Chandurkar, J.:— The question which has been referred to this court under s. 27(1) of the W.T Act (hereinafter referred to as “the Act”) at the instance of the revenue is as follows:

“Whether the terms and conditions of the grant dated 23rd October, 1867, precluded the commutation of the right to annuity of Rs. 50,000 or any portion thereof into a lump sum grant?”

2. In order to properly appreciate the question required to be answered in this reference, it is necessary to refer to certain events which preceded the assignment of the annuity in favour of the present assessee by the registered document dated 25th February, 1954. The Secretary of State in Council for India by an indenture dated 23rd October, 1867, agreed to grant forthwith to one Ramchunder Luxmonjee, his heirs (whether by inheritance or adoption), executors, administrators and assigns annuity of Rs. 50,000 from 23rd October, 1877, in perpetuity. By a registered deed dated 20th October, 1877, the heirs of Ramchunder Luxmonjee, that is, his son, Vinayakrao, for himself and his minor children, assigned the said annuity in perpetuity in favour of Sir Cowasjee Jehangir Readymoney for a consideration of Rs. 9 lakhs.

3. In 1911, an Act called the Cowasjee Jehangir Baronetcy Act, 1911, came to be passed by the Governor-General of India in Council. The object of the Act was to settle the annuity of Rs. 50,000 payable by the Secretary of State in Council for India in perpetuity being of the value of Rs. 15 lakhs and certain securities of the nominal value of Rs. 10 lakhs and producing a further annual income of about Rs. 40,000 and two mansion houses called Readymoney House and Fort Mansion in the island of Bombay “so as to accompany and support the title and dignity of a Baronet” lately conferred on Sir Cowasjee Jehangir Baronet by his late His Majesty King Edward VII. The concluding portion of the preamble of the said Act recited that “the said Sir Cowasjee Jehangir is desirous of settling the said annuity and the said securities and the said mansion-houses and hereditaments so as aforesaid agreed to-be settled by him for the purpose of supporting the dignity of the said Baronetcy, to the uses, upon the trusts and for the purposes hereinafter limited and declared, concerning the same respectively Under the Act a corporation with perpetual succession and common seal under the style and title of “The Trustees of the Sir Cowasjee Jehangir Baronetcy” was created for executing the powers and purposes of the Act. Under s. 4 of the Act the annuity of Rs. 50,000 and the securities of the nominal value of Rs. 10 lakhs referred to earlier stood assigned and transferred into the name of the Corporation who were to hold the same upon the trusts and for the purposes expressed in the Act for the benefit of Sir Cowasjee Jehangir or the person who as heir male of his body shall for the time being have succeeded to and be in the enjoyment of the title of Baronetcy conferred by the Letters Patent of King Edward VII notwithstanding any rule of law or equity to the contrary.

4. Sir Cowasjee Jehangir, the Second Baronet was thus alone entitled to the annuity of Rs. 50,000 by virtue of the provisions of the Baronetcy Act.

5. Sir Cowasjee Jehangir, the Second Baronet, then transferred one-half share in the said annuity by a deed dated 1st November, 1947, to Cowasjee Jehangir & Co. Ltd., for consideration. Sir Cowasjee Jehangir, the Second Baronet, and Cowasjee Jehangir & Co. Ltd., then transferred their respective one-half interest in the said annuity in favour of the assessee for consideration by a registered deed dated 25th of February, 1954. That is how the assessee has become entitled to the whole of the annuity of Rs. 50,000 payable under the document dated 23rd October, 1867.

6. In the assessment proceedings under the Act for the assessment years 1957-58 to 1965-66, the assessee claimed that the value of the said annuity was not liable to be included in his net wealth in view of the provisions of s. 2(e)(1)(iv) of the Act. This contention was negatived by the WTO as well as by the AAC.

7. The Tribunal in appeal filed by the assessee referred to the decision of the Gujarat High Court in CWT v. Dr. E.D Anklesaria, [1964] 53 ITR 393, and took the view that since the assessee could not demand commutation as of right, commutation must be said to have been precluded by the terms of the grant. The Tribunal rejected the contention of the revenue that since there was no express term in the instrument to the effect that the right to annuity can in no circumstances be-commuted, the annuity should be deemed to be a commutable annuity. The Tribunal took the view that in the absence of any term and condition in the grant recognising the annuitant's right to claim commutation of annuity, such a right should have been held to be clearly barred thereunder. The Tribunal, therefore, excluded the value of the annuity from the net wealth of the assessee in all the years in question.

