Strict construction of deemed income provisions bars taxing annuity deposit repayment in a nominee's or legal heir's hands.

Deemed income provisions for annuity deposits were construed strictly: repayment under the annuity deposit scheme was taxable only in the hands of the depositor because the charging fiction in section 2(24)(viii) covered only the annuity due or commuted value paid under section 280D. Nomination under the scheme did not widen that fiction, and in the absence of an express charging provision the provision could not be extended by analogy or equity to a nominee or legal heir. Repayment received by a nominee or legal heir was therefore not taxable as income under the stated provisions, and the contrary view was rejected.

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Issues: Whether repayment of annuity deposits received by the nominee or legal heir of a deceased depositor can be taxed as income under the deeming provisions governing annuity deposits.

Analysis: The relevant scheme made repayment under section 280D of the Income-tax Act, 1961, taxable as income only in the hands of the depositor, because section 2(24)(viii) included only the annuity due or commuted value of annuity paid under section 280D. The statutory framework also permitted nomination under the annuity deposit scheme, but that nomination did not enlarge the deeming provision. The Court held that a deemed income provision must be applied strictly and cannot be extended by analogy or equitable considerations to nominees or legal heirs in the absence of an express charging provision. The contrary view that repayment to a nominee should also be treated as income was rejected, and the reasoning of the Madras High Court was preferred.

Conclusion: Repayment of annuity deposits received by a nominee or legal heir is not taxable as income under section 2(24)(viii) read with section 280D of the Income-tax Act, 1961.

Final Conclusion: The reference was answered against the Revenue and the assessees received relief on the taxability of the annuity deposit repayment in the hands of the nominee or legal heir.

Ratio Decidendi: A deeming provision taxing repayment of annuity deposits applies only where the statute expressly covers the recipient, and it cannot be extended to a nominee or legal heir without an independent charging provision.

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