KUPPURAJ M K Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(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 :