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TMI Blog1980 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. Prior to its disruption, the family had made certain deposits under the Annuity Deposit Scheme formulated in Chap. XXII-A of the I.T. Act, 1961. The deposits in question were under the Annuity Deposit Scheme of 1964. What happened in respect of these annuity deposits on the partition has been differently stated by the different authorities. The ITO says : " The assessee was allotted an amount of Rs. 14,742 which was share in the annuity deposit made by the Hindu undivided family. A reading of the partition deed, particularly articles 1 and 7, shows that the assessee would be entitled to a share in the commuted value as the HUF ceased to exist on that date." The AAC, however, observes : " ....... the deposits (which) were out of the assets to be partitioned among the persons entitled to share on partition of the erstwhile Hindu undivided family. In allocating the assets among the various persons in satisfaction of their shares, it was decided to allot, inter alia..... annuity deposits to O.N. Talwar." The Tribunal's order and statement of the case, however, put the position thus : " By the partition deed some of the deposits fell to the share of Shri O. N. Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted,the principal element in the repayment is also brought to tax by deeming the entire amount of repayment (whether made annually or whether commuted in accordance with the provisions therefor) to be " income ". Now we can turn to the statutory provisions relevant in this connection. Chapter XXII-A covering ss. 280A to 280X was introduced by the Finance Act, 1964, with effect from April 1, 1964. Section 280A provides that the provisions of the Chapter shall apply to every person, being-- (i) an individual, (ii) a Hindu undivided family, (iii) an unregistered firm, (iv) an association of persons or a body of individuals whether incorporated or not (other than a company or a co-operative society), and (v) an artificial juridical person (other than a corporation) Provided that such person is a resident. Section 280B, inter alia, defines the following expressions, " unless the context otherwise requires " as follows : (4) ' annuity ' means any annual instalment of principal and interest thereon payable by the Central Government under the provisions of section 280D." " (6) ' depositor ' means a person to whom the provisions of this (6) 'depositor ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided family." Similarly, in Form No. 2, which is an application for the issue of annuity deposit certificates, para. 3 requires a declaration that " the amount has been recorded/set off towards annuity deposit, required to be made by ... a Hindu undivided family of which I am the karta ". The person who signs these forms in space requiring the " signature of the depositor " is the karta of the family. There is no such special column in respect of firms and associations of persons in which case the applications are signed by any member but a footnote to Forms Nos.1 and 2 reads : " In the case of a firm, an association of persons (other than a society registered under the Societies Registration Act, 1860) or a body of individuals, the application should be accompanied by a declaration in respect of its constitution in Form No. 3. In the case of a society registered under the Societies Registration Act, 1860, the application should be accompanied by a true copy of certificate of registration, a true copy of its bye-laws, rules and regulations and a copy of resolution (certified to be true by its principal officer) specifying the designations and names of the officials who shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rules of the 1966 scheme framed under s. 280W, it was obvious that the annuity falls due to the depositor if alive or in case he died, to his nominee and, failing a nomination, to his legal representatives. The court also repelled, after examining the scheme of the new chapter, a broader argument that, on general principles, the annuity payments were not in the nature of income but merely amounted to return of capital and held that what was otherwise income would retain its character of income, notwithstanding the fact that the original depositor died in the meanwhile. The Andhra Pradesh High Court had occasion to consider the same question that has arisen for decision in the present case in Addl. CIT v. Sreerama Murthy [1979] 116 ITR 431. The High Court held that the assessments in the hands of the three erstwhile members of a HUF of their respective shares in the annuities, received by the former karta and apportioned among them, in respect of deposits made by the family during its existence were correct and justified. The court held When once partition is effected, the coparceners can demand their shares from the karta. In the instant case, by the time annuity was returned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Andhra Pradesh High Court rather than with the situation considered by the Gujarat and Madras cases. As we shall presently point out, this case can be decided even on the narrow basis that the annuity instalments would be taxable only in the hands of the depositor. But it seems to us that the effect of the statutory provision is wider. Section 2(24)(viii) was introduced by the Finance Act, 1964, simultaneously with the introduction of Chap. XXII-A and not in 1962 (as mentioned by the Madras High Court). Its whole purpose was to bring to tax the annuity repayments and the commuted value of the annuity. It is significant to note that this clause is carefully worded ; it does not say that the annuity due or commuted value of the annuity paid would be taxable in the hands of the depositor. It says that these annuity would be chargeable as income when due or paid " under the provisions of s. 280D ". Turning to s. 280D, this section no doubt contemplates the repayments normally to be made to the depositor but this is subject to the provisions of the chapter and to the provisions of the Scheme to be framed thereunder. In other words, a payment to a nominee under r. 11 to the erstw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to us that, on a proper construction of the rules, the assessee, O. N. Talwar, was the " depositor " to whom the annuity was due to be repaid. We have set out the relevant rules of the Scheme earlier. Though a family as such is a person to whom the provisions of Chap. XXII-A apply and can be, therefore, said to be a depositor within the meaning of the definition of that expression in the sense that the funds came out of the family's income, it can also be said, without any inconsistency, that the karta of the family is the depositor in the formal and literal sense. He is the person who signs as " depositor in the applications in Forms 1 and 2. The special narration in para. 3 of Form 1 and Form 2 is to the effect that 'I' (i.e., the karta) am depositing the money or making application for the certificate on behalf of the Hindu undivided family ". While, in the case of an unregistered firm, association of persons and body of individuals, these forms are signed by any member on behalf of the said group of persons, the deposit is clearly by all the members as, under the rules, it has to be accompanied by a declaration requiring the names of persons constituting the group and, in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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