8. The question reproduced earlier which clearly arises on the facts of the case and the order of the Tribunal is, therefore, required to be answered by this court.

9. Shri Joshi appearing on behalf of the revenue has contended that the terms of the grant of 1867 do not contain any express provision which precludes commutation of the annuity into a lump sum. He has invited our attention to the value of the annuity put at Rs. 15 lakhs in the Act of 1911 and, according to the learned counsel, this figure clearly indicated that the annuity could be commuted and commutation, according to the learned counsel, must be taken to be the normal rule. It was, therefore, contended that unless the terms and conditions of the grant themselves clearly indicated that there was no right of commutation in the annuitant, every annuity must be taken to be capable of commutation. Thus, according to the learned counsel, the assessee was not entitled to the benefit of s. 2(e)(1)(iv) of the Act.

10. Now, s. 2(e)(1)(iv) provides as follows s

“‘Assets’ includes property of every description, movable or immovable, but does not include,—…

(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 lump sum grant.”

11. The provisions of cl. (iv) quoted above, therefore, provide that where an annuity is capable of being commuted into a lump sum grant, the value of such annuity will be included as a part of the assets for the purposes of computation of the net wealth of the assessee. But where an annuity cannot be commuted into a lump sum grant because such commutation is precluded by the terms and conditions relating to the said annuity, the value of such a right will have to be excluded from the assets of the assessee.

12. Shri Dastur appearing on behalf of the assessee has contended that where there is an express provision in the grant which prevents the annuity from being commuted, not much difficulty will arise for ascertaining whether the requirement of cl. (iv) are satisfied or not. But acccording to the learned counsel, in case there is no specific bar expressly provided by the terms of an annuity, then the question as to whether the terms and conditions of the annuity preclude the commutation of the annuity into a lump sum will have to be determined by posing the question as to whether the annuitant has a right to ask for commutation. According to the learned counsel, where the answer to such a question is in the negative, the com mutation must be held to be precluded and the benefit of cl. (iv) could be claimed by the assessee.

13. The learned counsel has relied on a decision of this court in CWT v. Bhalchamora D. Jokhakar, [1978] 112 ITR 228. The Division Bench in that case has while referring to the preclusion of the right of commutation contemplated by cl. (iv) of s. 2(e)(1) observed that such preclusion may be by express terms of the contract or may arise by implication. The material facts of that case showed that a transaction between the original assessee and one Habib Hussein was entered into as a result of which the assessee was liable to pay Habib Hussein a sum of Rs. 3,20,000 within a period of five years by quarterly instalments of Rs. 16,500 each. The original assessee had paid only Rs. 1,90,000 up to May, 1958, leaving a balance of Rs. 1,40,000. A fresh agreement was entered into between the original assessee and Habib Hussein with regard to the payment of the balance amount of Rs. 1,40,000. Under this document Habib Hussein undertook to pay Rs. 1,000 per month to the original assessee for his lifetime and if there was a default of any two instalments for any two months, the original assessee was entitled to recover from Habib Hussein payment at enhanced rate at Rs. 1,500 per month with interest. This agreement was dated 20th May, 1958. The WTO valued the life interest of the original assessee under the agreement dated 20th May, 1958. The assessee's claim that the payments under the said agreement were annuities which fell under s. 2(e)(1)(iv) in the, sense that the terms and conditions pertaining thereto precluded commutation of life interest was rejected. The Tribunal, however, took the view that the annuity under the terms of the agreement dated 20th May, 1958, was covered by the exemption under s. 2(e)(1)(iv) of the Act. In the reference which was brought to this court, it was observed by the Division Bench that the preclusion contemplated by s. 2(e)(1)(iv) may be by express terms of the contract and may arise by implication. Referring to that part of the deed which provided for the assessee's right to recover the amount at an enhanced rate of Rs. 1,500 per month and that in consideration of the annuity, the original assessee had given up and released Habib Hussein from a debt remaining due under the deed of mortgage and the original assessee agreed to reconvey the property separately, the Division Bench held that the operative part of the deed, far from indicating that any part of the annuity could be commuted into a lump sum payment, clearly suggests that there was no such right of commutation to the original assessee. Holding that the lump sum was exchanged for the grant of annuity by the agreement of May, 1958, the Division Bench pointed out that this clearly went to show that there was an implied preclusion from commuting the annuity into a lump sum grant and the view of the Tribunal was upheld. The decision in Bhalchamora's case, [1978] 112 ITR 228 (Bom) is, therefore, a clear authority for the proposition that the question as to whether in the case of an annuity, the value thereof could not be included in the net wealth of an assessee under s. 2(e)(1)(iv) of the Act does not necessarily get answered in favour of the revenue merely because the terms and conditions of the grant of the annuity do not contain any positive express provision which prevents a commutation of the annuity into a lump sum. As a matter of fact if there was such an express provision, no further enquiry was really required to be made.

