Padam Shree N.N. Mohan Vs. Commissioner of Income-tax, New Delhi - Court Judgment

Kapur, J.

1. For the assessment year 1970-71, the following question has been referred for our opinion by the Income-tax Appellate Tribunal under s. 256(1) of the I.T. Act, 1961 :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the refund of annuity of Rs. 12,013 to the assessed as executor of the estate of his late father, Padam Shree N. N. Mohan, was his income and assessable in his hands as executor of the estate of the deceased ?'

2. The annuity in question was due on account of the annuity deposit scheme mentioned in Chapter XXII-A of the I.T. Act, 1961. The facts stated in the statement of case submitted to this court show that a sum of Rs. 1,57,250 was deposited by the late Padam Shree N. N. Mohan which had to be refunded in ten equal Installments of principal and interest under s. 280D of the Act. The sum mentioned in the question refereed to this court appears to be one of these Installments.

3. According to the assessed, this sum was not taxable as income in the hands of the executor, but the ITO held that the same was income. One appeal, the AAC held that the same was not taxable following a decision of the Bombay Bench of the Income-tax Appellate Tribunal in ITO v. V. R. Murdeshwar. On appeal by the Revenue to the Appellate Tribunal, it was held that the amount was taxable. This decision was given on the footing that the amount was taxable. This decision was given on the footing that the amount had to be received by the deceased as annuity in ten Installments and an annuity was revenue in character. This had led to the reference to this court.

4. This question has not arisen for the first time and is the subject of various decisions. As far as this court is concerned, in CIT v. O. N. Talwar whoever received it. It was held that a payment made to a nominee under ruler 11 or to the erstwhile members of a firm, association of persons or body of individuals or to a legal representative of a deceased deposit from would all be payments under s. 280D of the I.T. Act, 1961, and would, thereforee, be taxable.

5. The same view has been taken by the Gujarat High Court in CIT v. Narottamdas K. Nawab : [1976]102ITR455(Guj) , and by the Andhra Pradesh High Court in Asst. CIT v. D. V. Sreerama Murthy : [1979]116ITR431(AP) .

6. On the other hand, the Madras High Court took the view that the amount was not taxable in the hands of anyone else except the depositor himself. It was held in CIT v. M. M. Muthiah : [1977]109ITR463(Mad) , that if the amount was received by a nominee it was not liable to tax as income and, again, in CIT v. S. M. Ebrahim : [1982]134ITR599(Mad) , it was held that it did not make any difference if the receiver was the nominee or the legal heir of the depositor. In both cases, the amount would not be taxable.

7. There is, thereforee, a difference between the High Courts, but as this matter has been decided as far as this court is concerned and we do not find any reason to differ from the same, we would follow the view already expressed in CIT v. O. N. Talwar : [1980]123ITR80(Delhi) , aforementioned.

8. For the record we may mention that Mr. Sharma has urged a number of point on behalf of the asseessee which need to be reproduced.

9. It was submitted that when deposits were made under the Annuity Deposit Scheme, 1964, same were made out of capital and the refunds with interest thereof should also be treated as capital and not as income. The contention was that a capital investment had been refunded with interest and, thereforee, remained capital in nature.

10. It was further submitted that the deposit was a compulsory investment and in no way different from the compulsory deposits now made. A parallel was sough to be drawn between the present Compulsory Deposit Scheme and the Annuity Deposit Scheme, and Mr. Sharma claimed that a difference in the nomenclature did not makes any difference in the character of the refund.

11. The further submission was that a deposit made under a statutory compulsion could not be understood as an annuity as understood in common parlance. An ordinary annuity was a contractual obligation whereby a person purchased an income in future. It was, thereforee, submitted that the view of the Madras High Court was correct.

12. A further submission made by Mr. Sharma was on the express language of the I.T. Act. It was submitted that the definition of income had been altered in s. 2(24)(viii) whereby an annuity or commuted value of annuity paid under s. 280D was also treated as income. It was submitted that this was income only in the hands of the depositor because s. 280D stated that the amount was to be paid depositor. It was wrong, according to Mr. Sarma, that the amount paid to a person other than the depositor should also be treated as income as has happened in the decision of this court on the footing that payment made to the depositor included a payment to his representatives.

13. A further submission by Mr Sharma was that the expression 'annuity due' or 'annuity paid' as occurring in s. 280D or s. 2(24)(viii) applied only to the case of a depositor receiving the same and if the depositor's nominee or legal representatives receives the same, than it was not a payment to the depositor, but a payment to somebody else.

14. Mr. Sharma also sought to distinguish the Delhi High Court's previous decision in CIT v. O. N. Talwar : [1980]123ITR80(Delhi) , on the ground that the case was distinguishable on facts because it was a case involving a karta who had made deposit on behalf of the family and had received the refund after the partition of the family as an erstwhile member of the family as an erstwhile member of the family. It was contended that the decision that the karta was the depositor was based on the facts of that case and not on the ground that the person receiving the money was a representative-in-interest of the original depositor. It was submitted that we should adopt the view taken by the Madras High Court which had taken for analogy the decision of the Supreme Court in CIT v. Hukumchand Mohanlal : [1971]82ITR624(SC) , the latter decision being on the question whether there was a legal provision applicable to a legal representative to tax the deemed profits of a deceased assessed under s. 41(1) of the Act.

15. On a careful consideration of the contentions made by Mr. Sharma, which we have set out in extension, we think that decision of the Bench in CIT v. O. N. Talwar : [1980]123ITR80(Delhi) , aforementioned, to be binding on us and we find ourselves unable to differ from the reasoning set out therein.

16. In the circumstances, we anger the question referred to us in the affirmative, in favor of the Revenue and against the assessed, but refrain from passing any orders as to costs.