1989 (1) TMI 95 - HC - Income Tax

Summary

Issues Involved:
1. Whether the interest received by the assessee in excess of the rate prescribed in clause (b) of rule 6 of Part A of the Fourth Schedule to the Income-tax Act, 1961, qualifies for deduction under section 80L of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Qualification for Deduction under Section 80L of the Act

Background:
The assessee, an individual employed by Bombay Burmah Trading Corporation Limited, was a member of an approved provident fund recognized under section 58B(1) of the Indian Income-tax Act, 1922. The fund's rules allowed for the investment of funds and payment of interest to members. The interest received by the assessee from these investments, to the extent prescribed, was excluded from assessment, while the excess interest was assessed under the head "Salary" as per section 17(1)(vi) of the Act.

Arguments by the Assessee:
The assessee contended that the excess interest should qualify for deduction under section 80L of the Act, which allows for the deduction of interest from certain specified investments. The assessee relied on the rules of the provident fund and the decision reported in CIT v. Smt. Shakuntala Banerjee [1979] 120 ITR 837 (All).

Arguments by the Revenue:
The Revenue argued that the amounts received by the assessee partook the character of "salary" under sections 15 to 17 of the Act and hence, did not qualify for deduction under section 80L. It was further contended that the trustees, being the legal owners of the fund, were the ones entitled to claim the deduction under section 80L, not the assessee.

Tribunal's Findings:
The Tribunal referenced an earlier decision by a Special Bench and concluded that the interest amounts did not qualify for deduction under section 80L, as the interest was paid on behalf of the trustees and did not emanate from sources specified in section 80L.

Court's Analysis:
The court considered whether the interest received by the assessee could be regarded as "salary" and thus not qualify for deduction under section 80L. It was noted that the interest earned by the trust on investments was distributed to the assessee, and if such interest partook the character of "salary" under the Act, it would not qualify for deduction under section 80L.

Legal Provisions:
- Rule 6(b) of Part A of the Fourth Schedule: States that excess interest credited to an employee's provident fund account is deemed to have been received by the employee and included in their total income for that year.
- Section 17(1)(vi) of the Act: Includes annual accretion to the balance at the credit of an employee participating in a recognized provident fund as "salary" for purposes of sections 15, 16, and 17.

Court's Conclusion:
The court held that the excess interest credited to the assessee's provident fund account is deemed "salary" under rule 6(b) and section 17(1)(vi) of the Act. Consequently, it is assessable as salary income and does not qualify for deduction under section 80L. The court also distinguished the decision in CIT v. Smt. Shakuntala Banerjee, noting that it related to a private trust and did not apply to the provident fund in question.

Final Judgment:
The court affirmed that the interest received by the assessee in the assessment years 1975-76 and 1976-77 in excess of the rate prescribed did not qualify for deduction under section 80L of the Act. The reference was answered against the assessee, and the Revenue was entitled to costs.

Costs Awarded:
The Revenue was awarded costs of Rs. 500.