Rajasthan H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing full deduction under s. 80C in respect of NSCs which were purchased in the previous year not out of the income chargeable to tax for relevant assessment year ?

High Court Of Rajasthan : Jaipur Bench

CIT vs. Ram Mohan Rawat

Section 80C

Asst. Year 1985-86

Y.R. Meena & A.C. Goyal, JJ.

IT Ref. No. 24 of 1993

26th February, 2002

Counsel Appeared

R.B. Mathur, for the Applicant : J.K. Ranka, for the Respondent

JUDGMENT

BY THE COURT :

On an application under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following question for our opinion :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing full deduction under s. 80C in respect of NSCs which were purchased in the previous year not out of the income chargeable to tax for relevant assessment year ?”

The relevant assessment year is 1985-86. Assessee has declared the income of Rs. 18,700. Revised return was filed on 31st March, 1987, declaring additional income of Rs. 15,000 from other sources. During the course of assessment, AO has noticed that assessee has claimed deduction of Rs. 30,000 on account of purchase of NSCs. He claimed deduction under s. 80C of the Act. ITO further noticed that investment in the NSCs is from the amount of FDRs which are matured in this year and not from “the income chargeable to tax”. The AO has allowed the deduction to the extent of Rs. 19,626 on the ground that till 23rd March, 1985, assessee has earned Rs. 19,626. Balance was disallowed in appeal before the Dy. CIT(A), has also confirmed the view taken by the AO. In appeal before the Tribunal, that assessee had available income chargeable to tax sufficient enough to cover the figure out of which the NSCs were purchased and it allowed the claim of the assessee following the decision of Punjab & Haryana High Court in the case of Ravi Kumar Mehra vs. CIT (1988) 67 CTR (P&H) 162 : (1988) 172 ITR 108 (P&H) : TC 26R.315.

On reference, Mr. Mathur argued that the provisions of cl. (h) of sub-s. (2) of s. 80C provides that if the NSCs are purchased ‘out of the income chargeable to tax’ then only the deduction under s. 80C is eligible and not from the accumulated income of the earlier years. If assessee purchases the NSCs out of the income accumulated of the earlier years, the assessee is not entitled for deduction on investment on the NSCs out of the accumulated profits. He placed reliance on the decision of Orissa High Court in the case of CIT vs. Dr. Usharani Panda (1995) 129

CTR (Ori) 388 : (1995) 212 ITR 119 (Ori) : TC 26R.344.

4. Mr. J.K. Ranka, learned counsel for the assessee, submits that when one view has been taken by the Punjab & Haryana High Court in favour of the assessee that should be followed, even though, other view is possible.

5. Mr. Mathur further submits that how the benefit of provision of s. 80C(2)(h) has been given under s. 88, as the provisions of s. 80C has been omitted w.e.f. 1st April, 1991.

6. If we read combinedly both the provisions of s. 80C(2)(h) and s. 88, it appears that the legislature has the benefit of investment under s. 80C in NSCs, etc. is given only in case if investment in NSC is out of the income

‘chargeable to tax’. But the similar benefit has been given in s. 88. But in s. 88 the income of the current year is not required, as the word used in s. 88 are ‘total income with which he is chargeable for any year. For the benefit under s. 88 the mere requirement is that if assessee has invested income chargeable to tax for any assessment year then he will be eligible for deduction under s. 88 in the current year in which he made the investment.

7. If we go by the plain language of the provision of s. 80C(2)(h), the assessee is entitled for deduction only if he invests in NSCs out of the income “chargeable to tax” under s. 80C(2)(h). Chargeable to tax means the income of the current year and not the income of any other years.

8. Learned counsel for the assessee has admitted before the CIT(A) that assessee has made the investment in the National Savings Certificates out of the amount of the FDRs i.e., accumulated income of the earlier years and not of the income of current year.

9. Considering the facts in the case of the assessee and relevant provision in the IT Act in the year 1985-86, in our opinion, the Tribunal has wrongly allowed the claim of the assessee under s. 80C, while the investment in the NSCs are out of the amount of the FDRs in this year. The income invested in FDRs is of earlier year.

In the result we answer the question in negative i.e., in favour of the Revenue and against the assessee.

[Citation : 255 ITR 555]

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