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TMI Blog1998 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ecutor of the estate of the deceased?" The annuity referred to in the question was a payment under the Annuity Deposit Scheme. The Delhi High Court followed its judgment in an earlier case. The Gujarat High Court had taken a similar view. The High Court of Karnataka and the High Courts at Bombay and Madras have taken the contrary view. The facts, briefly stated, are these : One N. Mohan had deposited the sum of Rs. 1,57,250 under the Annuity Deposit Scheme framed under Chapter XXII-A of the Income-tax Act, 1961. The same was refundable to him in 10 equal instalments of principal and interest under the provisions of section 280D of the Act. The said Mohan having died on July 15, 1969, the instalment of principal and interest in the sum of Rs. 12,013/--- payable to him under section 280D was paid to the assessee, his son and executor. For the assessment year 1970-71, the Income-tax Officer treated the sum of Rs. 12,013 as income in the hands of the assessee. On appeal, the Appellate Assistant Commissioner held that the said sum was not taxable in the assessee's hands. The Tribunal reversed the Appellate Assistant Commissioner and, at the behest of the assessee, referred the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the "karta" of a Hindu undivided family. The assessee had made annuity deposits under the Annuity Deposit Scheme, 1964, on behalf of the Hindu undivided family. Thereafter, the Hindu undivided family was partitioned and the assessee received to his share repayments against the annuity deposits. The Appellate Tribunal held that, since the assessee was not the depositor, the repayment would not be taxable in his hands except to the extent of the interest that was included therein. The Delhi High Court answered the question that was referred to it in this behalf against the assessee holding that not only the interest element but also the principal element of the annuity, to the extent of the share of the assessee in the annuity deposits, was taxable in his hands. It said that the annual repayment was deemed to be income and, whether received by the depositor himself or the nominee or the legal representative, it would be subjected to tax only when the total income exceeded the maximum not chargeable to tax. It could not be the intention of the Legislature that it would necessarily be taxed on receipt or taxed at the same rate at which the annuity deposit would have been liable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eath of the original depositor, the amount of the annuity became due to the legal representative, in case there was no nomination, or the nominee, if there was one. Counsel for the assessee contended that under the general law what the legal representative received was not an annuity but the return of capital and what he would be receiving was an instalment of that capital. The Gujarat High Court did not agree. It held : "In the instant case we find that a portion of the income of the original depositor which had been withheld as a measure to prevent inflation and was thus impounded, is being realised over a period of ten years and since the money was made available to the Government some amount of interest was also included with the amount so repaid by ten equal instalments. Ordinarily, the word 'instalment' is associated with return of capital. But in this particular case what we find is that that the Government which had impounded the income in the particular year in which the deposit was made, returns the same amount with some amount of interest in ten equal instalments. For having deposited the particular amount in the year in which the deposit was made, the depositor got ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as addressed to the High Court on the first question and the High Court said that it was clear that the beneficial interest in the annuity deposits made by the deceased and the right to recover them passed on the death of the deceased to his heirs and they, therefore, came within the definition and ambit of the expression "property passing on the death of the deceased". The second question arose out of the contention raised on behalf of the accountable person that the valuation of the annuity deposits without taking into consideration the income-tax payable by the heirs of the deceased when the annuity deposits were realised from time to time was wrong. The Karnataka High Court held that the income-tax which the accountable person was likely to pay had no relevance to the valuation of the annuity deposits at the time of death of the deceased. The value of the estate of the deceased had to be deter mined on the death of the deceased and it was not the value of the estate in the hands of the accountable person subsequently. The decision of the Bombay High Court in CIT v. Dr. Rodhan H. Shroff [1994] 207 ITR 957, is squarely in favour of the assessee. The questions to be answered r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Madras High Court in the case of M. M. Muthiah [1977] 109 ITR 463 was followed by it in the subsequent decision in CIT v. S. M. Ebrahim [1982] 134 ITR 599 (Mad). The Bombay High Court agreed with the reasoning and conclusions of the Madras High Court. It disagreed with the view taken in K. Nawab's case [1976] 102 ITR 455 (Guj) because, in its view, the Gujarat High Court had failed to take into account the express provisions of section 2(24)(viii) wherein the repayments received only by the depositor were deemed to be his income. The Bombay High Court also considered the decision of the Delhi High Court in O. N. Talwar's case [1980] 123 ITR 80 and held that it was inapplicable to a case like the one before it where the deposit had not been received by the depositor in any sense of the term. Section 280D in terms referred only to repayment to the depositor. All that it said was that such repayment to a depositor would be subject to other provisions in the scheme. Section 280D did not cover any payment either to a nominee or to a legal representative of a deceased depositor. Therefore, the definition of income under section 2(24)(viii) did not cover a repayment of annuity deposit r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in the hands of the original depositor and taxable as such. The provisions of the Act and the Scheme obliged him to make the deposit thereof instead of paying income-tax thereon. The annuity deposit, when made, became capital. When returned, either as a whole or by instalments, it was not liable to tax as income. For this reason section 2(24)(viii) was enacted, whereby the instalment or annuity was treated as income, provided it was received under section 280D, that is to say, the annuity was to be treated as income if received by the original depositor. On the original depositor's death the balance of the annuity deposit that he had made became part of his estate and was liable to tax as such, as the Karnataka High Court rightly held in K. Bhoomiamma's case [1978] 115 ITR 703. Becoming a part of his estate, his legal representatives became entitled to recover it, and they would under the general law be entitled to recover it in one lump sum, paying no tax on it (except estate duty, should a statute levying it be on the statute book at the relevant time). Sub-paragraph 4(a) of the Scheme does no more than recognise that the unpaid balance of the annuity deposit has to be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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