2002 (2) TMI 85 - HC - Income Tax

Summary

Issues:
- Interpretation of section 80C of the Income-tax Act, 1961 regarding deduction eligibility for National Savings Certificates (NSCs) purchased out of income chargeable to tax.
- Application of section 88 in conjunction with section 80C for deduction eligibility.
- Determining whether investment in NSCs out of accumulated income from earlier years qualifies for deduction under section 80C.

Analysis:
The judgment involves a question referred by the Tribunal regarding the deduction eligibility under section 80C of the Income-tax Act, 1961 for NSCs purchased not out of the income chargeable to tax for the relevant assessment year. The assessee declared income of Rs. 18,700 for the assessment year 1985-86 and filed a revised return declaring additional income of Rs. 15,000 from other sources. The Assessing Officer disallowed a portion of the claimed deduction of Rs. 30,000 for NSCs, as the investment was made from matured Fixed Deposit Receipts (FDRs) and not from the income chargeable to tax. The Tribunal allowed the claim based on a decision by the Punjab and Haryana High Court.

The primary issue revolves around the interpretation of section 80C(2)(h) which specifies that NSCs must be purchased "out of the income chargeable to tax" to be eligible for deduction. The counsel for the Revenue argued that investment from accumulated profits of earlier years does not qualify for the deduction, citing a decision by the Orissa High Court. The counsel for the assessee contended that the Punjab and Haryana High Court's decision should be followed, emphasizing the availability of different views on the matter.

Further, the judgment delves into the interplay between section 80C and section 88, highlighting that while section 80C requires investment from income chargeable to tax, section 88 allows deductions based on the "total income with which he is chargeable for any year." The court analyzed the legislative intent behind both provisions and concluded that section 80C restricts deductions to investments made from the income of the current year, not accumulated income from previous years.

The court found that the assessee had indeed invested in NSCs from the accumulated income of earlier years, specifically from FDRs, and not from the income chargeable to tax for the relevant assessment year. Consequently, the Tribunal's decision to allow the deduction under section 80C was deemed incorrect. The judgment favored the Revenue, holding that the claim for deduction on NSCs purchased from accumulated profits of earlier years was not permissible under section 80C.