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TMI Blog1986 (8) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... on of any portion thereof into a lump sum grant;" According to the assessee, as CDS is refundable in five equal instalments, the same is an annuity, more particularly because a charge on the Consolidated Fund of India was created with regard to the liability to repay the five equated instalments of CDS. In support of the above proposition, the learned counsel for the assessee relied upon the reasoning given in the order of the Tribunal in the case of WTO v. S.D. Nargolwala [1983] 5 ITD 690 (Delhi). Referring to the provisions of section 7A of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 ('the CDS Act') which provided for the exemption to CDS under section 5 of the 1957 Act, the learned counsel for the assessee submitted that the said provision of section 7A had to be read in its own context and it could not be deemed to have made an inroad into the 1957 Act and made something which was exempt under the Act as liable to inclusion in the wealth on account of the said section 7A. The said section 7A according to him, did not have any overriding effect on the provisions of the 1957 Act as it did not start with the non obstante clause. The most charitable interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'assets'. A harmonious reading of section 2(e)(iv) with section 5(1)(vi) and 5(1)(vii) would be that while non-commutable annuities are wholly outside the purview of wealth-tax, commutable annuities are exempt under section 5(1)(vi) and 5(1)(vii) to the limited extent mentioned in each. It is well settled that when such a harmonious construction is possible and which further the object of the Act, namely, to promote thrift and channelise private savings for national use, the same must be preferred to the construction which leads to a conflict between sections 2(e)(iv) and 5(1)(vi)." 2. Basing himself on the above observations, the learned counsel submitted that when CDS was a right to receive annuity within the meaning of section 2(e)(2)(ii), the exemption available to the assessee should be allowed to him under that clause and no attempt should be made to take it within the provisions of section 7A. The learned counsel, further submitted that when one of the Benches of the Tribunal had taken a view, the same view should be followed by remaining Benches of the Tribunal also and for the above proposition, he relied upon the judgment of the Hon'ble Madras High Court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion net on account of section 7A. It was a different matter that the assessee could not get the benefit for the compulsory deposit in terms of section 5(1)(xxvi) because the assessee had other assets to whom the exemption in question had been granted to the maximum limit prescribed under section 5(1A). The amount, was, therefore, rightly taxed in the hands of the assessee. 4. We have given careful consideration to the facts of the case and the rival submissions. What is the nature of the compulsory deposit paid by an assessee under the CDS Act has to be gathered from the provisions of the said Act. Clause (a) of section 2 of the said Act defines compulsory deposit to mean 'compulsory deposit under this Act'. Deposit has then been defined vide clause (b) of section 2 as below : "'deposit' means a deposit of money;" and then clause (c) defines the term "'depositor' to mean 'a person who is liable to make a compulsory deposit;'" Section 3 of the said Act defines persons liable to make a compulsory deposit and section 4 of the said Act indicates the requirements of the compulsory deposit. Section 5 of the said Act laid down the time for making the compulsory deposit. Section 7 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be, apply in relation to such amount or interest thereon as they apply in relation to a compulsory deposit or, as the case may be, interest on such deposit." [Emphasis supplied] Section 17 of the above Act provides protection against attachment of compulsory deposit. Sub-sections (1) and (2) thereof read as below : "(1) The amount of compulsory deposit and interest thereon standing to the credit of any depositor shall not be liable to attachment under a decree or order of any court in respect of any debt or liability incurred by the depositor. (2) The amount of compulsory deposit and interest thereon standing to the credit of a depositor at the time of his death and payable to his nominee shall vest in the nominee and shall be free from debt or other liability incurred by the deceased or incurred by the nominee before the death of the depositor." 6. From a perusal of the above provisions of the CDS Act, it is abundantly clear that the compulsory deposit to be made by an assessee under the said Act is a deposit of money by him with the Government and on such deposits of money interest is payable by the Government at a rate equal to the bank deposit rate and it is the said depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the assessee to the Government but the ownership over that money continues to remain with the depositor. He never loses his right to receive the deposit of money from the Government. Nor does the nature of the said right gets transformed in the process from one of receiving back his capital into that of receiving an income, i.e., annuity. Sub-section (2) of section 17 makes this position of ownership absolutely clear when it provides that the amount of compulsory deposit and interest thereon standing to the credit of a depositor at the time of his death and payable to his nominee shall