Annuity deposit repayment deemed income and taxable even after HUF disruption, including the principal component.

Annuity deposit repayments were treated as income under Chapter XXII-A and section 2(24)(viii) of the Income-tax Act, 1961, because section 280D deems the annual instalments received under the scheme to be taxable receipts. Even where a Hindu undivided family had disrupted, the karta or erstwhile member who had made the deposit remained the depositor in the formal sense for the scheme, so repayment did not fall outside taxation merely because of disruption. The principal component was also taxable, since the statute expressly brought the repayment within income and did not preserve it as exempt capital return. The annuity repayment attributable to the assessee's share was therefore chargeable to tax.

---

---

Issues: Whether the repayment of an annuity deposit, consisting of principal and interest, received after disruption of a Hindu undivided family by the karta or an erstwhile member was taxable in his hands under the Income-tax Act, 1961.

Analysis: Chapter XXII-A of the Income-tax Act, 1961 and section 2(24)(viii) were enacted to bring annuity repayments within the definition of income. Section 280D contemplates repayment of the annuity deposit subject to the Chapter and the scheme framed thereunder, and the annual instalments are deemed income when received under that provision. On the facts of a Hindu undivided family deposit, the karta who made the deposit and obtained repayment was the depositor in the formal sense for purposes of the scheme, and the receipt could not be treated as being outside the scheme merely because the family had disrupted. The Court also held that the principal element was not exempt from tax simply because it represented return of capital, since the statute expressly deemed the repayment to be income.

Conclusion: The annuity repayment, including both principal and interest to the extent of the assessee's share, was taxable in the assessee's hands.

Final Conclusion: The reference was answered against the assessee and in favour of the Revenue, affirming that the entire annuity repayment attributable to the assessee's share was chargeable to tax.

Ratio Decidendi: Where the statute deems annuity repayments under section 280D of the Income-tax Act, 1961 to be income, the amount remains taxable in the hands of the person who receives it as depositor under the scheme, including in the case of a disrupted Hindu undivided family.

---