Annuity deposit refund and HUF conversion: deemed income rules under section 64(2) control assessment, not transferee hands.

Refund of annuity deposit instalments credited to property impressed as HUF property was treated as a unilateral conversion of separate property into common stock, not a prohibited real transfer under the annuity deposit scheme. Section 2(24)(viii) taxes the refund as income only in the hands of the depositor, while section 64(2) deems income from converted property to arise to the individual who made the conversion. On that basis, the receipt could not be assessed in the HUF's hands on the footing adopted by the Tribunal, and the addition was unsustainable.

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Issues: Whether the refund of annuity deposit instalments received by the assessee after impressing the deposit with the character of joint family property was assessable in his hands under section 2(24)(viii) of the Income-tax Act, 1961.

Analysis: The declaration by which the assessee treated the repayable annuity deposit as joint family property was held to be a unilateral act of conversion of separate property into common stock, not a real transfer prohibited by the annuity deposit schemes. The schemes barred factual transfer by assignment or otherwise, but did not prohibit the deemed transfer created by section 64(2). For income-tax purposes, section 2(24)(viii) treats the refund as income only in the hands of the depositor, while section 64(2) deems the income from converted property to arise to the individual who converted it. Since the amount was received for the benefit of the HUF and not as income in the hands of the HUF itself, the addition could not be sustained on the footing adopted by the Tribunal.

Conclusion: The refund of annuity deposit instalments was not assessable in the assessee's hands under section 2(24)(viii) as applied by the Tribunal, and the question was answered in favour of the assessee.

Ratio Decidendi: A statutory fiction treating income from converted property as that of the transferor under section 64(2) cannot be displaced by treating the same receipt as income in the hands of the transferee where the charging provision operates only on the depositor.

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