COMMISSIONER OF INCOME TAX Vs. MUTHIAH M M

JUDGEMENT

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

(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.) THE principle laid down by the Supreme Court in Commissioner of Income-tax v. Hukumchand Mohanlal 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 specific provision to bring to tax such receipts in the hands of the nominees. On first principles, it appears to be so clear that the amount received by the nominees, 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 of Income-tax v. Narottamdas K. Nawab [1976] 102 ITR 455 (Guj). THEre the learned judges were of the view that from a broader point of view, the instalments received by the nominee would retain its characteristic as income. THE learned judges put it on the ground that the annuity deposit scheme being one of the measures to curb inflation and it was in that broad sense they were of the view that the character of the receipt, namely, income, which was originally received by him, does not change by reason of the fact that instead of being received in a particular year, it is received in ten equal instalments and that too by his nominees. Mr. Rangaswamy appearing for the applicant did not urge before us that the amount in the hands 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 money in the hands of the nominee would be income, then certain inconvenient situations are likely to arise. According to the revenue, it is the refunded money 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 the provisions of the Income-tax Act, then the question is whether he would be assessed on the receipted instalments, notwithstanding the fact that such amounts so received by him annually fall short of the minimum income which could be brought to tax in any financial year. To expatiate, supposing an assessee receives an income of five thousand rupees per year and he receives one thousand rupees by way of refund of an annual instalment in the capacity as nominee of a depositor, both the amounts put together will still fall short of the assessable income under the present provisions of law. Is it possible, therefore, to assess that portion of the amount receipted by the nominee irrespective of the taxable level on the only ground that the depositor was liable to pay the tax and, therefore, the nominee cannot escape the tax ? We are, unable to see any justification in it as the contention of the revenue, if accepted, should apply to all situations uniformly and as it cannot apply in the illustration given by us, it makes us think that the amount received by a nominee of a depositor under the annuity deposit scheme would not be his income and it is not exigible to tax under the provisions of the Act. With great respect, we are unable to accept. the broad proposition set down by the Gujarat High Court in [1976] 102 ITR 455 (Commissioner of Income-tax v. Narottamdas K. Nawab).