1934 (4) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Whether the life annuity acquired by the assessee is assessable to income-tax.
2. Whether the life annuity payments should be considered as payment by installments of a capital purchase sum.
3. Whether the payment should be considered as derived from the estate and therefore exempt from taxation under Section 4 (3) (viii) as agricultural income.
4. Whether the transaction can be deemed as a family arrangement and if so, whether the income in question is agricultural.

Detailed Analysis:

1. Assessability of Life Annuity to Income-Tax:
The primary issue was whether the life annuity of Rs. 2,40,000 acquired by the assessee is assessable to income-tax. The court held that the sum in question is not capital but is income and is so taxable, stating that "it is immaterial that it is the 'price' of the property transferred." The court emphasized that the nature of the transaction, not its form, is critical in determining whether the consideration is capital or income.

2. Life Annuity Payments as Capital Purchase Sum:
The assessee contended that the life annuity payments should be considered as payment by installments of a capital purchase sum. The court referred to the leading case Foley v. Fletcher, which distinguished between capital and income. It was held that "an annuity means where an income is purchased with a sum of money, and the capital has gone and has ceased to exist, the principal having been converted into an annuity." The court concluded that under the Indian Income Tax Act, annuities are taxable unless specifically exempted, indicating that the life annuity in question is indeed taxable income.

3. Payment Derived from the Estate (Agricultural Income):
The court also addressed whether the payment should be considered as derived from the estate and therefore exempt from taxation under Section 4 (3) (viii) as agricultural income. The court held that the annuity cannot be considered as "revenue derived from land which is used for agricultural purposes." It was noted that the contract on the part of the lady (transferee) is a personal contract to pay the specified annuity, and the collateral security in the form of a charge upon the property does not affect the absolute right of the assessee to receive the annuity.

4. Family Arrangement and Agricultural Income:
The court examined whether the transaction can be deemed as a family arrangement and if so, whether the income in question is agricultural. It was concluded that the question of whether the transfer is or is not a "family arrangement" is immaterial, and in any case, the income in question is not agricultural. The court emphasized that the contract was binding and intended to be given its full force and effect, regardless of the familial relationship between the parties.

Separate Judgments:
Mohammad Noor, J.: Agreed with the conclusion that the annual receipt of Rs. 2,40,000 is not agricultural income. However, he dissented on the first issue, opining that the annual receipt is the capital price of the property sold and not income. He emphasized that the transaction should be examined on its own merits and concluded that the receipt is capital and not taxable.

Varma, J.: Agreed with the Chief Justice that the sum in question is taxable income. He highlighted that the object of the transfer was to secure an income for the assessee without the trouble and anxiety of managing the estate, indicating that the payment is indeed income and not capital.

Conclusion:
The court concluded that the life annuity of Rs. 2,40,000 is taxable income and not capital. The payment cannot be considered as agricultural income, and the question of family arrangement is immaterial to the nature of the income. The assessee was ordered to pay Rs. 500 in costs in addition to the sum deposited.