Law:

Section:

Income-tax Act (XI of 1922), Ss. 4(1)(a) & 23 read with Contract Act (IX of 1872), S. 182 and Trusts Act (11 of 1882), Ss. 56 & 61-Assessee, a senior practising Advocate, instead of receiving his professional fees in lump sum, asking his clients to pay amounts of fees, payable by them, to an Assurance Company for purchase of annuity bonds payable in instalments spread over a guaranteed period of 20 years-Legal relationship between Assur­ance Company and assessee, that of a trustee and a beneficiary­ Word "annuity"-Construction-Annuity bond, held, not "money's worth" for entire amount of professional fees payable to assessee. The true legal relationship between the Assurance company and the assesse was, that of a trustee and a beneficiary. The obligation that was annexed to the ownership of the money paid by the purchaser for the annuity bond was in the nature of trust accepted by the Assurance Company for the benefit of the annuitant or the beneficiary. This obligation the beneficiary could enforce either under section 56 or under section 61 of the Trust Act, 1882. The receipts in the hands of the assessee, it is true, could either take the shape of money paid in cash or money received through an agent or something received as money's worth. It was not paid in cash and, it was not received through an agent. But was the annuity money's worth? In its widest sense it "is a right to receive de anno in annum a certain sum of money". It generally involves the purchase of an income or a change of capital into income, payable annually over a number of years but "the mere fact that a sum of money which is payable annually is designated an annuity is not conclusive, but that the real nature of the transaction must be looked at." It would thus appear that no rule of general application can be laid down for the construction of the word "annuity" but what can be gathered from the definitions is that an annuity may be purchased for a variety of purposes but this does not include annual instalments of a debt or of the purchase price of property. There can be no manner of doubt, that "the annuity bonds are not saleable or transferable nor can they be subjected to…

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