14. It is when there is no express provision which prevents commutation of annuity into a lump sum grant that a further enquiry becomes necessary in that direction and such an enquiry must necessarily be directed at finding out whether the preclusion of such a right can be inferred from the terms and conditions of the grant. That is how the Division Bench in Bhalchamora's case, [1978] 112 ITR 228 (Bom) has taken the view that a preclusion of a right of commutation may arise by implication.

15. It is in this context that the learned counsel for the assessee has placed reliance or the decision of the Gujarat High Court in Dr. E.D Anklesaria's case, [1964] 53 ITR 393. On the authority of that decision the learned counsel has contended that the proper approach to be adopted in deciding the controversy involved in the question posed in the reference must be whether under the grant of 1867 the assessee can legitimately and rightfully ask the Government to pay a lump sum amount in lieu of the annuity. According to the learned counsel the right of the assessee is primarily under the deed of 1954 under which the the right to receive the annuity is assigned to him and the limited right, according to the learned counsel, is to receive the annuity of Rs. 50,000. In other words, the contention appears to be that it is not open to the assessee to ask for the commutation of the annuity into a lump sum grant. The learned counsel has also referred us to the provisions of the Act of 1911 and according to the learned counsel, the assessee was entitled to receive the annuity after the Act of 1911 from the trustees created by the Act, namely, the corporation. An alternative contention was also raised before us that under the Act, the assessee could not ask the trustees for commutation because he has to receive the amount only from the trustees and cannot approach the Secretary of State or the Government. The contention was that even assuming that the trustees bad a right of commutation, the assessee did not have any such right and considered either way, according to the learned counsel, the value of the annuity could not be included in the net wealth of the assessee.

16. Now, it cannot be in dispute that we must primarily look to the original grant of 1867, It is the annuity provided by the grant of 1867 that was settled by the Act of 1911 and it vested in the corporation under the style and title of “The Trustees of the Sir Cowasjee Jehangir Baronetcy”. Admittedly the indenture dated 23rd October, 1867, between the Secretary of State in Council for India and the original grantee of the annuity, Ramchunder Luxmonjee, does not contain any clause either permitting the annuitant to have the annuity commuted into a lump sum grant or prohibiting the annuitant from commuting the annuity into a lump sum grant. When we consider the grant made by the Secretary of State in Council in favour of the original annuitant, the deed of 23rd October* 1867, must be read as the only repository of all the rights and the obligations of the Secretary of State in Council and the annuitant. The limited right of Ramchunder Luxmonjee under the original grant of 23rd October, 1867, was to get an annuity of Rs. 50,000 payable in four quarterly payments of Rs. 12,500 each on the 23rd day of January, April, July and October in each year, the first of such payment to be made was on 23rd January, 1878. While construing this grant we cannot assume, as was contended by Shri Joshi on behalf of the revenue, that a right of commutation must be presumed and taken for granted. The proper approach in ascertaining whether a right of commutation is precluded or not must necessarily be, to ask the question as to whether the assessee has a right to have the annuity commuted or not. Unless it is possible to find from the terms and conditions of the grant that there is a right of commutation vested in the annuitant, it will have necessarily to be held that the right of commutation is precluded. While construing a grant made by the Crown or the Government, nothing more can be read in it than what is expressly stated in the deed of grant itself. On the face of the grant dated 23rd October, 1867, therefore, it is impossible to hold that there is a right of commutation given to the annuitant or that the right of commutation is not precluded.

