Punjab-Haryana High Court
Ravi Kumar Mehra vs Commissioner Of Income-Tax on 26 October, 1987
Equivalent citations: [1988]172ITR108(P&H)
JUDGMENT D.V. Sehgal, J.
1. This judgment shall dispose of Income-tax References Nos. 72 and 73 of 1978 as identical questions of law in both of them have been referred for the opinion of this court and the facts which give rise to them are also similar.
2. The question of law which has been referred by the Income-tax Appellate Tribunal, Amritsar Bench (for short "the Tribunal), is to the following effect:
" Whether, on the facts and in the circumstances of the case, the Tribunal was correct in disallowing deduction under Section 80C of the Income-tax Act, 1961, on life insurance premia paid of Rs. 6,304 ? "
3. It would suffice to make a brief reference to the facts of Income-tax Reference No. 72 of 1978. The status of the assessee is Hindu undivided family. Return of income for the assessment year 1973-74 pertaining to the accounting years ending March 31, 1972, and March 31, 1973, was furnished by the assessee. The business income shown therein is to the following effect:
Business income:
Rs.
Rs.
(i) Shares from the firm, M/s. Lal Oil & Chemical Mills, Amritsar, as per books subject to rectification under section 154/155 on completion of assessment In that case.
Profit 48,112 Interest 2,893 51,005 51,005
(ii) Share in the firm, M/s Lal Woollen & Silk Mills, Amritsar, as per books subject to rectification Under section 154/155 on completion of assessment in that case:
Profit 34,083 Interest 22,400 56,483 56,483 1,07,488
4. The assessee had paid a sum of Rs. 10,513 out of its income chargeable to tax to keep in force insurance policies falling within the scope of Section 80C(2)(b)(i)(1) of the Income-tax Act, 1961 (for short "the Act "). The Income-tax Officer, however, allowed deduction of Rs. 4,209 only under Section 80C(1) of the Act and disallowed the deduction respecting the remaining amount of Rs. 6,304 recording the following reasons :
" The life insurance premia has been paid at Rs. 10,513 out of which deduction is allowable only at Rs. 4,209 in respect of the amounts which have been withdrawn from the account books of M/s. Lal Woollen and Silk Mills, Amritsar, in which he was a partner during the year under assessment. These withdrawals are for a period of 12 months. The balance amounts were got paid from M/s. Lal Woollen & Silk Mills (P) Ltd. but as the life insurance premia claim is to be allowed for 12 months with reference to the accounting period of the firm as in the past, the deduction of the balance amount is not admissible. "
5. An appeal filed by the assessee against disallowance of the deduction of Rs. 6,304 was dismissed by the Appellate Assistant Commissioner of Income-tax, Range " B ", Amritsar, vide order dated January 25, 1977 (annexure " B "). His appeal before the Tribunal also failed and was dismissed vide order dated March 16, 1978.
6. It is not in dispute that the firm, M/s. Lal Woollen and Silk Mills, Amritsar, from which the assessee derived income of Rs. 56,483 mentioned at (ii) above with the year ending June 30, 1972, was converted into a private limited company with effect from July I, 1972. The company took over all the assets and liabilities of the said firm. The amount which stood to the credit of the assessee in its personal account maintained with the said firm also became the liability of the company and stood to the credit of the assessee in the books of account of the company. It is further not in dispute that the amount of the life insurance, premia of Rs. 6,304 was paid by the assessee by withdrawing it from his account with the said private limited company, the learned Tribunal, inter alia, recorded the following reasons while dismissing the appeal of the assessee ;
" It is undisputed that the assessee derived no income taxable in this assessment year from that company. The assessee was a partner in the firm, M/s Lal Woollen and Silk Mills, and part of the credit balance in the books of the firm was taken over by the limited company and it is from that account that the payment of Rs. 6,304 was made. "
7. It has further observed thus :
"On a consideration of the relevant provisions, we feel that the view taken by the Appellate Assistant Commissioner is correct. Section 80C(1) refers to the computation of total income of an assessee and the total income is defined in Section 2(45). As per that definition, the total income means, the total amount of income referred to in Section 5 computed in the manner laid down in this Act and Section 5 refers to the computation of total income of any previous year of a person. It follows, therefore, that Section 80C(1) which is relevant for reading Section 80C(2) deals with the computation of total income of the assessee of a previous year and while computing such an income, deduction provided in Section 80C(1) will be given and Section 80C(2) refers to the nature of sums which would qualify for deduction provided in Section 80C(1). Reading in this context, it is clear that there is a clear nexus between the income chargeable to tax and the amount of life insurance premia paid by an assessee and, in order to qualify for the relief provided in Section 80C(1), the amount of life insurance premia must come out of the income chargeable to tax. "
8. The above view of the learned Tribunal is clearly misconceived. The income of the assessee as Hindu undivided family was the subject-matter of assessment. Its total income from the two firms mentioned above pertaining to the relevant accounting years was Rs. 1,07,488. The fact that the payment of life insurance premia was made by the assessee out of the amount lying to its credit in the personal account with the company which was formed on July 1, 1972, is not at all a relevant factor and ought not to have weighed with the Revenue for disallowing the deduction under Section 80C(1). By making payment of the life insurance premia by withdrawing the amount from its personal account with the said company, the credit balance of the assessee in the said account was correspondingly reduced. This in clear terms means that the income of the assessee after giving deduction of life insurance premia under Section 80C(1) would also be correspondingly reduced. The reasons advanced by the learned Tribunal that since the amount of Rs. 6,304 had come out of the assessee's account with the company from which no taxable income was derived, deduction of this amount cannot be allowed under Section 80C(1) is not correct. An assessee may make payment of the life insurance premia out of his savings account with a bank where the balance to his credit is available before the commencement of the accounting year. This would in no case mean that the payment of premia so made is not to be deducted out of the total income of the assessee in the relevant accounting year and the corresponding assessment year. Such a construction on Section 80C would not be proper nor is it intended by the provisions of Section 80C(1) of the Act. The reliance placed by the Tribunal on the judgment of the final court in Chandulal Harjiwandas v. CIT [1967] 63 ITR 627 (SC), is misplaced. In that case, the Revenue had disallowed the claim for deduction of life insurance premia on a strict interpretation of the contract of insurance. The final court held that the claim of the assessee was admissible. It was observed that the object of enacting Section 15(1) of the Indian Income-tax Act, 1922, which corresponds to Section 80C of the Act, is the encouragement of thrift and the section should hence be interpreted in such a manner as not to nullify that object. The interpretation sought to be placed on the said provision by the Tribunal would in fact nullify its object and thus cannot be sustained.
9. Consequently, we answer the above question in the negative, i.e., against the Revenue and in favour of the assessee.
10. There shall, however, be no order as to costs.