Perpetual annuity for land rights treated as revenue receipt; power of attorney did not divert accrued income at source.

A perpetual annuity payable under section 5(1) of the Sreepadam Lands Enfranchisement Act, 1969, in exchange for extinguishment of rights in land, was treated as a revenue receipt because it was a continuing annual payment rather than a capital sum paid by instalments; it was taxable in the assessee's hands. A power of attorney authorising another person to collect the statutory amount did not divert income at source because the amount had already accrued to the assessee under the statute, and the authorised collection was only an application of income. The statutory annuity and the amount collected were therefore assessable as income.

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Issues: (i) whether the annuity payable under section 5(1) of the Sreepadam Lands Enfranchisement Act, 1969 for extinguishment of rights in the lands was a capital receipt or a revenue receipt; (ii) whether authorisation by power of attorney to collect the statutory amount resulted in diversion of income at source.

Issue (i): whether the annuity payable under section 5(1) of the Sreepadam Lands Enfranchisement Act, 1969 for extinguishment of rights in the lands was a capital receipt or a revenue receipt.

Analysis: The compensation for the relevant lands was fixed as an annuity payable in perpetuity and not as a capital sum payable by instalments. A perpetual annual payment in exchange for a capital asset falls within the category of income and is distinct from instalments of a capital sum representing the asset value.

Conclusion: The annuity was a revenue receipt and was taxable in the hands of the assessee.

Issue (ii): whether authorisation by power of attorney to collect the statutory amount resulted in diversion of income at source.

Analysis: The amount payable by the State had already accrued to the assessee under the statute. The power of attorney only authorised collection by another person and did not divert the income before it accrued. Payment to the authorised holder was therefore an application of income and not a diversion at source.

Conclusion: There was no diversion of income at source and the amount remained assessable in the hands of the assessee.

Final Conclusion: Both referred questions were answered against the assessee, and the statutory annuity and the collected amount were held taxable as income.

Ratio Decidendi: A perpetual annuity received in exchange for a capital asset is a revenue receipt, and an authority to collect accrued statutory income does not amount to diversion of income at source.

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