1998 (12) TMI 3 - SC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the refund of annuity of ₹ 12,013 to the assessee as executor of the estate of his late father Padam Shree N.N. Mohan was his income and assessable in his hands is executor of the estate of the deceased - Held, no

Issues Involved:
1. Taxability of annuity payments received by the legal representative of a deceased depositor under the Annuity Deposit Scheme.
2. Interpretation of relevant sections of the Income-tax Act, 1961, specifically sections 2(24)(viii) and 280D.
3. Applicability of section 159 of the Income-tax Act, 1961, to the case.
4. Differing judicial opinions from various High Courts on the issue.

Detailed Analysis:

1. Taxability of Annuity Payments Received by Legal Representative
The primary issue was whether the refund of annuity payments received by the legal representative of a deceased depositor under the Annuity Deposit Scheme constituted income taxable in the hands of the legal representative.

2. Interpretation of Relevant Sections of the Income-tax Act, 1961
- Section 2(24)(viii): Defines "income" to include "any annuity due, or commuted value of any annuity paid, under the provisions of section 280D."
- Section 280D: States that the Central Government shall repay the annuity deposit in ten annual equated instalments of principal and interest to the depositor. The key question was whether this provision applied to payments made to legal representatives or nominees of the deceased depositor.

3. Applicability of Section 159 of the Income-tax Act, 1961
- Section 159: This section was argued by the Revenue to imply that the legal representative should be liable to pay any sum the deceased would have been liable to pay if he had not died. However, the court clarified that this section applies to income accrued to the deceased while alive and not to the annuity payments received by the legal representative after the depositor's death.

4. Differing Judicial Opinions
- Delhi High Court: Held that the annuity payments received by the legal representative were taxable as income.
- Gujarat High Court: Supported the view that annuity payments received by the legal representative retained their character as income.
- Karnataka High Court: Addressed the inclusion of annuity deposits in the estate's principal value and held that the income-tax payable by heirs on annuity deposits was irrelevant for estate valuation.
- Bombay High Court: Contrarily, ruled that the annuity payments received by a nominee or legal representative were not covered under the definition of income in section 2(24)(viii).
- Madras High Court: Supported the Bombay High Court's view, emphasizing that there was no statutory provision deeming such payments as income in the hands of the legal representative.

Supreme Court's Judgment:
The Supreme Court allowed the appeal, setting aside the judgment of the Delhi High Court and answering the question in the negative, thereby ruling in favor of the assessee. The court concluded that:

- The annuity payments received by the legal representative were not taxable as income under section 2(24)(viii).
- Section 280D applied only to the original depositor, and payments made to legal representatives under the Scheme were not covered by this section.
- The legal representative receiving the annuity payments did so as a return of capital, not as income, unless expressly deemed so by statute.
- Equity considerations could not override the clear statutory provisions, and the Revenue could not retrospectively impose tax obligations on the legal representative that were not explicitly provided for by the law.

Conclusion:
The appeal was allowed, and the judgment and order of the Delhi High Court were set aside. The Supreme Court held that the annuity payments received by the legal representative of the deceased depositor were not taxable as income under the provisions of the Income-tax Act, 1961. The question was answered in favor of the assessee, with no order as to costs.

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