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What the Supreme Court decided
On 18 December 1998, the Supreme Court allowed Kapil Mohan’s appeal and set aside the Delhi High Court’s answer in favor of the Revenue. It held that the Rs. 12,013 instalment received by Mohan as executor of his late father’s estate was not assessable as his income under the statutory provisions at issue. Judgment
How the dispute arose
N. N. Mohan had deposited Rs. 1,57,250 under the Annuity Deposit Scheme, 1964, framed under Chapter XXII-A of the Income-tax Act, 1961. The deposit was repayable in instalments comprising principal and interest. After N. N. Mohan died, an instalment of Rs. 12,013 was paid to his son, Kapil Mohan, acting as executor. The Income-tax Officer treated that receipt as income for assessment year 1970–71.
The Appellate Assistant Commissioner found the receipt not taxable, but the Tribunal reversed that decision. The Delhi High Court answered the referred question for the Revenue, prompting the executor’s appeal to the Supreme Court. The question was whether the refund received by the executor was his income and assessable in that capacity. Case facts and referred question
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Why the recipient mattered
The Court examined section 2(24)(viii), section 280-D and the other relevant provisions of Chapter XXII-A, the Annuity Deposit Scheme, 1964, and the Revenue’s reliance on section 159. Its reasoning distinguished a payment to the original depositor from a payment of the remaining balance to that depositor’s legal representative after death. Supreme Court reasoning
| Payment considered | Recipient | Treatment in the judgment |
|---|---|---|
| Payment under section 280-D | Original depositor | The statutory treatment of the annuity as income applied to payment to the depositor. |
| Unpaid deposit balance paid after death under the Scheme | Legal representative | Repayment of capital, even though paid in annuity form; not taxable as income in this executor’s hands under the provisions before the Court. |
Section 280-D provided for repayment to the depositor in instalments of principal and interest. The Court read that provision as addressing the original depositor. The Scheme separately directed payment of the unpaid balance to the legal representative on the depositor’s death. The Court said, “Though so paid in annuity form the repayment is of capital.” The instalment format did not change that character, and the statutory deeming provision did not expressly extend to this recipient. Supreme Court reasoning
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Why section 159 did not change the result
The Revenue also relied on section 159, which concerns a legal representative’s tax liability in respect of a deceased person. The Court rejected that argument as a basis for taxing this receipt: under the Scheme and statutory provisions considered, the payment to the executor was repayment of capital, not income made taxable in his hands. The conclusion is specific to this payment and statutory scheme. Supreme Court reasoning
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the ruling does—and does not—establish
Kapil Mohan answers a narrow question about an unpaid balance under the Annuity Deposit Scheme, 1964, paid to an executor after the depositor’s death. It does not establish that every inherited payment, annuity, or amount received by a legal representative is exempt from tax. Nor does the historical decision alone determine the current tax treatment of an analogous receipt under current law. Anyone dealing with a present-day tax matter should assess the applicable law and the specific terms and facts of the payment.
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