KAPIL MOHAN versus THE COMMISSIONER OF INCOME TAX, DELHI

Citation: [1998] SUPP. 3 S.C.R. 647 · Decided: 18-12-1998 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

KAPIL MOHAN 
A 
v. 
THE COMMISSIONER OF INCOME TAX, DELHI 
DECEMBER 18,1998 
[S.P. DHARUCHA AND D.P. MOHAPATRA, JJ.] 
B 
Income Tax Act, 1961-Sections 2(24)(viii); Chapter XXll-A, Sec/Ions 
280-B(4), 280-B(6), 280-C, 280-D, 280W, I 59-Annuity Deposit Scheme, 
1964-Paras 4(a), 6, 7,9, Form 7-Deposit made under, by the original depositor 
refundable to him in 10 equal instalments of principal and interest under the C 
provisions of Section 280-Death of the original depositor-Payment of the 
balance amount to the legal representative, the son/executor-Nature of-
Held, the payment of the unpaid balance of the annuity deposit to the legal 
representative is the repayment of capital though so paid in annuity form-
Such repayment of capital not liable to tax as income in the hands of the D 
legal representative-Submission that the legal representative was liable to 
be taxed on account of Section 159, rejected-Section 159 not applicable. 
Section 280-D-Applicability of-Annuity under the provisions of 
Section 280-D payable to the original depositor-Held, Section 280-D does 
not apply to anyone other than the original depositor-It was therefore only E 
in the hands of the original depositor that the annuity was income and 
taxable as such. 
Tax and Equity-Held, are strangers-Just as reliance upon equity 
does not avail an assessee, so it does not avail the Revenue. 
Deposit for a sum of Rs. 1,57,250 was made by the original depositor 
under the Annual Deposit Scheme framed under Chapter XXIl-A of the 
Income Tax Act, 1961. The said deposit was refundable to the original 
depositor in 10 equal instalments of principal and interest under the 
provisions of Section 280-D of the Act. The original depositor having died, 
F 
the instalment of the balance amount payable to him under Section 280-D G 
was paid to his son/executor, the assessee. The said balance amount paid to 
the son/assessee was treated as income in the hands of the assessee by the 
Income Tax Officer for the Assessment Year 1970-71. The order was reversed 
by the Appellate Assistant Commissioner on appeal and Subsequently upheld 
by the Tribunal. At the behest of the assessee, reference was made to the H 
647 
648 
SUPREME COURT REPORTS (1998] SUPP. 3 S.C.R. 
A High Court. The reference was answered in favour of the Revenue and 
against the assessee. Aggrieved, the assessee filed the present appeal. 
On behalf of the Revenue it was contended that the annuity which had 
been paid to the assessee was paid under the Annuity Deposit Scheme. The 
payment to the assessee being under the Scheme, was a payment under the 
B provisions of Section 280-D and therefore income as defined by Section 
2(24)(viii) and taxable as such in the assessee's hands. 
Allowing the appeal, this Court 
HELD: 1.1. Section 280-D of Income Tax Act, 1961 does not apply to 
C anyone other than the original depositor. Only to the original depositor is 
the annuity paid under the provisions of Section 280-D. It is, therefore, only 
in the hands of the original depositor that the annuity is income, by reason 
of the inclusive definition in Section 2(24)(viii) and taxable as such. 
(657-B] 
D 
1.2. Section 280-D states that the requirement of repayment to the 
depositor of the annuity deposit "in ten annual equated instalments of principal 
and interest at such rate as may be notified" is subject to the other provisions 
of Chapter XXII-A and any Scheme framed thereunder; that is to say, that 
the Scheme may provide for a different manner of repayment to the depositor. 
In any event and assuming that the Scheme can provide that the repayment 
E be made to someone other than the original depositor and payment is made 
accordingly, it is payment under the Scheme and not payment under Section 
280-D. [656-G-H; 657-A) 
1.3. The amount of annuity deposit was income in the hands of the 
original depositor and taxable as such. The provisions of the Act and the 
F Scheme obliged him to make the deposit thereof instead of paying income-
tax thereon. The annuity deposit, when made, became capital. When returned, 
either as a whole or by instalments, it was not liable to tax as income. For 
this reason Section 2(24Xviii) was enacted, whereby the instalment or annuity 
was treated as income, provided it was received under Section 280-D, that 
G is to say, the annuity was to be treated as income if received by the original 
depositor. On the original depositor's death the balance of the annuity deposit 
that he h

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