1. The above references and the writ petitions are being disposed of by this single judgment as the question of law involved in them is common. The three references have been made by the Tribunal at the instance of the revenue. They relate to the assessment year 1969-70 with regard to three individuals who were once members of the erstwhile joint Hindu family but had partitioned the property in the year 1968 and consequently were assessed as individuals. The writ petitions have been filed by the three assessees in respect of the assessment years 1970-71 and 1971-72. They had preferred revisions to the CIT under Section 264 of the I.T. Act, 1961, hereinafter referred to as the Act, against the orders of the ITO and those revisions were dismissed.
2. The Tribunal has posed the following question at the instance of the revenue for our consideration:
'Whether, on the facts and in the circumstances of the case, the annuity of Rs. 3,730 was includible in the assessment of the assessee '
3. In order to appreciate the question, it is necessary to briefly state the relevant facts. A joint Hindu family consisted of D.V. Suryanarayana Murthy who was the father and karta, and his two sons, D.V. Dhanvantari and D.V. Sreerama Murthy. While the family was joint, the karta had made some annuity deposits under the Annuity Deposit Scheme, 1964, amounting to an aggregate of Rs. 89,530. These annuity deposits were made during the period December 1, 1964, to December 2, 1967.' The joint family properties were partitioned by January, 1968, and the fact of partition had been accepted by the ITO, A-Ward, Circle II, Kakinada, in his order dated November 30, 1968. For the assessment year 1969-70, the ITO brought to tax a sum of Rs. 3,730 in respect of each assessee under the head 'Other sources'. This sum was the amount of annuity which was received by each of the assessees as repayment of the annuity deposit. Aggrieved by the order of the ITO, all the assessees appealed to the AAC who rejected the appeals on the ground that the contention,'' raised before him was not advanced before the ITO. The contention that was raisedbefore the AAC was that the annuity deposit received by the karta and divided among the three members of the erstwhile joint Hindu family for the relevant assessment year ought not to have been taxed as income of the assessees who by the date of the receipt of the sum of Rs. 3,730 had become individuals and the said amount which the assessee had received represented the capital and was not his income.
4. Aggrieved by the order of the AAC, the assessees preferred three separate appeals for the relevant assessment year 1969-70 to the Tribunal which allowed those appeals. The Tribunal was of the opinion that although Section 280D read in conjunction with Section 2(24)(viii) of the Act treats annuity amounts received by the depositor under the scheme as income, nevertheless, since the original depositor was the karta of the joint family property and by the time the annuity deposit was being repaid the joint family had been disrupted, and since no provisions are made in Chapter XXII-A of the Act or the Annuity Deposit Scheme framed under Section 280W with regard to the fact as to whom the annuity deposit should be paid in case of disruption of the joint family, the amount was correctly paid to the erstwhile karta who was the depositor, who had divided the same among the three individuals, and the sum each individual, received as his share in the partition of the joint family assets became capital in his hands even though a portion of it was income. In this connection, it relied upon CIT v. RM. AR. AR. Veerappa Chettiar : 61ITR256(Mad) wherein it was observed that as a general rule all the property which a coparcener gets for his share in a partition of the joint family assets is capital in his hands, even though a portion of it was an income receipt in the hands of the family. Hence, the present references at the instance of the revenue. As stated above, for the other two assessment years, viz., 1970-71 and 1971-72, the assessees preferred revisions directly to the CIT under Section 264 of the Act, and since those revisions were dismissed, they have preferred the above writ petitions.
5. Mr. P. Rama Rao, the learned advocate for the revenue, assails the order of the Tribunal on the ground that the Tribunal was incorrect in holding that a sum of Rs. 3,730 in respect of each of the assessees was capital although Section 280D read with Section 2(24)(viii) of the Act specifically provides that this should be treated as an income. What the learned advocate contends is that Section 2(24)(viii) provides that any annuity due, or commuted value of any annuity paid, under the provisions of Section 280D of the Act is income. Section 280D of the Act provides :
'Subject to the provisions of this Chapter and any scheme framed thereunder, the Central Government shall repay to the depositor the annuity deposit made or recovered in any year in ten annual equated instalmentsof principal and interest at such rate as may be notified by the Central Government in the Official Gazette :......'
6. The prov. to Section 280D of the Act is not relevant for purposes of these cases. Therefore, submits Mr. P. Rama Rao, that in the light of Section 280D read with Section 2(24)(viii) the return of the annuity deposit to the depositor should be treated as income. The fact that the joint family property has been partitioned in the meantime would make no difference to the character of the amount which had been returned as the annuity deposit.
