Tribunal rules CDS deposit not annuity, includes refunds in wealth calculation

The Tribunal concluded that the Compulsory Deposit Scheme (CDS) deposit is not considered an annuity and is not exempt from inclusion in the aggregation of assets. However, anticipated government refunds should only be included in the wealth when determined and payable. The appeal was partly allowed based on these findings.

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Issues Involved:
1. Nature of Compulsory Deposit Scheme (CDS) deposit.
2. Assessability of anticipated government refund.

Issue 1: Nature of Compulsory Deposit Scheme (CDS) Deposit

Analysis:

The primary issue in this appeal concerns the nature of the Compulsory Deposit Scheme (CDS) deposit amounting to Rs. 31,213. The assessee contends that the CDS deposit qualifies as an annuity and thus should be exempt from inclusion in the aggregation of assets under section 2(e) of the Wealth-tax Act, 1957. The relevant definition of 'assets' excludes "a right to any annuity not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee in any case where the terms and conditions relating thereto preclude the computation of any portion thereof into a lump sum grant."

The assessee argues that since CDS is refundable in five equal installments and a charge on the Consolidated Fund of India exists for this liability, it should be considered an annuity. This interpretation is supported by the Tribunal's decision in WTO v. S.D. Nargolwala [1983] 5 ITD 690 (Delhi). The counsel for the assessee further submits that section 7A of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, which provides for the exemption of CDS under section 5 of the Wealth-tax Act, does not override the provisions of the Wealth-tax Act due to the absence of a non obstante clause.

Conversely, the revenue contends that CDS is merely a deposit of cash with the Government, which pays interest on such deposits. The repayment of CDS in five equal installments does not transform it into an annuity. Section 7A of the CDS Act, introduced by the Finance (No. 2) Act, 1980, with retrospective effect from 1-4-1975, deems the amount of compulsory deposit as a deposit with a banking company for the purposes of exemption under section 5 of the Wealth-tax Act.

Upon careful consideration, the Tribunal concluded that the compulsory deposit is a deposit of money by the assessee with the Government, which is repaid in installments along with interest. The repayment of one's own money with accumulated interest does not constitute an annuity. The Tribunal noted that the right to receive repayment of the deposit does not transform into a right to receive annuity, which is essentially of an income nature. The Tribunal emphasized that the CDS Act's provisions make it clear that the compulsory deposit is not an annuity, and section 7A was introduced to extend the benefit of section 5(1)(xxvi) to compulsory deposits, which was not available earlier.

The Tribunal also distinguished the present case from the Supreme Court's decision in CWT v. Yuvraj Amrinder Singh [1985] 156 ITR 525, where the nature of a policy of deferred annuity based on human life was considered. The Tribunal concluded that the compulsory deposit is not an annuity and upheld the revenue's position.

Issue 2: Assessability of Anticipated Government Refund

Analysis:

The second issue pertains to the assessability of a certain refund that the assessee anticipated receiving from a government department. The Tribunal observed that when the department has not determined a certain amount to be refundable to the assessee, there is no basis for including such a sum in the assessee's wealth merely based on the assessee's opinion that a refund would be due. The Tribunal stated that any refund should be included in the assessee's wealth only when it accrues and arises in favor of the assessee.

Conclusion:

The Tribunal rejected the assessee's plea regarding the nature of the CDS deposit, confirming that it is not an annuity and thus not exempt from inclusion in the aggregation of assets. However, the Tribunal agreed with the assessee that anticipated refunds should not be included in the wealth until they are determined and payable. Consequently, the appeal was treated as partly allowed.

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