Life annuity from jagir conversion treated as taxable revenue receipt, not capital repayment under income tax law

Annual mansab received after conversion of a jagir into a life annuity was treated as a revenue receipt and assessed as income. The conversion involved parting with the capital asset itself in return for recurring yearly payments for life, so the sums were not repayment of capital by instalments. The payments were traceable to a legally enforceable source created by the jagir order and the notification made under it. Decisions on compensation for compulsory acquisition were distinguished because this arrangement was a voluntary conversion into a cash annuity, not acquisition compensation.

---

---

Issues: Whether the annual mansab received on conversion of the jagir was a capital receipt or a revenue receipt liable to assessment under the Income-tax Act, 1922.

Analysis: The assessee's jagir was converted into a life annuity under the governing jagir order and the Chief Commissioner's notification issued under it. The conversion resulted in the assessee parting with the capital asset itself and receiving yearly sums for life, not in repayment of capital by instalments. The receipt was regular, recurring, and traceable to a legally enforceable source created by the notification read with the jagir order. The cases dealing with compensation for compulsory acquisition of jagirs were distinguished because this was a voluntary conversion into a cash annuity, not compensation for acquisition.

Conclusion: The mansab was a revenue receipt and was liable to assessment as income.

Ratio Decidendi: Where a capital asset is voluntarily converted into a life annuity under an enforceable legal arrangement, the recurring annual payments constitute taxable income and not a capital receipt.

---