1977 (10) TMI 12 - HC - Income Tax

Court rules annuity amount taxable income, dismisses writ petitions

Additional Commissioner Of Income-Tax, AP Versus DV Sreerama Murthy And Other

The court ruled in favor of the revenue, dismissing the writ petitions and upholding the taxation of the annuity amount as income in the hands of the ... Annuity Deposit Issues:1. Whether the annuity received by the assessees should be considered as income or capital for taxation purposes.Analysis:The judgment pertains to three references and writ petitions concerning the assessment of annuity received by individuals who were previously members of a joint Hindu family. The Tribunal raised the question of whether the annuity amount should be included in the assessment of the assessees. The assessees contended that the amount received represented capital post-partition and should not be taxed as income. The Tribunal allowed the appeals, considering that the annuity deposit, though treated as income under the Income Tax Act, became capital in the hands of the individuals post-partition. The assessees preferred revisions and writ petitions for subsequent assessment years, challenging the taxation of the annuity amount as income.The main argument presented by the revenue was that as per the Income Tax Act, the annuity deposit return should be treated as income under the specific provisions of the Act. The revenue contended that the return of the annuity deposit to the depositor, as defined in the Act, should be considered income regardless of the joint family partition. However, the respondent argued that the Act and the Annuity Deposit Schemes did not address repayment in case of a disrupted joint family. The respondent relied on Hindu law principles, stating that post-partition, the divided coparceners should receive their shares as capital, not income.The court analyzed the provisions of the Income Tax Act and the Annuity Deposit Schemes, noting the absence of specific guidelines for repayment in case of joint family disruption. It emphasized that post-partition, the coparceners' status changes to tenants-in-common with fixed shares, converting the annuity repayment into income for taxation. The court disagreed with the Tribunal's conclusion that the annuity deposit should be considered capital post-partition, as the joint family no longer existed. It held that the annuity amount received by the individuals should indeed be treated as income for taxation purposes.In conclusion, the court ruled in favor of the revenue, dismissing the writ petitions and upholding the taxation of the annuity amount as income in the hands of the assessees. The court highlighted the fixed shares of the coparceners post-partition, converting the annuity repayment into taxable income.