17. Though the right to claim annuity originally got vested in Sir Cowasjee Jehangir by the document dated 20th October, 1877, the subsequent enactment of the Act of 1911 has also, in our view, some impact on the question as to whether in the present case, the right of commutation can be said to have been precluded. As already pointed out earlier, Sir Cowasjee Jehangir has acquired the right to claim annuity from the heirs of Ramchunder Luxmonjee on a payment of a sum of Rs. 9 lakhs. The annuity is payable in perpetuity. That fact by itself may not prevent a proper ascertainment of the present value of the annuity. But what s. 2(e)(1)(iv) refers to is not the ascertainment of the present value, but it refers to commutation of the value of the annuity into a lump sum. The commutation of the value of the annuity must necessarily imply that in lieu of the right to receive annuity, the annuitant claims a lump sum payable to him and he gives up his right to receive the annuity. Commutation is, therefore, a bilateral transaction in which the grantee of the annuity gives up his right to receive a sum annually in return for a lump sum and the grantor gets rid of his recurring liability to pay an annuity annually.

18. Now, when we come to the Act of 1911, we find that the annuity along with the other securities which were likely to yield income of about Rs. 40,000 as also the two mansions, namely, Readmoney House and Fort Mansion were statutorily settled and vested in a Corporation “so as to accompany and support the title and dignity of a Baronet”. The object of the Act, therefore, was that whoever was for the time being a Baronet was to be assured a substantial amount of income consisting of the annuity of Rs. 50,000 plus the additional amount of Rs. 40,000 from other securities, so that he should be able to maintain the dignity and office of a Baronet conferred upon him by the British Crown. The Act also provides that the Baronet for the time being could not transfer, dispose of, alienate, convey, charge or encumber the trust funds or the interest, dividends and annual income thereof or the two mansion houses beyond his life and for such portion of the lifetime as be shall continue to use the name of Cowasjee Jehangir. The obvious intention of the Act was that the amount of the annuity of Rs. 50,000 was to pass from successor to successor to the Baronetcy as long as there were heirs who could succeed to the Baronetcy. This circumstance would also indicate ‘that the object of the Act was to see that the annnity which was assigned in favour of Sir Cowasjee Jehangir, the first Baronet, by the deed dated 20th October, 1877, was to enure for the benefit of the succeeding Baronets also. If this annuity was allowed to be commuted, then the succeeding Baronets would not get the amount of Rs. 50,000 per year as provided for under the Act of 1911. There was, therefore, clear indication in the Act that the original grant of 1867 assigned by the document of 20th October, 1877, was never intended to be allowed to be commuted by any Baronet much less by an assignee from such Baronet.

19. Shri Joshi appearing on behalf of the revenue has vehemently objected to any reference to the provisions of the Act of 1911 being made in order to decide the question as to whether the annuity in the instant case is com-mutable or commutation is precluded. The learned counsel has invited our attention to the question which has been referred and, according to the learned counsel, the question of preclusion of commutation has to be decided only with reference to the-terms of the grant dated 23rd October, 1867. In aid of this argument, the learned counsel has invited our attention to the arguments advanced before the Appellate Tribunal and, according to the learned counsel, it was never contended before the Tribunal that commutation was precluded by the terms of the 1911 Act, Shri Joshi, however, was fair enough to concede that the arguments in this court need not be restricted only to the arguments advanced before the Tribunal. We are, however, unable to see how a reference to the provisions of the 1911 act can be avoided in the context of the facts on which the question posed before us has arisen for decision. It is not as if the Act of 1911 is being referred to for the first time. Indeed, in the course of the opening arguments before us, Shri Joshi has himself referred to the provisions of the Act of 1911. The statement of the case also refers to the provisions of the 1911 act and it is observed in the statement of the case that Sir Cowasjee Jehangir, the second Baronet, was alone entitled to the said annuity of Rs. 50,000 by virtue of the provisions of the said Act. It may be recalled that the present assessee is an assignee from the second Baronet, Sir Cowasjee Jehangir. He, therefore, steps into the shoes of the second Baronet. The question as to whether the annuity could or could not be commuted into a lump sum could not be decided with reference to the present assessee or to any particular person. The question has to be decided with reference to the grantee of the annuity under the grant. The original annuitant was the second Baronet and the question as to whether the second Baronet was entitled to commute the annuity was also a relevant question. His rights were governed by the provisions of the Act of 1911. If the annuity settled by the Act of 1911 was to be paid to the second Baronet with a view to support the title and dignity of the Baronet and the assignee would get the same interest in the annuity as the second Baronet, his rights could also be controlled and regulated by the provisions of the Act of 1911.

