Annuity from late husband's will deemed taxable despite tax-free stipulations

The High Court held that the annuity received by the assessee as per her late husband's will was deemed as income taxable under the Income-tax Act, despite any tax-free stipulations in the will. The court ruled in favor of the Revenue, stating that the annuity was a compulsory payment and the first charge on the trust property, making it chargeable to tax in the hands of the assessee. The court did not address the applicability of section 165 of the Income-tax Act, deeming it unnecessary after resolving the primary issue in favor of the Revenue.

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Issues:
1. Assessment of annuity received by the assessee in terms of the will of her late husband.
2. Applicability of section 165 of the Income-tax Act, 1961.

Analysis:

Assessment of Annuity:
The case involved the assessment of an annuity received by the assessee as per her late husband's will. The Income-tax Officer initially accepted the assessee's claim that the annuity was not taxable. However, upon re-opening the assessments under section 147 of the Income-tax Act, the Officer brought the amounts to tax. The Appellate Assistant Commissioner upheld the taxability, but the Tribunal disagreed. The Tribunal found that the trustees had taken over the job from the executors and made payments to the assessee as a beneficiary, holding that these payments were not chargeable to tax. The High Court noted that the annuity was a compulsory payment directed by the will, irrespective of the trust's income, making it the first charge on the trust property. Therefore, the annuity was deemed as income in the hands of the assessee, taxable under the Act. The court ruled in favor of the Revenue, stating that the annuity was chargeable to tax, regardless of any tax-free stipulations in the will.

Applicability of Section 165:
The second issue raised was regarding the applicability of section 165 of the Income-tax Act, 1961. However, the High Court found the first question to be crucial and resolved it in favor of the Revenue. Consequently, the court declined to examine the second question, deeming it academic and unnecessary. The High Court provided answers to the questions referred, ruling against the assessee on the taxability of the annuity and declining to answer the second question. The parties were directed to bear their own costs in the circumstances of the cases.

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