1980 (2) TMI 65 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of annual instalments of principal and interest received by a person other than the depositor under the Annuity Deposit Scheme.
2. Interpretation of statutory provisions and rules under the Income Tax Act, 1961, and the Annuity Deposit Scheme, 1964.
3. Applicability of Rule 10 of the Annuity Deposit Scheme, 1964, in the context of a disrupted Hindu Undivided Family (HUF).

Detailed Analysis:

1. Taxability of Annual Instalments Received by a Non-Depositor:
The primary issue was whether the annual instalments of principal and interest received by an individual, who was not the original depositor, were liable to income tax. The court examined the case where the respondent, formerly the karta of a disrupted HUF, received repayments of annuity deposits initially made by the HUF.

The Tribunal held that only the interest component of the repayments was taxable, not the principal. However, the court disagreed, stating that both the principal and interest components of the annuity repayments should be considered income under section 2(24)(viii) of the Income Tax Act, 1961, which includes "any annuity due, or commuted value of any annuity paid, under the provisions of section 280D."

2. Interpretation of Statutory Provisions and Rules:
The court delved into the relevant statutory provisions, particularly Chapter XXII-A of the Income Tax Act, 1961, which was introduced by the Finance Act, 1964. This chapter encompasses sections 280A to 280X, with section 280D specifically addressing the repayment of annuity deposits.

The court noted that the Annuity Deposit Scheme required every person to deposit a percentage of their total income with the government, which would be returned with interest in ten annual instalments. The definition of "income" under section 2(24)(viii) was crucial, as it explicitly includes annuity repayments.

3. Applicability of Rule 10 in the Context of a Disrupted HUF:
The court examined Rule 10 of the Annuity Deposit Scheme, 1964, which deals with the dissolution of firms or associations and the consequent distribution of annuity payments. The rule specifies that annuity payments should be made to the partners or members in the proportion of their profit-sharing before dissolution.

The court found that while Rule 10 explicitly mentions firms and associations, it does not directly apply to HUFs. However, it concluded that the karta of a disrupted HUF, who made the deposit, is considered the "depositor" under the scheme. Thus, the repayments received by the karta post-partition are taxable as income in his hands, as per section 2(24)(viii).

Conclusion:
The court concluded that the annuity repayments, including both principal and interest components, received by the respondent as the former karta of the HUF, were taxable as income. This decision aligned with the broader interpretation of section 2(24)(viii) and section 280D, emphasizing that repayments under the Annuity Deposit Scheme are taxable regardless of the recipient's status as the original depositor.

The question referred to the court was answered in the negative, affirming that the principal and interest components of the annuity repayments were taxable in the hands of the respondent. No order as to costs was made.