1998 (2) TMI 100 - HC - Income Tax

Summary

Issues Involved:
1. Whether the annuity income should be treated as Hindu Undivided Family (HUF) income.
2. Whether the cash annuity in lieu of resumption of two villages is a capital receipt.

Issue-wise Detailed Analysis:

Issue 1: Treatment of Annuity Income as Hindu Undivided Family (HUF) Income

The Tribunal held that the grant of two villages to the assessee as "Kapal Giras" was in the nature of a Hindu undivided family property because it was made from the ancestral impartible estate. It concluded that the annuity income should be taken as HUF income in the hands of the assessee. However, the High Court disagreed, noting that the grant was given by the ex-Ruler to the assessee, his grandson, as per family tradition but not as part of the family estate. The Court emphasized that the assessee had consistently filed returns as an individual from 1950-51 to 1972-73, treating the receipts as individual income. The Court found the Tribunal's decision erroneous, holding that the annuity income should be treated as individual income, not HUF income. Therefore, question No. 1 was answered in the negative, against the assessee and in favor of the Revenue.

Issue 2: Nature of Cash Annuity as Capital Receipt

The major controversy centered around whether the cash annuity in lieu of resumption of two villages for life was a capital receipt. The High Court examined the nature of the grant and the resumption order, noting that the grant included possessory rights and the right to collect revenue from the villages. The Court found that the resumption order, which provided for an annual cash annuity, was intended to compensate the assessee for the loss of his income-producing asset, i.e., the "jagir." The Court emphasized that the term "annuity" in the resumption order did not imply a purchase of income but rather an annual payment of compensation for the loss of the capital asset. The Court drew support from the Supreme Court decisions in S. R. Y. Sivaram Prasad Bahadur and Padmaraje R. Kadambande, which held that compensation for loss of an income-producing asset is a capital receipt. Therefore, question No. 2 was answered in the negative, in favor of the assessee and against the Revenue.

Conclusion:

In conclusion, the High Court held that:
1. The annuity income should be treated as individual income, not HUF income.
2. The cash annuity in lieu of resumption of two villages is a capital receipt.

Both references were disposed of accordingly, with no order as to costs.