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Commissioner of Income-tax Vs. M.M. Muthiah - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 230 of 1971 (Reference No. 92 of 1971)
Judge
Reported in[1977]109ITR463(Mad)
ActsIncome Tax Act, 1961 - Sections 2(24) and 280
AppellantCommissioner of Income-tax
RespondentM.M. Muthiah
Appellant AdvocateA.N. Rangaswami and ;Nalini Chidambaram, Advs.
Respondent AdvocateN. Srinivasan, Adv.
Excerpt:
direct taxation - refund - sections 2 (24) and 280 of income tax act, 1961 - whether tribunal right in holding that part payment of refund of annuity deposit was not income liable to tax under section 2 (24) (viii) - while interpreting taxing statute it is not possible to include all amounts received by assessee as his income on only contention that it would be equitable to do so - it is fundamental that no equity in tax - if slight doubt arises then it is equally rational to interpret such statute in favour of assessee - question referred to court answered in favour of assessee. - - onfirst principles, it appears to be so clear that the amount received by thenominees, in the circumstances above stated, would not be 'income'.strong reliance, however, was placed by mr......would retain its characteristic asincome. the learned judges put it on the ground that the annuity depositscheme being one of the measures to curb inflation and it was in that broadsense they were of the view that the character of the receipt, namely,income, which was originally received by him, does not change by reason ofthe fact that instead of being received in a particular year, it is receivedin ten equal instalments and that too by his nominees. mr. rangaswamyappearing for the applicant did not urge before us that the amount in thehands of the assessee would be an annuity as known to the general law;but he would rely squarely on the ratio of the gujarat case. if the intendment of the act and its provisions were such that the receipt of moneyin the hands of the nominee would be.....
Judgment:

Ramaprasada Rao, J.

1. At the instance of the revenue, the following question of law has been referred to us to give an answer thereto :

'Whether, on the facts and in the circumstances of the case, theAppellate Tribunal was right in holding that the part payment of refund ofannuity deposit in the sum of Rs. 1,509 referable to the assessment year1967-68 was not an income liable to tax within the meaning of Section 2(24)(viii) of the Income-tax Act, 1961, in the hands of each of theassessees ?'

2. Two appeals were disposed of by the Income-tax Appellate Tribunal, Madras, in which the appellant was Shri M. M. Muthiah, as father and guardian of the minors, and the respondent in the present reference is also Shri M. M. Muthiah, as father and guardian of the two minors. A common question arose in both the appeals. Hence the two applications filed by the Commissioner of Income-tax, Madras-II, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), were consolidated.

3. Shri Murugappa Chettiar paid a sum of Rs. 2,000 on October 29, 1964, as annuity deposit referable to the assessment year 1964-65. Another sum of Rs. 11,070 under the same head was paid on March 2, 1965, in respect of the assessment year 1965-66. He nominated two minors, M. M. Murugappan and M. M. Venkatachalam, jointly as his nominees to receive the refunds, in case he dies which nomination he could do under the provisions of the Annuity Deposit Scheme of 1964. On the death of Murugappa Chettiar on January 1, 1965, the above nominees became entitled to receive by way of repayment of the instalments which were payable under the Annuity Deposit Scheme to the assessee, but in the instant case to the nominees by virtue of the nomination. Each of the minors, who is hereinafter referred to as the 'assessee', received a sum of Rs. 1,509 in the year under consideration. Both the Income-tax Officer and the Appellate Assistant Commissioner assessed the said receipt in the hands of each of the assessees as their income. The assessees' contention throughout was that it is not income in their hands as the annuity was not created by them and that the receipt in the instant case is the result of an overt act on the part of Shri Murugappa Chettiar and it would not have the characteristic of income in their hands. The department, on the other hand, would maintain that notwithstanding the fact that the receipt in the hands of the assessee of the refund is by reason of the act of a third party, yet it would retain the badge of income in their hands. It was also contended that as annuity deposit when made by the depositor, was taken as a deduction in computing the taxable income of the depositor, it is equitable to bring to tax the sums received in repayment even though they are receipted only by the nominees of the depositor. The Tribunal, after appreciating the contentions of the parties, was of the view that the said receipt by the assessees would not be income. Hence the reference on the question at the instance of the department.

4. Chapter XII-A, which became effective from April 1, 1964, defined annuity deposit as meaning 'a deposit of money required to be made under the provisions of this Chapter'. It is not in dispute that Shri Murugappa Chettiar was a person who was obliged to make the annuity deposit.Section 280(d) of the Act contemplates the framing of an annuity deposit scheme. It also says that the Central Government shall repay to the depositor the annuity deposit made or recovered in any year in ten annual equated instalments of principal and interest at such rate as may be notified by the Central Government in the Official Gazette. There is also a provision for the computation of the annuity at the prescribed computed value. Section 280 of the Act amplifies the provision for the framing of the annuity deposit scheme. This scheme shall be notified in the official Gazette and it relates to the deposits made under Chapter XII-A. One of the provisions in the scheme, which refers to the entitlement of the depositor, provides for the nomination of any person to receive the annuity or any other sum due under this Chapter to any depositor in the event of his death There is also a contemporaneous provision for the cancellation of such nomination or a change in it.

5. The argument of the learned counsel for the applicant is that the refundof the instalment to the nominee under an annuity deposit scheme wouldbe income in the receipter's hands. Reliance is placed upon the definitionof 'income' in Section 2(24) of the Act. 'Income' under Section 2(24)(viii)of the Act includes any annuity due or commuted value of any annuity paidunder the provisions of Section 280(d). This fictional inclusion of theannuity referred to in Section 280(d) is significant. Section 280(d) refers tothe repayment to the depositor of the annuity deposit in ten annual equatedinstalments. Therefore, it is only in such circumstances and by a statutoryfiction that the annually repaid instalment is treated as income in thehands of the depositor. .