7. Mr. Y.V. Anjaneyulu appearing for the respondent very reasonably acceded to the contention of Mr. P. Rama Rao that the return of the deposit to the depositor, having regard to the provisions of Section 280D read with Section 2(24)(viii) of the Act, no doubt, would be considered as income but he submits that Section 280D provides that the repayment is to be made to the depositor, and the word 'depositor' has been denned under Section 280B(6) to mean a person to whom the provisions of this Chapter apply. He further contended that the Annuity Deposit Scheme framed by the Government under the powers conferred on it under Section 280W of the Act should be read in conjunction with the other sections of Chap. XXII-A, in which case, it would be seen that the legislature had specifically provided for the return of the annuity deposits by instalments to various persons apart from the depositor in case the depositor is not alive or is not in existence. According to him, as per the Annuity Deposity Scheme, 1964, para. 11 thereof provides for nomination by the depositor, in which case the amount should be paid to the nominee. Para. 10 of the said scheme provides for repayment of the annuity deposit in the case of dissolved firms, associations of persons or bodies of individuals in which case the amount should be paid to the persons who were partners or members immediately before its dissolution in such proportion as the ITO may, having regard to the proportion in which they were entitled to share the profits in the previous year in which the dissolution took place, direct. He further submits that although the Annuity Deposit Scheme, 1964, is silent with regard to the case of death of an individual depositor, the Annuity Deposit Scheme, 1966, had provided for this eventuality and directed that in case the original depositor dies, the amount of deposit should be paid to the legal representatives of the depositor. But, contends Mr. Anjaneyulu very strenuously, that the entire scheme framed under Section 280W is silent with regard to repayment of the annuity in case a joint family is disrupted, when the original depositor was the karta of the joint family. He, therefore, submits that in these circumstances the repayment has to be made to the karta as depositor; when the legislature had specifically omitted the provision relating to repayment in case of disruption of a joint family property, the principle of Hindu law should be applicable, namely, that where partition of the joint family assetstook place, the divided coparceners would take their share as capital and not as income, and for this proposition, Mr. Anjaneyulu relied upon CIT v. RM. AR. AR. Veerappa Chettiar : 61ITR256(Mad) . It would thus be seen that it is not in dispute that 'annuity' as denned in Section 280B(4) which is repaid under Section 280D is income by virtue of Section 2(24)(viii) of the Act. It is also not in dispute that it should be included in the income of the depositor in the year in which the amount of instalment of principal and interest was received. But what Mr. Anjaneyulu contends is that Section 280D has to be read subject to the provisions of Chap. XXII-A and any scheme framed under Section 280W of the Act, and when one looks at the Annuity Deposit Schemes of 1964 and 1966 as well as the provisions of Chap. XXII-A of the Act, it would be evident that they are silent as to the repayment to be made when there is disruption of the joint family. Therefore, in the absence of any specific provision as to who should receive the repayment of the annuity deposit in case of disruption of the joint family, the repayment has to be made to the karta as depositor and the principle of Hindu law would apply, viz., on partition of the joint family assets, the divided coparceners would have their respective shares as capital and not as income.
8. Therefore, the only question that falls for our determination is whether the amount of deposit received by the divided coparceners would be considered to be income liable to be taxed or whether it should be considered to be capital and, therefore, not liable to be taxed.
9. It is true that Section 280D of the Act as well as the Annuity Deposit Schemes of 1964 and 1966 are silent with regard to the repayment in case the joint family is disrupted before the repayment of instalments is made, nevertheless the position would have to be looked into as to what would be the status of coparceners during the time when the property was joint and after partition. It is now well settled that every coparcener has a share in the property so long as the property is joint but his share is not fixed. But once the joint family property is partitioned, his share is fixed. Therefore, so long as the partition had not taken place, the status of coparceners would be that of joint tenants in which case any income accruing to the family would have to be treated as income of the joint family property and assessed in the hands of the karta of the joint family. But where partition had taken place, the status of the members of the erstwhile joint family is converted into that of tenants-in-common and their shares are fixed in which case they can demand their shares from the karta. Therefore, applying this principle to the facts of the instant case, although no specific provisions are made either in Section 280D of the Act or in the two Schemes mentioned hereinabove, since by the time repayment of the annuity had started the family had been disrupted, the joint family was not in existence so that it could be taxed on this income. Therefore, theshares of the erstwhile coparceners are now fixed and they are tenants-in-common. Hence, the amount of annuity repaid to each of the individuals would be considered to be income in his hands. To our mind, this is what exactly has been decided in CIT v. RM. AR. AR. Veerappa Chettiar : 61ITR256(Mad) and we are in agreement with the ratio in that case.
10. The contention of Mr. Anjaneyulu that, notwithstanding the fact that partition had taken place, the repayment should have been assessed in the hands of the erstwhile karta on the basis that the assessees were tenants-in-common cannot be acceded to for the reason that the erstwhile karta himself had divided the repayment of the annuity among the three coparceners and the joint family was not at all in existence. Any such assessment by the ITO in the hands of the karta on the basis that the members are tenants-in-common would have been without jurisdiction as the I.T. Act is completely silent about such assessment. We are, therefore, of the opinion that the Tribunal was not correct in its conclusion that since the three members of the joint family had partitioned, it should be taken that the annuity deposit, notwithstanding the fact that it is an income under Section 2(24)(viii) of the Act, is nevertheless capital in the hands of the assessees.
11. We, therefore, answer the question in the affirmative and in favour of the revenue. The writ petitions are accordingly dismissed. However, having regard to the circumstances of the case, there will be no order as to costs. Advocate's fee Rs. 250 in each (Rupees two hundred and fifty).