) -
The Wealth-tax Officer accepted NTR’s plea and did not include the assessee's interest in the annuities in his net wealth. The Commissioner reviewed the order and held that that the Wealth-tax Officer failed in including the value of the annuities in the net wealth and accordingly committed error in determining the assessee's wealth. This was in 1988, around the time the NTR glamour was slipping down. Taxmen and calamities generally come together. NTR challenged the Commissioner’s order in the ITAT. The Tribunal set aside the order of the Commissioner and upheld the WTO’s order. Incidentally the Tribunal noticed that an identical order of the WTO, in the case of another Super Star and living legend AkkineniNageswara Rao was accepted by the department and no appeal was filed. But in NTR’s case, the Government was determined and so took the case to the High Court. Incidentally NTR had lost the elections and was out of power at that time.
The High Court observed,
The view taken by the Commissioner that after the insertion of clause in section 2(e)(2)(ii) of the Act and insertion of the proviso under clause (vi) of section 5(1) with effect from April 1, 1975, the exemption in respect of annuities will be available only to the extent explained in the proviso to section 5(1)(vi) of the Act irrespective of the date on which the policies are taken or annuity contracts are entered into, is correct. The decision of the Commissioner that the proviso to section 5(1)(vi) of the Act would come into play and at the best the assessee would be entitled to only one tenth of the total value of the policies but not to the full extent of the policies for the reason that the annuity policies were for less than ten years, in our considered opinion, is absolutely correct.
The current super star of Telugu, Chiranjeevi faced the same issue in Chennai. In COMMISSIONER OF WEALTH TAX CENTRAL-I, MADRAS Vs K CHIRANJEEVI - , the WTO disallowed the Rs. 17,25,000/- annuity paid by film producers for Chiranjeevi. On appeal by Chiranjeevi, the Commissioner (Appeals) allowed the appeal. The Revenue appeal failed before the Tribunal and they took the matter to the High Court. The High Court relied on the NTR case and allowed the Revenue appeal.
Is this annuity business confined to South Indian stars? No, long before the NTR case reached the AP High Court, the Bombay High Court in COMMISSIONER OF WEALTH TAX vs. AJIT, the Hindi star, held that annuity is includible in the net wealth of the assessee.
Strangely among all these failures, Jayalalitha was a super success when she won an annuity case in COMMISSIONER OF INCOME-TAX Vs JAYALALITHA - 2003-TIOL-154-HC-MAD-WT.
An annuity policy was taken out by a film producer Vijaya International, which produced the film "Nam Naadu" in which the assessee Jayalalitha had acted. The policy was taken out on an agreement between the firm "Natyakalaniketan" of which Jaya and her mother were partners and the film producer. The policy provided for annual payments from April 1, 1974, to April 1, 1980. The payments were to be made to the firm and not to the assessee. However, well before 1974, the firm came to be dissolved on the death of the assessee's mother in the year 1971. Under the will left by her mother, the assessee became entitled to the interest of her mother in the firm, and the annuity payments which were otherwise payable to the firm became payable to her. For these assessment years, the amount of annuity received by the assessee was treated as part of her wealth for the purpose of assessment under the Wealth-tax Act by the WTO.
The Tribunal held that the right of annuity became the assessee's property only by succession and was not purchased by any other person in pursuance of a contract with the assessee and, therefore, not an 'asset' within the meaning of section 2(e)(1)(iv) of the Wealth-tax Act, 1957, and not includible in the net wealth of the assessee.
The matter reached the High Court which agreed with the ITAT. The High Court observed,
++ If the Act at the very threshold chooses to exclude certain types of property from the category of assets, there is no rule of construction which would require that the width of the exclusion should be decreased by stretching the words defined in the definition provision beyond their plain literal meaning.
++ What was intended to be taxed are the assets and what was excluded from the category of assets is not within the purview of the Act.
++ An annuity purchased by a person who had not entered into a contract with the assessee is not an asset for the purpose of the Act, if the other condition, namely, that the terms and conditions of the annuity preclude the commutation of any portion thereof into a lump sum grant is satisfied.
++ The fact that all the partners have an interest in the partnership property does not necessarily lead to the conclusion that for the purpose of the Wealth-tax Act, even in the absence of appropriate language therein, the contract to which the firm is a party, should be treated as a contract with each partner individually.
The High Court not only decided the case in her favour but also awarded costs of Rs. 2000/-
Jayalaitha is unique; she must be the only star who got money from the Income Tax department!