Annuity payments taxed as income where contract substance showed a grant of income, not capital repayment.

The Calcutta HC applied the settled distinction between capital and income, holding that the true character of the transaction must be determined from substance, not from the form or measure used in the contract. Once a lump sum is paid for the grant of an annuity, the capital is exhausted and the periodic receipts are treated as income, even if the payments are linked to the original sum or may in aggregate equal or exceed it. The court distinguished a mere capital repayment arrangement and treated the payments as taxable annuity receipts rather than capital repayments.

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Issues: Whether the payments made under the contract were taxable as annuities chargeable to income tax, or were capital repayments outside the charge.

Analysis: The Court applied the settled distinction between capital and income, holding that the true nature of the transaction must be ascertained. A sum paid once for the grant of an annuity ceases to exist as capital and the periodic payments are income, even if the contract measures the duration or amount of the payments by reference to the original sum paid. The fact that the aggregate payments might equal or exceed the amount originally paid, or that the contract described the payments in a way linking them to that amount, did not alter their character as annuity payments. The Court distinguished the earlier authority relied upon by the respondent on the basis that the present contract was not a mere investment or deposit repayable as capital, but a grant of income for life with an added minimum payment feature.

Conclusion: The payments were taxable annuity payments and not capital repayments. The appeal was therefore allowed.

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