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Commissioner of Income-tax, Tamil Nadu Iii Vs. S.M. Ebrahim - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 599 of 1976
Judge
Reported in(1981)25CTR(Mad)320; [1982]134ITR599(Mad)
ActsIncome Tax Act
AppellantCommissioner of Income-tax, Tamil Nadu Iii
RespondentS.M. Ebrahim
Excerpt:
- - the refund of deposit comprised a return of the principal as well as an interest element.balasubrahmanyan, j.1. under the annuity deposit scheme, repayments of the annuity deposit as and when made shall be deemed to be the income of the depositor and chargeable to tax, to be assessed as such. in this case, one mrs. e. m. ebrahim, made certain annuity deposits under the i.t. act. if repayments had been made to her, they would certainly have been taxed under the deeming provisions of the act and the scheme. however, she died before the deposits were refunded leaving behind her surviving two sharers, one of whom was a son by name s. m. ebrahim. in the accounting year relevant to assessment year 1971-72 this ibrahim obtained a refund of a half of the annuity deposits as an heir to the deceased depositor. the ito brought to tax the refund of the deposit in the hands of this heir......
Judgment:

Balasubrahmanyan, J.

1. Under the Annuity Deposit Scheme, repayments of the annuity deposit as and when made shall be deemed to be the income of the depositor and chargeable to tax, to be assessed as such. In this case, one Mrs. E. M. Ebrahim, made certain annuity deposits under the I.T. Act. If repayments had been made to her, they would certainly have been taxed under the deeming provisions of the Act and the Scheme. However, she died before the deposits were refunded leaving behind her surviving two sharers, one of whom was a son by name S. M. Ebrahim. In the accounting year relevant to assessment year 1971-72 this Ibrahim obtained a refund of a half of the annuity deposits as an heir to the deceased depositor. The ITO brought to tax the refund of the deposit in the hands of this heir. The refund of deposit comprised a return of the principal as well as an interest element. The Tribunal held that the legal representative was not liable to be taxed in respect of the refund of annuity deposit to the extent the refund represented return of principal. The Tribunal said that under the Annuity Deposit Scheme only the refund of principal made to the depositor can be deemed to be the income taxable in the hands of the depositor. In the present case, since the refund was made not to the depositor but after her death to her legal representatives, the Tribunal held that the principal part of the refund cannot be charged to tax in the assessment of the legal representative as part of his income. It may be observed that there was no dispute about the taxability of the interest portion of the refund, whoever might be the recipient.

2. In rendering this decision, the Tribunal followed an earlier decision of theirs. That decision was the subject-matter of consideration by a Bench of this court in CIT v. M. M. Muthiah : [1977]109ITR463(Mad) . This court agreed with the Tribunal and held that a refund of annuity deposit, even as respects the principal sum, can be deemed to be income but that fiction operated for purposes of taxation, only if the refund is paid into the hands of the depositor. The court held that it cannot be brought to tax in the hands of any person other than the depositor. The court pointed out that that was the scheme. In the case before the Bench, the depositor had died and the refund of deposit was made to the person nominated by the depositor. In the present case, the refund of deposit is made to the heir of the deceased depositor. We do not think, however, that this distinction in the facts calls for any difference in the principle on which the earlier decision is based, namely, that a refund of principal under the annuity deposit scheme is taxable as deemed income only in the hands of the depositor who made the initial deposit and not in the hands of any other person.

3. The question referred by the Tribunal for our opinion is as follows:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the share of annuity deposit received by the assessee of Rs. 2,650 in so far as it does not include any element of interest cannot be assessed in the hands of the assessee for the assessment year 1971-72 ?'

4. On the facts found by the Tribunal that the deposit was not made by the assessee but by his deceased mother the answer to this question must be in favour of the assessee. We answer the reference accordingly. In the peculiar circumstances of the case, there will be no order as to costs.


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