1992 (10) TMI 17 - HC - Income Tax

Court rules annuity deposit repayments to nominees not taxable under Income-tax Act

The High Court of Bombay ruled that annuity deposit repayments received by nominees of deceased depositors are not taxable income under the Income-tax ... Annuity Deposit, Income Issues:Interpretation of provisions under Chapter XXII-A of the Income-tax Act, 1961 regarding taxation of annuity deposit repayments received by a nominee of a deceased depositor.Analysis:The High Court of Bombay addressed a reference under section 256(1) of the Income-tax Act, 1961 concerning the assessment years 1971-72 and 1972-73. The case involved the receipt of annuity deposit repayments by the nominee of a deceased depositor. The Tribunal held that the provisions of section 2(24)(viii) would not apply to deem the amounts received as income in the hands of the nominee. The central issue revolved around whether the repayment of annuity deposits to a legal heir could be deemed as income and taxed under the Income-tax Act.The Court delved into the relevant provisions of Chapter XXII-A, specifically section 280D, which pertains to annuity deposits. It highlighted that section 280D only addresses repayment to the depositor and does not encompass payments to nominees of deceased depositors. Additionally, the Annuity Deposit Scheme under section 280W allows for nomination of individuals to receive annuity payments in case of the depositor's death, but such payments are not covered under the definition of income in section 2(24)(viii).The Court considered contrasting judgments from different High Courts. The Madras High Court held that instalments received by a nominee would not be taxable income, emphasizing the absence of a charging section bringing such amounts to tax. In contrast, the Gujarat High Court took the view that payments to nominees were taxable, citing equitable considerations. However, the Bombay High Court aligned with the Madras High Court's interpretation, emphasizing the statutory framework and the specific language of the Income-tax Act.Furthermore, the Court discussed the applicability of section 80CCA, which deems certain withdrawals as income but exempts legal heirs from such taxation. It rejected the Gujarat High Court's reasoning and emphasized that the provisions of section 2(24)(viii) cannot be extended to cover nominees of deceased depositors.In conclusion, the Court answered the referred questions affirmatively in favor of the assessee, stating that annuity deposit repayments to nominees of deceased depositors are not taxable income under the Income-tax Act. The judgment provided a detailed analysis of the statutory framework and judicial interpretations to support its conclusion.