Income‑tax‑‑‑

‑‑‑‑Special deduction‑‑‑Contribution to public provident fund‑‑‑Condition precedent‑‑‑Payment must come out of income chargeable to tax‑‑‑Indian Income Tax Act, 1961, S.80C.

The clear language used in section 80C of the Income Tax Act, 1961, is "any sums paid in the previous year by the assessee out of his income chargeable to tax". Obviously, the deduction in terms of section 80C can be granted only if the payment is made out of his "income chargeable to tax"

Inder Singh Gill (S.) v. CIT (1963) 47 ITR 284 (Bom.) and CIT v. Dr. Usharani Panda (1995) 212 ITR 119 (Orissa) rel.

Ravi Kumar Mehra v. CIT (1988) 172 ITR 108 (P&H) ref.

P.K.R. Menon for the Commissioner.

JUDGMENT

ARIJIT PASAYAT, C.J.‑‑‑At the instance of the Revenue, the following question has been referred under section 256(1) of the Income Tax Act, 1961 (in short "the Act"), by the Income‑tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), for opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of the contribution made to public provident fund even though the contribution had not come out of the income chargeable to tax?"

The assessee claimed deduction in respect of a sum of Rs. 80,000 deposited in public provident fund under section 80C of the Act. The same was denied to him by the Assessing Officer on the ground that it did not have any nexus with "income chargeable to tax" for the concerned previous year relating to the assessment year 1989‑90. The assessee earned income from interest on bank deposits. The deposit in public provident fund was admittedly not made out of the interest income.

In appeal the Commissioner of Income‑tax (Appeals) (in short "the CIT(A)", confirmed the view of the Assessing Officer. The matter was carried in second appeal before the Tribunal. Relying on a decision of the Punjab and Haryana High Court in Ravi Kumar Mehra v. CIT (1988) 172 ITR 108 the Tribunal allowed the claim. Thereafter, the reference was sought for and the prayer was accepted.

According to learned counsel for the Revenue, the approach of the Tribunal is erroneous as it failed to notice the clear and unambiguous language of section 80C of the Act. None appeared for the assessee in spite of the notice.

In order to appreciate the stand of the Revenue, it is necessary to take note of section 80C. Subsection (2)(a) of section 80C throws considerable light on the controversy. The clear language used in the provision is "any sums paid in the previous year by the assessee out of his income chargeable to tax" (underlined for emphasis). Obviously, the deduction in terms of section 80C can be granted if the payment is made out of his "income chargeable to tax". It is to be noted that while considering section 15(1) of the Indian Income‑tax Act, 1922 (in short "the 1922 Act"), the question arose whether absence of specific provi?sion to the effect that payment must come out of income chargeable to tax, would make any difference. In Inder Singh Gill (S.) v. CIT (1963) 47 ITR 284 (Bom.) it was observed that the absence of such a provision would not make any difference. The logic was that though section .15(l) of the 1922 Act in terms does not say that the tax shall not be payable in respect of any sums paid by an assessee out of his total income to effect an insurance on the life of the assessee, it would not make any difference. The language in which the subsection is couched postulates that the sums exempted under subsection (1) of section 15 (of the 1922 Act), would have been chargeable to tax, but for the exemptions provided by that Act. The exemption granted is from charging the said sums to tax. The question of exempting any sum from being charged to tax arises only when that sum could or would possibly enter the field of that particular taxation. The payment in the case at hand undisputedly was not made out of the income chargeable to tax. That being the position, the Tribunal was not justified in holding that even if the contribution did not come out of the income chargeable to tax, it was yet allowable as a deduction. A similar view has been expressed by the Orissa High Court in CIT v. Dr. Usharani Panda (1995) 212 ITR 119. We agreed with that view.

The inevitable conclusion, therefore, is only where the payment comes out of the income chargeable to tax, it would qualify for deduction. Our answer to the question, therefore, is in the negative, in favour of the Revenue and against the assessee.

The reference is disposed of accordingly.

M.B.A./689/FC

Reference answered.