Annuity deposit refund principal not taxable in heir's hands when received after depositor's death.

The statutory fiction taxing refund of annuity deposit principal applies only when the depositor who made the deposit receives the refund. Where the refund is paid after the depositor's death to a legal representative or heir, the principal component is not treated as income in that heir's hands for assessment. The interest component was not in dispute. On that basis, the principal portion of the annuity deposit refund was held not assessable in the assessee's hands.

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Issues: Whether the principal portion of a refund received by the heir of a deceased annuity depositor could be assessed as income in the heir's hands for the relevant assessment year.

Analysis: The refund of annuity deposit principal is treated by the statutory scheme as deemed income only when it is received by the depositor who originally made the deposit. The fiction created for taxation does not extend to a person other than the depositor. Where the refund is made after the depositor's death to the legal representative or heir, the principal component cannot be brought to tax in that person's assessment. The interest component was not in dispute.

Conclusion: The principal portion of the annuity deposit refund was not assessable in the hands of the assessee, and the question was answered in favour of the assessee.

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