Income Tax Appellate Tribunal - Ahmedabad
Ravjibhai R. Patel vs Income Tax Officer on 17 January, 1996
ORDER
B. L. Chhibber, A. M
1. A short but important issue raised in this appeal is in regard to treatment meted out by the authorities below to the assessee's claims for deductions under ss. 80C and 80CCA of the IT Act, 1961.
2. The assessee, an individual, derives income from salary and interest on bank deposits. During the year under appeal, the assessee contributed a sum of Rs. 32,000 towards Public Provident Fund (PPF) and claimed deduction under s. 80C of the Act. Similarly, he contributed a sum of Rs. 25,000 towards NSS and claimed deduction under s. 80CCA of the Act. The Assessing Officer (AO) noted that the above mentioned contributions had been made out of past savings, maturity of CTD Account and maturity of NSCs. He disallowed the claims of the assessee observing as under :
"The above amounts are not invested out of the income earned during the year and chargeable to tax. Sub-s. (2) of s. 80C says that the deduction under this section allowable only if the investments are made out of the income of the assessee chargeable to tax. The sum of Rs. 32,000 are invested out of the amount matured on 5th Aug., 1988, 13th Sept., 1988 and 4th Oct., 1988 from the CTD and FRD accounts. Thus it is not the amount of income chargeable to tax and, hence, not qualified for the deduction under s. 80C.
So far as the investment of Rs. 25,000 in NSS is concerned, the investment is not made out of the income chargeable to tax. Hence, in view of the provision of s. 80CCA(1) of the IT Act, the amount of investment of Rs. 25,000 is not qualified for the deduction under this section."
3. On appeal, the Dy. CIT(A) concurred with the view of the AO that since the above noted contributions had not been made out of the income earned during the year under appeal, the assessee was not entitled to deductions under ss. 80C and 80CCA of the Act.
4. Shri M. M. Patel, the learned counsel for the assessee submitted that the words "out of his income chargeable to tax" as appearing in ss. 80C and 80CCA of the IT Act need not necessarily mean income chargeable to tax of the relevant previous year alone, but would also include accumulated savings which are directly or indirectly attributable to assessee's income chargeable to tax of earlier year also. In support of his contentions he relied upon the judgment of the Punjab & Haryana High Court in the case of Ravi Kumar Mehra vs. CIT (1988) 172 ITR 108 (P&H); the decision of the Tribunal Jaipur Bench in the case of Balwant Singh vs. ITO (1995) 55 ITD 263 (Jp) and CBDT Circular No. P-3 dt. 11th Oct., 1965 as appearing at page 2446 of Vol. II of Chaturvedi & Pithisaria's book on Income-tax (4th Edn.).
5. Shri K. V. Trivedi, the learned Departmental Representative, strongly supported the orders of the authorities below and relied upon the recent judgment of the Orissa High Court in the case of CIT vs. Dr. Usharani Panda (1995) 212 ITR 119 (Ori) where the Hon'ble High Court has held that deduction under s. 80C of the Act can be claimed by an individual only if he has paid any sum in the previous year out of his income chargeable to tax. if the same has been paid out of an income which was not chargeable in the previous year, then the deduction claimed cannot be allowed.
6. We have considered the rival submissions and perused the facts on record. The provisions of ss. 80C and 80CCA refer to "sums paid in the previous year" but there is no requirement under the said sections that it should be out of "income chargeable to tax of the previous year". In the case of Ravi Kumar Mehra (supra) the Hon'ble Punjab & Haryana High Court held that the LIC premia paid out of the amount lying to the credit of assessee in a company qualified for deduction under s. 80C. Their Lordships observed that an assessee may make payments towards LIP out of the funds in SB account where his balance towards him is available before the commencing of the accounting year. The payment of premia so made is deductible out of the total income of the assessee in the relevant accounting year and the corresponding year under s. 80C(2)(b)(i)(1) of the Act. The Hon'ble High Court further referred to the judgment of Supreme Court in the case of Chandulal Harjivandas vs. CIT (1967) 63 ITR 627 (SC) and placed stress on the observations of the Supreme Court that the provisions of s. 80C of the Act were meant for encouragement of thrift and, hence, the section should be interpreted in such a manner as not to nullify that object. In our view the judgment of the Punjab & Haryana High Court squarely covers the facts of the assessee's case.
7. The CBDT Circular No. P-3, dt. 11th Oct., 1965 (supra) authorises the officers of the Department not to insist upon linking or identifying the payments for savings specially with the funds representing assessee's income chargeable to tax. If such income is found to be having some link or connection with the assessee's income chargeable to tax, then too much stress should not be laid upon finding that the savings have been effected out of assessee's current income chargeable to tax. Thus the case of the assessee before us also stands fortified by the aforesaid circular of the CBDT.
8. Similar issue came up before the Tribunal, Jaipur Bench in the case of Balwant Singh vs. ITO (supra) and the issue was decided in favour of the assessee. The Hon'ble Members of the Bench have usefully referred to the aforesaid Supreme Court decision in Chandulal Harjivandas (supra) and also the CBDT Circular No. P-3 (supra). The Tribunal, Jaipur Bench has, therefore, preferred to follow the decision of the Punjab & Haryana High Court in the case of Ravi Kumar Mehra (supra) and rightly so.
9. It is no doubt true that the Hon'ble Orissa High Court has taken a different view in the case of Dr. Usharani Panda (supra). However, in the said decision no reference has been made to the decision of the Punjab & Haryana High Court in the case of Ravi Kumar Mehra (supra) where the judgment is based on the decision of the Supreme Court in the case of Chandulal Harjivandas (supra). If only the decision of the Punjab & Haryana High Court in the case of Ravi Kumar Mehra (supra) and the CBDT Circular on the subject dt. 11th Oct., 1965 had been pointed out to the Hon'ble Orissa High Court, the High Court would have in all probability preferred to concur with the view of the Punjab & Haryana High Court. The Benches of the Tribunal at Ahmedabad have been consistently following the decision of the Punjab & Haryana High Court which is in favour of the assessee. For the sake of uniformity too, we respectfully follow the said decision of the Punjab & Haryana High Court and the other decisions of the Tribunal in which the decision of the Punjab & Haryana High Court has been followed, and allow the appeal of the assessee. Further, we feel inclined to follow the judgment of the Punjab & Haryana High Court in preference to the judgment of the Orissa High Court in view of the decision of the Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) where it was held that where the language of taxing provision is capable of more meaning than one, Court must adopt that interpretation which favours the assessee.
10. In the result, the appeal is allowed.