6. While interpreting a taxing statute, there is no scope for intendment or assumption. Unless the charging section is expressive and clear, it is not possible to include all amounts received by an assessee as his income on the only contention that it would be equitable to do so. It is fundamental that there is no equity in a tax. If a slight doubt arises whether the money in the hands of an assessee is assessable at all as income, then it is also equally rational to interpret such a provision in favour of the assessee and against the revenue. It, therefore, follows that the contention of the revenue that the refunds received by the nominees of the depositor should in equity be assessed to such income as if it is their income is fallacious. In our view, there is, as at present, no charging section which would bring to tax the instalments received by a nominee of a depositor under the charging head 'income' within the meaning of Section 2(24)(viii) of the Act. It may be of interest to note that the above sub-clause in Section 2(24) has been inserted by the Finance Act of 1962, arid notwithstanding the fact that the annuity deposit scheme is said to have been framed subsequently, no changein the definition of ''income' has been made so far. As it is not possible for the revenue to extend the area of taxation without express authority; for the purpose derived from one or the other of the charging sections in the Act, we are of the view that the contention of the applicant that it would be equitable to do so is unsound.

7. The principle laid down by the Supreme Court in Commissioner of Income-tax v. Hukumchand Mohanlal : [1971]82ITR624(SC) is that if the Act did not contain any provision making a successor in business or the legal representative of an assessee liable in the subject-matter under discussion--in that case thus it was, because of lack of a legal provision--there was no liability on the legal representative of the original assessee to pay tax on the deemed profits of the original assessee. Here also we are confronted with a similar situation. When the instalments are refunded after the depositor makes the annuity deposit in accordance with the provisions of the Act and the Scheme, then such instalments are added on to his income and he is liable to pay income-tax on it as if it is income earned during the year of receipt. But in the absence of a specific provision in the Annuity Deposit Scheme or in the Act (which contemplates a nomination on the part of the depositor), to tax refund of annuity deposit in instalments to nominees then we are in vain to find a charging section which could bring to tax such annual instalments received by the assessee not by virtue of any commercial activity of their own, not even by any deeming provision under the Act or under the Scheme, but by a fortuitous circumstance in that they Were the nominees entitled to receive such instalments which nomination was made by the deceased depositor. We are, therefore, unable to accept the second contention that it would be equitable to bring to assessment the sums received by the assessees even though they received it only as nominees of the depositor. The other contention is that the amount in the hands of the assessees which they received as nominees of the depositor retains the characteristic of income. We are of the view that neither in the popular sense nor in the sense the Act defines 'income', the amount received by the assessees in the instant case would be income. In the popular sense ''income' would mean the resultant of exertion or activity. In the statutory sense, it might take into its fold such monies, though not popularly or commercially understood as income, but deemed to be income under the provisions of the Act. The instalment repayable under the Annuity Deposit Scheme undoubtedly is the income, in the hands of the depositor. But the depositor nominated the assessees to receive the same. It is in effect a gift of an annuity made by the depositor. Such monies received by the depositor cannot still retain the badge of income which is liable to tax under the Act. We have already expressed the view that there is no specificprovision to bring to tax such receipts in the hands of the nominees. Onfirst principles, it appears to be so clear that the amount received by thenominees, in the circumstances above stated, would not be 'income'.Strong reliance, however, was placed by Mr. Rangaswamy, learned counsel,on a decision of the Gujarat High Court reported in Commissioner ofIncome-tax v. Narottamdas K. Nawab : [1976]102ITR455(Guj) . There thelearned judges were of the view that from a broader point of view, theinstalments received by the nominee would retain its characteristic asincome. The learned judges put it on the ground that the annuity depositscheme being one of the measures to curb inflation and it was in that broadsense they were of the view that the character of the receipt, namely,income, which was originally received by him, does not change by reason ofthe fact that instead of being received in a particular year, it is receivedin ten equal instalments and that too by his nominees. Mr. Rangaswamyappearing for the applicant did not urge before us that the amount in thehands of the assessee would be an annuity as known to the general law;But he would rely squarely on the ratio of the Gujarat case. If the intendment of the Act and its provisions were such that the receipt of moneyin the hands of the nominee would be income, then certain inconvenientsituations are likely to arise. According to the revenue, it is the refundedmoney that is taxable income because it was originally liable to tax. Supposing it is receipted by a person who is not liable to tax at all under theprovisions of the Income-tax Act, then the question is whether he would beassessed on the receipted instalments, notwithstanding the fact that suchamounts so received by him annually fall short of the minimum incomewhich could be brought to tax in any financial year. To expatiate, supposing an assessee receives an income of five thousand rupees per year and hereceives one thousand rupees by way of refund of an annual instalment inthe capacity as nominee of a depositor, both the amounts put togetherwill still fall short of the assessable income under the present provisions oflaw. Is it possible, therefore, to assess that portion of the amount receiptedby the nominee irrespective of the taxable level on the only ground that thedepositor was liable to pay the tax and, therefore, the nominee cannotescape the tax We are, unable to see any justification in it as the contention of the revenue, if accepted, should apply to all situations uniformlyand as it cannot apply in the illustration given by us, it makes us thinkthat the amount received by a nominee of a depositor under the annuitydeposit scheme would not be his income and it is not exigible to tax underthe provisions of the Act. With great respect, we are unable to accept. thebroad proposition set down by the Gujarat High Court in : [1976]102ITR455(Guj) (Commissioner of Income-tax v. Narottamdas K. Nawab).

8. The question is, therefore, answered against the applicant and in favour of the assessee with costs. The assessee shall have his counsel's fee fixed at Rs. 250 (Rupees two hundred and fifty only).


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