Taxability of annuity repayment after Hindu family partition turns on the recipient's status at receipt, not the former family unit.

Where annuity deposits are repaid after disruption of a joint Hindu family, taxability depends on the status of the recipients at the time of receipt. After partition, the coparceners cease to form a joint family and their shares become defined, so the repayment cannot be assessed in the hands of the former karta as if the family continued. The annuity retains its character as income in the hands of each divided coparcener and is not treated as capital.

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Issues: Whether the annuity received on repayment of annuity deposits, after partition of the joint Hindu family, was taxable as income in the hands of the divided coparceners or was to be treated as capital.

Analysis: The statutory scheme treated annuity due or commuted value of annuity paid under the repayment provisions as income. Although the provisions and the scheme did not specifically deal with repayment after disruption of a joint Hindu family, the relevant time for taxation was the status of the recipients when repayment was made. After partition, the members ceased to be a joint family and their shares became defined. In that situation, the repayment could not be brought to tax in the hands of the erstwhile karta as if the joint family still subsisted, and the amount received by each coparcener retained its character as income rather than capital.

Conclusion: The annuity was includible as income in the hands of each divided coparcener and not as capital; the answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: Where a joint family has already been disrupted before repayment of annuity deposits, the recipients take the repayment as income in their individual hands, because the statutory taxability of the annuity is determined by the existence and status of the taxable unit at the time of receipt.

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