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M.K. Kuppuraj Vs. Commissioner of Income-tax, Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 683 and 684 of 1976 (Reference Nos. 551 and 552 of 1976)
Judge
Reported in(1980)19CTR(Mad)266; [1981]127ITR447(Mad)
ActsIncome Tax Act, 1961 - Sections 2(24), 64(2), 280D and 280W
AppellantM.K. Kuppuraj
RespondentCommissioner of Income-tax, Madras
Appellant AdvocateT.V. Balakrishnan, Adv.
Respondent AdvocateJ. Jayaraman, Adv.
Excerpt:
.....- section 64 (2) (b) provided that when separate property of individual converted to joint family property any income from such conversion shall be deemed to arise to individual and not to family - tribunal not right in upholding inclusion of amount of refund of annuity deposit while computing income of assessee. - - 280w clearly prohibited the transfer of an annuity deposit, the declaration made by the assessee on august 12, 1970, was ineffective and had to be ignored and, consequently, there was no question of the huf becoming the owner of the annuity deposit, with the result that when the assessee received the refund of the annuity deposit in accordance with s. it should be extended to the entire filed to which the fiction was intended to operate and if so extended it..........of the i.t. act, 1961, and the balance of rs. 76,636 was impressed with the character of joint family property by the assessee by making the declaration on august 12, 1970. for the assessment years 1971-72 and 1972-73, the annuity deposit instalments repaid was rs. 14,523. the assessee's contention is that by virtue of the declaration made, the sum of rs. 14,523 should be assessed as the income of the huf and not as his individual income. under s. 280w of the i.t. act, 1961, two annuity deposit schemes were framed, one in 1964 and the other in 1966. rule 6(vi) of the 1964 scheme and r. 7 of the 1966 scheme prohibited the transfer of an annuity deposit, either by assignment or in any other manner. the first question for consideration is, whether any transfer is involved when the.....
Judgment:

Venugopal, J.

1. The assessee is a partner of the firm, M/s. Krishna Chetty. During the period from September 6, 1965, to March 24, 1969, the assessee deposited Rs. 1,16,180 by way of annuity deposited and up to August 12, 1970, a sum of Rs. 39,544 was paid to him under s. 280D of the I.T. Act, 1961, and the balance repayable was Rs. 76,636. On August 12, 1970, the assessee made a declaration impressing the aforesaid amount of annuity deposit with joint family character. For the assessment years 1971-72 and 1972-1973, the assessee contended before the ITO that the sum of Rs. 14,523 received by him during the two relevant previous years by way of refund of annuity deposit did not belong to him but they belonged to the HUF of which he was the karta, by reason of the declaration made by him on August 12, 1970, and, consequently, the sum of Rs. 14,523 was not assessable in his hands. The ITO came to the conclusion that there was no provision in the I.T. Act enabling the assessee to make a transfer of the annuity deposit and the annuity deposit received by him by way of refund during the relevant previous year was assessable in his hands despite the declaration made by him on August 12, 1970. On appeal, the AAC who heard the appeal for the assessment year 1971-72, relying on the decision of the Supreme Court in Goli Eswariah v. CGT [1976] 76 ITR 675, held that the declaration dated August 12, 1970, did not involve any transfer and that there was no scope for the application of s. 64(2) and directed the deletion of the amount. The AAC who heard the appeal for the assessment year 1972-73 held that, in view of the amendment in s. 64(2), there was a transfer of the annuity deposit amount by the assessee to the members of the HUF and only the interest portion of the amount refunded to the assessee under s. 280D of the Act could be considered as income from converted property and, consequently, half of it alone attributable to the assessee's half share in the converted property could be brought to tax in his hands. On further appeal, the Tribunal held that since the schemes framed under s. 280W clearly prohibited the transfer of an annuity deposit, the declaration made by the assessee on August 12, 1970, was ineffective and had to be ignored and, consequently, there was no question of the HUF becoming the owner of the annuity deposit, with the result that when the assessee received the refund of the annuity deposit in accordance with s. 280D, it was to be treated as his income and was assessable in the hands. The Tribunal also held that even assuming that the declaration made by the assessee on August 12, 1970, was valid and effective, the refund of any installment of annuity deposit should be treated as income under s. 2(24)(vii) and hence when they were realised by the HUF they have to be treated as income from converted property and, consequently, the amounts received by the assessee by way of refund of annuity deposit had to be assessed as income in his hands by reason of s. 2(24)(viii) read with s. 64(2) of the I.T. Act, 1961.