vest in the nominee. What vests in the nominee is not the right to receive annuity but the right to receive the amount of compulsory deposit and interest thereon. Interest on compulsory deposit is treated separately than the refund of the principal and section 7(3) of the CDS Act extends to it the benefit of section 80L of the 1961 Act. Thus, when the entirety of the provisions of the CDS Act are taken into account, no manner of doubt is left in our mind that the compulsory deposit is nothing else but the assessee's own money kept in deposit compulsorily with the Government in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t received on compulsory deposit and for the purpose of exemption under section 5 of the 1957 Act. But for this fiction, the aforesaid benefits would not be available to the assessee for in fact the compulsory deposit is not a deposit with a bank. It is a deposit with the Government and the banker receives that amount as the agent of the Government. There is no privity of contract between the depositor and the bank. Therefore, the deposit in question even though it was with the bank was not a deposit with a banking company, and so it was not in the normal course eligible for exemption under section 5. The Government wanted this benefit to be given to the depositors and, therefore, section 7A was put on the statute book with retrospective effect. Section 7A has thus changed the character of the compulsory deposit by the deeming provision for the purpose of the 1957 Act, insofar as it has made something which was not a deposit with a banking company into a deposit with a banking company. To say, therefore, that section 7A did not change the nature of the compulsory deposit for the purpose of the Act is not correct. The benefit of section 2(e)(2)(ii) could never have been granted to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. 9. The analogy drawn by the learned counsel between the annuity deposit scheme and the CDS Act, and the argument based thereon to treat the compulsory deposit refund as annuity is, in our opinion, misconceived. Some of the features are no doubt common. For example, in the case of annuity deposit also there is deposit of money by the depositor, interest on such deposit is also payable by the Government and there is repayment in ten equated instalments of the sum of money deposited and the interest accrued thereon. If the provisions of the annuity deposit scheme had left the matter at this stage, there would be perfect similarity between the nature of refund of annuity deposit and that of the compulsory deposit. But the Legislature did not leave the matter there. The two streams---one of original capital sum deposited and the other of interest accruing thereon which constituted the refund of annuity deposit were deemed by the Legislature to be annuity and so at the point of the refund of the annuity deposit what passed on to the depositor was not the repayment of the original sum and the payment of interest thereon but an annuity. This position would be clear from the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de under this Chapter shall,... be allowed as a deduction in computing the total income assessable for the assessment year in respect of which the annuity deposit is required to be made :" It would, thus, be seen that the scheme of annuity deposit was materially different from the CDS. There the Legislature by a fiction transformed the principal amount into income and provided for its inclusion in the total income and also for the deduction of the payment of annuity deposit from the total income. The CDS Act did not contain to analogous provisions. The original nature of the principal amount could not, therefore, be transformed into an item of income which annuity would indeed be. If the above was the intention of the Legislature, namely, to treat the compulsory deposit on the same level as the annuity deposit, there would have been a change in clause (24) of section 2 to take within the sweep of income repayment of compulsory deposit in the same manner as the repayment of annuity deposit was taken and there would also be a provision for deduction of compulsory deposit from the total income to make the situation equitable. It has not been the case of the assessee before us that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts have no similarity whatsoever with the compulsory deposit to be made under the CDS Act. There, it was not the money of the beneficiary which was being returned to him in certain annual instalments by the creditor but it was the income of the trust which was being received by him and it was in this context that their Lordships have said that if instead of receiving the entire income, his right was to receive a fixed sum only periodically from the said trust, it would be a case of annuity and not otherwise. In the present case what the depositor receives from the Government is as noted earlier, the repayment of his own compulsory deposit and the interest thereon and the two amounts together may be different from year to year. It will, therefore, be incorrect to say that compulsory deposit is annuity on the basis of the principles laid down by their Lordships of the Hon'ble Supreme Court in the case of P.K. Banerjee. The judgment of the Tribunal is no doubt of great persuasive value but when above be the setting of the facts, it would not be correct for us to ignore them and to adopt the view taken by the Tribunal in the case of S.D. Nargolwala for there is no law which says that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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