TMI Blog1975 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. For the year of account relevant to the assessment year 1969-70, an amount of Rs. 4,800 was received by way of instalments and for the year of account relevant to the assessment year 1970-71, an amount of Rs. 3,306 was received by the assessee as instalments in respect of these different annuity deposit certificates. The assessee contended that these two amounts did not constitute his income and should be treated as receipt of capital by him. His contention before the income-tax authorities and at subsequent stages of appeal was that these items of receipts could not be included, in law, in the income of the nominee or the legal heir after the death of the depositor because under the relevant provisions of law, the amount of the annuity was due to the depositor only. The Income-tax Officer rejected the contention of the assessee and the appeal filed by the assessee before the Appellate Assistant Commissioner failed. Thereafter, the matter was taken in further appeal before the Income-tax Appellate Tribunal and the Tribunal followed the decision of the Supreme Court in Commissioner of Income-tax v. Hukumchand Mohanlal and also the decision of the Bombay Bench C of the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ten annual equated instalments of principal and interest at such rate as may be notified by the Central Government in the Official Gazette." The proviso to section 280D deals with payment of commuted value of the annuity deposit and is not relevant for the purposes of this judgment. Under, section 280-O notwithstanding anything to the contrary contained in the provisions of the Act relating to the computation of income chargeable under any head of income, the annuity deposit required to be made under the Chapter shall, subject to the provisions of sub-section (2), be allowed as a deduction in computing the total income assessable for the assesssment year in respect of which the annuity deposit is required to be made. Under section 280X if a depositor does not make the annuity deposit during the financial year immediately preceding such assessment year or such further period as may be allowed by the Income-tax Officer under the proviso to clause (ii) of sub-section (2) of section 280C, or the amount of annuity deposit made by him during the financial year or further period aforesaid falls short of the annuity deposit required to be made, he shall, in addition to the income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money available for purchasing goods and services in the general economic life of the country. As part of these measures at one stage a compulsory deposit scheme was introduced before the present annuity deposit scheme was introduced, and this annuity deposit scheme under the Income-tax Act was part of this policy. As is evident from the provisions that we have set out hereinabove, the deposit has to be made by the depositor from his income for a particular year under consideration and if he does not so deposit, then additional income-tax is to be paid for the failure to make the deposit under the Annuity Deposit Scheme and under the scheme what was deposited out of the income of the particular year is subsequently returned to him with interest by ten equal instalments. Considered from this broader point of view, the income of the depositor for one particular year comes back to him spread over a number of years and so far as the depositor is concerned, therefore, there cannot be any dispute that what he receives back is both under the provisions of the Act as well as under general principles of law "income" in his hands. The character of the receipt, namely, income which was origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to section 280D which provides for payment to the depositor alone; the provisions of section 280D are subject to the provisions of any scheme and under the scheme, in the event of death of the original depositor, the amount of the annuity becomes due to the legal representative in case there is no nomination or to the nominee in whose favour nomination in Form J has been made by the original depositor. Thus, under the provisions of the sections of the Act and the Annuity Deposit Scheme, it is obvious that the amount of annuity falls due to the depositor if the depositor is alive or, in case he dies, it becomes due to his legal representative in case there is no nomination or to his nominee in case a nomination has been made. The decision in Commissioner of Income-tax v. Hukumchand Mohanlal was delivered by the Supreme Court in a different context altogether and, in our opinion, has no application to the case before us. In that particular case, on the death of her us and on February 17, 1960, the assessee succeeded to the business carried on by him. A firm which had recovered certain amounts towards sales tax from the assessee's husband succeeded in an appeal against its sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the benefit received by the assessee is deemed to be profit in the hands of the same assessee. Under the scheme of section 41(1) the same assessee who had got the benefit of the allowance or deduction in the earlier year must receive back either in cash or in any other manner, the equivalent of such amount in respect of loss, expenditure or trading liability. The Supreme Court pointed out in the case of Commissioner of Income-tax v. Hukumchand Mohanlal that the Act did not contain any provision making a successor in business or the legal representative of an assessee to whom an allowance had already been granted, liable to tax under these deeming provisions of section 41(1). It was because of the lack of any legal provision in that connection that the Supreme Court held in Commissioner of Income-tax v. Hukumchand Mohanlal that there was no liability on the legal representative of the original assessee under the provisions of section 41(1) in respect of the deemed profits of the original assessee. We are unable to see how this decision of the Supreme Court delivered in the context of another and a totally different provision, can help us in interpreting the provisions relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital once it has been paid; it becomes the property of the grantor." This legal position, which Goddard L. J. has mentioned in Sothern Smith v. Clancy is deduced from the earlier decisions of the House of Lords and the Court of Appeal in England. In Scoble v. Secretary of State for India, the same distinction was pointed out by the House of Lords between an annuity and the return of capital. Similarly, in Perrin v. Dickson, which was in terms referred to by Goddard L. J., this distinction between annuity properly so called and return of capital was maintained and again in Williamson v. Ough, the House of Lords considered the question of distinction of annuity and return of capital. In Halsbury's Laws of England, third edition, volume 32, at page 529, paragraph 888, it is stated: "The right created by an instrument (whether deed, will, codicil or statute) to receive a definite annual sum of money is an interest which may be either a 'rentcharge' or an 'annuity'. If the annual sum is charged on and payable exclusively out of land, the interest is a rentcharge, but, if there is no charge or the annual sum is charged on personal property, not being leasehold land, or on a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is really an annuity does not assist the taxpayer, any more than to call an item a capital payment would prevent it from being regarded as an income payment if that is its true nature. The question always is what is the real character of the payment, not what the parties call it." And in the same case Viscount Simon has pointed out that it is possible that by adopting a particular terminology and a particular method, a receipt may escape tax though if another method or another terminology had been used, it would have been subject to tax. The Supreme Court, after considering these passages, observed: "It seems to us that where an owner of an estate exchanges a capital asset for a perpetual annuity, it is ordinarily taxable income in his hands. The position will be different if he exchanges his estate for a capital sum payable in instalments. The instalments when received would not be taxable income." 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 released over a period of ten years and since the money was made available to the Government some amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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