2. At the instance of the assessee, the following question of law has been referred to this court for opinion under s. 256(1) of the I.T. Act, 1961 :

'Whether, on the facts and circumstances of the case, the sum of Rs. 14,825 received by the assessee by way of refund of annuity deposit during the relevant previous years ending April 13, 1971, and April 12, 1972, is assessable in his hands under section 2(24)(vii) of the Income-tax Act, 1961, for the assessment years 1971-72 and 1972-73 ?'

3. For the period September 6, 1965, to March 24, 1969, the annuity deposit made by the assessee was Rs. 1,16,180. Up to August 12, 1970, a sum of Rs. 39,544 was paid to the assessee under s. 280D of the I.T. Act, 1961, and the balance of Rs. 76,636 was impressed with the character of joint family property by the assessee by making the declaration on August 12, 1970. For the assessment years 1971-72 and 1972-73, the annuity deposit instalments repaid was Rs. 14,523. The assessee's contention is that by virtue of the declaration made, the sum of Rs. 14,523 should be assessed as the income of the HUF and not as his individual income. Under s. 280W of the I.T. Act, 1961, two annuity deposit schemes were framed, one in 1964 and the other in 1966. Rule 6(vi) of the 1964 Scheme and r. 7 of the 1966 Scheme prohibited the transfer of an annuity deposit, either by assignment or in any other manner. The first question for consideration is, whether any transfer is involved when the assessee, by making the declaration dated August 12, 1970, impressed the character of joint family property to the annuity deposit repayable to him in ten equal instalments. The act by which the coparcener throws his separate property into the common stocks is a unilateral act and there is no question of either the family rejecting or objecting to it. By his individual volition the coparcener renounces his right in that property and treats it as property of the family. Thus, when a separate property is converted into joint family property, it is a voluntary unilateral act without consideration in money or money's worth. This court in A. N. K. Rajamani Ammal v. CED : [1972]84ITR790(Mad) has pointed out that this unilateral act of a person by which he throws the self-acquired property into the common stock of the joint Hindu family is not a disposition within the meaning of Expln. 1 to s. 2(5) of the E.D. Act nor an extinguishment at the 'expense of the deceased of a debt or other right', within the meaning of Expln. 2 thereof. Since a transfer is a bilateral or multilateral act and throwing into the common stock of the joint Hindu family is a unilateral act without consideration in money or money's worth, there is no transfer involved when the assessee made the declaration under the deed dated August 12, 1970, and it is consequently not hit by the prohibition contained in r. 6(vi) of the 1964 Annuity Deposit Scheme and r. 7(v) of the 1966 Annuity Deposit Scheme. Thought by the declaration dated August 12, 1970, there is a deemed transfer or fictional transfer for the purpose of s. 64(2), this is not a transfer which is prohibited under the 1964 Annuity Deposit Scheme or 1966 Annuity Deposit Scheme. What the annuity deposit schemes prohibit is that of a factual or real transfer and not a deemed or fictional transfer. Since the fictional transfer, for the purpose of s. 64(2), brought about by the declaration dated August 12, 1970, is not prohibited under the annuity deposit schemes, the Tribunal's finding that the declaration made by the assessee offends the annuity deposit schemes framed under s. 280W of the I.T. Act, 1961, and, consequently ineffective, is not correct.