20. It is not necessary to consider the alternative argument advanced on behalf of the assessee that so far as he was concerned, his right to claim the annuity could be exercised only against the corporation which was the trustee and he had no rights directly against the Secretary of State for India or the Government and, therefore, he could not have asked for commutation of the annuity from the Secretary of State. As already pointed out, the view which we have taken is that the commutation was precluded in the instant case on a construction of the grant itself. Even so far as an annuity granted as a bequest is concerned, the position in law appears to be contrary to what is contended on behalf of the revenue. In Halsbury's Laws of England, 3rd edn., vol. 32, p. 547, para. 929, it is observed as follows1:

“In the case of a simple bequest of a life annuity, where the testator's estate is sufficient, the annuitant cannot claim to be paid in cash the value of the annuity”

21. To the same effect are the observations in Executors, Administrators and Probate by Williams and Mortimer, 1970 Edn. at p. 810, where the learned authors under the heading “Value of Annuities” have observed as follows:

“Where one, of the liabilities of the testator's estate is a life annuity, the annuitant is not, in the administration of the estate, entitled to the value of the annuity as a gross sum.”

22. The question as to whether in the case of a bequest of an annuity, the annuity can be said to be capable of commutation has been considered in detail in Dr. E.D Anklesaria's case, [1964] 53 ITR 393 (Guj). Undoubtedly that was a case where a testamentary disposition was being examined under the terms of which an annuity of Rs. 6,000 per month was to be paid out of the net income of the trust fund and the assessee claimed that the value of the annuity was entitled to exemption under s. 2(e)(1)(iv) of the Act. On the terms of the relevant deed, the Gujarat High Court held that so far as the annuity to the assessee was concerned, it was to be paid only out of the net income of the trust fund and no part of the corpus was at any time to be utilised for the purpose of paying it to the assessee. According to the Division Bench, it was in this context that it was to be seen whether the terms and conditions relating to the annuity permit or prevent the commutation of the annuity into a lump sum grant. It was pointed out by the Division Bench that if the assessee was to call upon the trustees to commute the annuity into a lump sum grant, there would obviously be a breach of trust as the trustees were not entitled to part with any part of the corpus of the trust funds and were to utilise only the net income for the purposes of the payment of annuity. Holding that by the application of any part of the corpus of the trust fund for the purpose of the commuted value of the annuity, the trustees would be guilty of breach of trust, the Division Bench pointed out that it was apparent that the terms of the deed of trust precluded the commutation of the annuity into a lump sum grant and the annuity would in that event fall within the category specified in s. 2(e)(1)(iv). The learned judges have quoted the passage from William's on Executors, Administrators and Probate, extracted above, with approval. The ratio of the decision of the Division Bench which is to be found at page 406 was that where there is a simple bequest of an annuity, whether such annuity be payable out of the estate of the testator generally or out of any particular part of the estate, the annuitant cannot require the trustees to pay the value of the annuity: he must have the annuity from year to year as and when it falls due and not in a lump sum grant. After quoting a passage from In re Cox: Public Trustee v. Eve, [1938] Ch 556 (Ch D), the Division Bench made the following observations: (p. 408 of 53 ITR):

“The principle underlying this proposition is that in a case where there is a simple bequest of an annuity, then even though a fund may be directed to be set apart to answer the annuity, and the annuity may be charged on capital as well as income, the annuitant cannot demand payment of the value of the annuity, for, what is bequeathed to him is not the sum of money necessary to purchase the annuity but merely the annuity to be paid out of income and in case of deficiency of income out of capital. The annuitant can, therefore, get only the annuity and not the value of the annuity.”

23. The learned judges have also quoted with approval the passage from Halsbury's Laws of England, which we have extracted earlier. The decision of the Division Bench of the Gujarat High Court in Dr. E.D Anklesaria's case, [1964] 53 ITR 393, therefore, clearly negative the contention raised on behalf of the revenue that whenever an annuity is granted, the right of commutation must be presumed and that unless expressly provided for, such right cannot be said to be precluded. We have referred to the decision in Dr. E.D Anklesara's case, [1964] 53 ITR 393 for the limited purpose that even in the case of an annuity by bequest, all that the annuitant is entitled to get is the amount of the annuity and not the value of the annuity after commutation.

24. In the light of the legal position set out above, it is not possible to accept the contention on behalf of the revenue that the annuity in the instant case must be held to be commutable. The terms and conditions of the grant dated 23rd October, 1867, in our view precluded the commutation of the right to annuity of Rs. 50,000 or any portion thereof into a lump sum grant. Consequently, the question referred to us must be answered in the affirmative and against the revenue. The revenue to pay the costs of this reference.