1975 (9) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Whether the instalment of annuity deposit received by the karta of the assessee as nominee/legal representative of the deceased depositor was liable to be assessed as income of the assessee.

Issue-wise Detailed Analysis:

1. Interpretation of Annuity Deposits as Income:
The primary issue was whether the instalments of annuity deposits received by the karta of the assessee, as the nominee/legal representative of the deceased depositor, should be considered income. The relevant assessment years were 1969-70 and 1970-71. The assessee argued that these amounts should be treated as a receipt of capital and not as income. The Tribunal initially accepted the assessee's contention, interpreting that the repayments were not under section 280D and thus did not constitute income under section 2(24)(viii) of the Income-tax Act, 1961. However, the High Court disagreed, emphasizing that the annuity instalments received by the depositor or their nominee/legal representative are considered income under section 2(24)(viii) and section 280D.

2. Legal Provisions and Definitions:
To understand the issue, the Court referred to several provisions of the Income-tax Act, 1961, and the Annuity Deposit Scheme. Section 2(24)(viii) includes any annuity due or commuted value of any annuity paid under section 280B as income. Section 280D mandates the repayment of annuity deposits in ten annual equated instalments of principal and interest. The Court highlighted that the annuity instalments, as defined under section 280B(4), are considered income in the hands of the depositor.

3. Applicability to Nominee/Legal Representative:
The Court examined whether the annuity instalments received by the nominee or legal representative of the deceased depositor should be treated differently. It concluded that under the scheme, the annuity becomes due either to the original depositor, the legal representative, or the nominee. Therefore, the annuity instalments received by the nominee or legal representative retain their character as income, just as they would in the hands of the original depositor.

4. Analysis of Relevant Case Law:
The Court discussed the Supreme Court's decision in Commissioner of Income-tax v. Hukumchand Mohanlal, which dealt with section 41(1) of the Income-tax Act. The Supreme Court had ruled that section 41(1) did not apply to successors or legal representatives for deemed profits. However, the High Court found this case inapplicable to the current issue, as it dealt with a different context and provision. The Court emphasized that the annuity instalments under the Annuity Deposit Scheme are a statutory creation, and their character as income does not change when received by the nominee or legal representative.

5. General Law and Annuity Distinctions:
The Court considered the broader legal principles distinguishing annuities from capital returns. It referred to various legal authorities and cases, such as Sothern-Smith v. Clancy and Scoble v. Secretary of State for India, to explain the nature of annuities. The Court concluded that the annuity payments in question were not a return of capital but a return of the original income spread over ten years. This interpretation aligned with the statutory provisions and general legal principles.

Conclusion:
The High Court concluded that the instalments of annuity deposits received by the karta of the assessee as the nominee/legal representative of the deceased depositor are liable to be assessed as income of the assessee. The question was answered in favor of the revenue and against the assessee, with no order as to costs due to the absence of any prior decided case on the matter.