4. The next question is, whether the entire annuity deposit instalments repaid to the assessee for the assessment years 1971-72 and 1972-73 is assessable in his hands. The assessee's contention in that the interest portion of the amount refunded to him under s. 280D of the I.T. Act, 1961, could alone be considered as income from 'converted property' and the interest income attributable to his half share in the converted property could alone be brought to tax. The contention of the revenue is that the annuity deposit as such had not been impressed with the character of HUF property and the right to receive annuity deposit alone had been impressed with the character of the property of HUF and what had been impressed with the character of HUF property was the right to receive the installment and not the annuity deposit as such and in this view the refund of any installment of annuity deposit should be treated as income from the converted property under s. 2(24)(vii) read with s. 64(2) of the I.T. Act, 1961, and, consequently, the amounts received by the assessee by way of refund of annuity deposit should be assessed as income in his hands. This court in the decision, CIT v. M. M. Muthiah : [1977]109ITR463(Mad) , has held that income under s. 2(24)(vii) includes any annuity due or commuted value of any annuity paid under the provisions of s. 280D and it is only by a statutory fiction that the annually repaid installment is treated as income in the hands of the depositor and the instalment of annuity deposit received by the nominee of the depositor should not be income of the nominee liable to tax within the meaning of s. 2(24)(vii) of the I.T. Act, 1961, as there is no charging section which would bring to tax such instalments received by the nominee. It, therefore, follows that the annually repaid annuity deposit instalment is income within the meaning of s. 2(24)(vii) only when the depositor receives and ceases to be income within the meaning of s. 2(24)(vii) when a person other than the depositor receives the amount.

5. In the present case, the annuity deposit instalments though received by the assessee was held in trust for the joint family of which he is the karta. In view of the declaration made by the assessee on August 12, 1970, the annuity deposit refunded to him cannot be retained by him and must be surrendered to the HUF, which has the beneficial interest. In the hands of HUF, the annuity deposit instalments cannot be treated as income as defined under s. 2(24)(vii) since it is not the depositor. Section 64(2)(b), as it stood during the relevant assessment years, provides that when the separate property on an individual is converted into joint family property by throwing it into the common stock of the family, the income from such converted property shall be deemed to arise to the individual and not to the family. The computation of the income of the individual who has converted has individual property into joint family property by throwing it into the common stock should be computed only in the individual who has converted his individual property into joint family property by throwing it into the common stock should be computed only in the manner provided under s. 64(2) and not in any other manner. By invoking s. 64(2), the declaration made by the assessee is construed as transfer of the converted property by the individual to the joint family. The computation of the income of the individual from the converted property should also be done only in the manner provided under s. 64(2). The fiction created under s. 64(2) cannot have a restricted application for holding that there was only a transfer of converted property by the individual to the joint family. It should be extended to the entire filed to which the fiction was intended to operate and if so extended it includes the computation of income as well. Under s. 2(24)(vii), the refunds are treated as income only in the hands of the depositor. When it was realised by the HUF, it cannot be construed as income falling within the ambit of s. 2(24)(viii). The computation of income of the individual from the converted property should be made only with reference to s. 64(2) and not with reference to s. 2(24)(vii). The Tribunal was not, therefore, correct in upholding the inclusion of the entire sum of Rs. 14,523 while computing the income of the assessee.

6. The learned counsel for the revenue contended that the annuity deposit when made by the depositor was taken as a reduction in computing the taxable income of the depositor and the annually repaid instalment is also treated as income in the hands of the depositor and as the annuity deposit as well as the refund forms part of the assessment scheme, it is not open to the assessee to convert the repayable annuity deposit into joint family property by throwing it into the common stock of the joint Hindu family. In the two annuity deposit scheme framed under s. 280W of the I.T. Act, 1961, there is no prohibition either express or implied against an assessee converting the repayable annuity deposit instalments into joint family property by throwing it into the common stock of the joint Hindu family. The contention of the revenue that the declaration made by the assessee on August 12, 1970, is opposed to the scheme of taxation cannot be accepted. The question referred to is, therefore, answered against the revenue and in favour of the assessee. The assessee is entitled to costs. Counsel's fee Rs. 500 one set.


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