consideration money from the purchasers and the purchasers having been put into possession were protected in terms of s. 53A of the Transfer of Property Act and the term 'owner' not only included the legal ownership but also the beneficial ownership. The High Court following the ratio of Commissioner of Income Tax, A.P. Hyderabad v. Nawab Mir Barkat Ali Khan,  Tax L.R. 90, reversed the order of Tribunal and upheld that of the Wealth Tax Officer and the Assistant Appellate Commissioner. The Assessee-Nizam of Hyderabad, was a paramount ruler owning certain private properties called Sarf-e-khas. On surrendering his paramountcy and acceding to the Union of India, his private properties were taken over by the Government and it was agreed to pay him a sum of Rs. 1 crore annually distributed as follows: (a) Rs.50 lakhs as a privy purse; (b) Rs.25 lakhs in lieu of his previous income from the Sarf-e-khas, and (c) Rs.25 lakhs for the upkeep of palaces etc. The Government in its letter to the assessee stated that his Sarf-e-khas estates should not continue as an entirely separate administration independent of the Diwani administrative
property. The hall mark of an annuity is: (1) it is a money; (2) paid annually; (3) in fixed sum; and (4) usually it is a charge personally on the grantor. [1091G-H] (14) In this case, in view of the background of the terms of payment and the circumstances why the payment was made, there cannot be any doubt that Rs.25 lakhs annually was an 'annuity'. It was a fixed sum to be paid out of the property of the Government of India in lieu of the previous income of the assessee from Sarf-e-khas. Therefore, it was an'annuity'. [1093C-D] (15) In the instant case, there is no express provision in the document itself which prevented commutation of this annuity into a lump sum. For inferring whether such as express provision precluding commutation exists, the background of the facts and circumstances of the payment has to be kept in mind. The assessee was given Rs.25 lakhs in lieu of his previous income from the Sarf-e-khas. Income is normally meant for expenditure. The assessee had to incur various exenditures. Commutation is often made when one is not certain as to whether the source
from which that income comes. In this case, this being an agreement between earstwhile ruler and the Government of India, there is no such motivation and this payment of Rs.25 lakhs in lieu of the previous income of Sarf-e-khas must be read in conjunction with two other sums namely Rs.50 lakhs as privy purse and Rs.25 lakhs for upkeep of palaces. This bears the same character. [1093E-H; 1094A-B] (16) As privy purses were not commutable, from the circumstances and keeping in background of the payment, there was an express provision flowing from the circumstances precluding the 1078 commutation of this amount of Rs.25 lakhs and, therefore, it was exempt under s. 2(e) (iv) of the Act. [1094B-C] (17) There was no right granted and can be gathered from the terms of the grant of payment for the assessee to claim commutation of the amount of Rs.25 lakhs. That would defeat the purpose of the set up of the arrangement under which the payment of the amount was made. From the nature of the sum stipulated in the letter written by the Government to the assessee, the assessee
before, which was question no. (v) before the High Court, has to be understood in the context of the facts of this case. The right of the assessee to get the amount in question i.e. Rs.25 lakhs a year, arose in the wake of accession of the Hyderabad State to the Union of India. Several communications followed between the Military Governor of Hyderabad,.Maj. Gen. Chaudhuri and the Nizam of Hyderabad as well as other officers. It has to be borne in mind that the assessee was a paramount ruler owning certain private properties called Sarf-e-khas. He surrendered his paramountcy and acceded to the Union of India. His private properties were taken over by the Government and it was agreed by the Government that in lieu of his income from the said properties, he would be paid Rs.25 lakhs in Osmania currency annually.