Court Upholds Annuity Deposit Demand Validity; Liability Accrued Before Repeal, Section 6 General Clauses Act Applies.

JKK. Angappan Versus Income-Tax Officer, Central Circle VII, Madras.

JKK. Angappan Versus Income-Tax Officer, Central Circle VII, Madras. - [1974] 94 ITR 397 Issues Involved
1. Validity of the demand for annuity deposit under the Income-tax Act, 1961, post-omission of relevant sections.
2. Applicability of Section 6 of the General Clauses Act to the omissions made by the Finance Act, 1966.
3. Nature and enforceability of the annuity deposit scheme.
4. Accrued liability of the petitioner before April 1, 1967.

Detailed Analysis

1. Validity of the Demand for Annuity Deposit
The petitioner challenged the demand for the annuity deposit for the assessment year 1965-66, arguing that the annuity deposit scheme under Chapter XXII-A of the Income-tax Act, 1961, was optional and not a tax, and thus could not be compulsorily recovered. The petitioner asserted that the omission of sections 280K, 280R, and 280T by the Finance Act of 1966 removed the machinery for assessing and recovering annuity deposits, rendering any demand post-April 1, 1967, invalid.

2. Applicability of Section 6 of the General Clauses Act
The respondent countered that Section 6 of the General Clauses Act allowed the Income-tax Officer to assess and demand annuity deposits accrued before April 1, 1967. The court had to determine whether the omission of sections 280K, 280R, and 280T amounted to a repeal, thereby invoking Section 6 of the General Clauses Act.

The court referenced the Supreme Court's decision in Rayala Corporation (P.) Ltd. v. Director of Enforcement, which distinguished between repeal and omission, suggesting that Section 6 applies only to repeals. However, the court noted that the Supreme Court's observations were specific to the facts of that case and did not establish a general rule that Section 6 could never apply to omissions.

3. Nature and Enforceability of the Annuity Deposit Scheme
The court examined the annuity deposit scheme, which required certain taxpayers to make deposits at specified rates, deductible from their total income. The taxpayer had the option not to make the deposit but would then be liable for additional tax. The scheme's provisions, including the taxpayer's option and the Income-tax Officer's authority to determine deposits, were outlined.

The court highlighted that the petitioner's failure to exercise the option to opt out of the scheme resulted in a liability to pay the annuity deposit. The court referenced Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth Tax, which established that tax liability is a present liability even if payable later.

4. Accrued Liability Before April 1, 1967
The court rejected the petitioner's argument that there was no accrued liability before April 1, 1967. It emphasized that the petitioner's liability to make the annuity deposit had accrued due to the failure to exercise the option. The court distinguished the present case from VE. Sivagami Achi v. VR. VE. VR. Ramanathan Chettiar and Stoneware Pipes (Madras) Ltd. v. Union of India, noting that those decisions were specific to their contexts and did not apply generally.

The court concluded that the omission of sections 280K, 280R, and 280T did not manifest an intention to destroy accrued liabilities. Therefore, Section 6 of the General Clauses Act applied, allowing the Income-tax Officer to issue the demand based on the assessment order, which could be construed as an order under section 280K.

Conclusion
The court dismissed the petition, upholding the validity of the demand for the annuity deposit. The court determined that the liability had accrued before the omission of the relevant sections, and Section 6 of the General Clauses Act applied, enabling the recovery of the annuity deposit. The petition was dismissed with costs.