IT: Life insurance premiums, even if paid out of loan funds and not out of income chargeable to tax, are eligible for deduction under section 80C
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[2013] 34 taxmann.com 17 (Cochin - Trib.)
IN THE ITAT COCHIN BENCH
Goutham Reddy
v.
Income-tax Officer, Ward -2, Kottayam*
N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
IT APPEAL NO. 418 (COCH.) OF 2010
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
APRIL 5, 2013
Section 80C of the Income-tax Act, 1961 - Deductions - Life insurance premia, contribution to provident fund etc. [Contribution out of loan funds] - Assessment year 2006-07 - Whether, life insurance premium paid out of loan funds, and not out of income chargeable to tax are eligible for deduction under section 80C - Held, yes - Whether, therefore, where assessee paid insurance premium out of funds loaned by his grandfather, duly debited to account of assessee in books of proprietary concern of his grandfather, deduction under section 80C was allowable - Held, yes [Para 15] [In favour of assessee]
FACTS
| ■ | The assessee, receiving salary income from M/s 'S', claimed deduction under section 80C for making payments towards LIC premium in his return. The Assessing Officer observed that the premium amounts were paid by assessee's grandfather who was the proprietor of M/s 'V'. Therefore, he disallowed the deduction on ground that assessee was not in receipt of any gift or loan from his grandfather for paying premiums and benefit of deduction was available only to the person who actually made the payment. | |
| ■ | On appeal, the assessee claimed that the premium amounts had been duly debited to the account of the assessee in the books of the proprietary concern of his grandfather and since the assessee did not maintain books of account, he could not pass a corresponding credit entry. However, the Commissioner (Appeals) upheld the order of the Assessing Officer. | |
| ■ | On second appeal: |
HELD
| ■ | Admittedly the assessee did not maintain any books of account. Admittedly, the payments of LIC premiums were reflected in the books of account of M/s. 'V', the proprietary concern of the grandfather of the assessee. The Assessing Officer stated that the payments relating to LIC premiums were made by M/s. 'V' to M/s 'S', where the assessee was working, meaning thereby that the grandfather of the assessee only provided the funds for making payment of LIC premiums. Hence, it cannot be said that the LIC premiums were paid directly by the grandfather of the assessee. Accordingly, under these set of facts, it can be said that the assessee has availed loan from his grandfather for making LIC premium payments. [Para 9] | |
| ■ | The question that arises is whether the LIC premium amounts paid out of loan funds are eligible for deduction under section 80C. The department placed reliance on the decision of the jurisdictional High Court in the case of CIT v. Abraham George [2000] 242 ITR 171, in which the decision was rendered in the context of old provisions of section 80C which prescribed the condition that the eligible payments should have been made out of income chargeable to tax. There is no dispute that the present provisions of section 80C do not contain the words 'out of income chargeable to tax'. [Para 10] | |
| ■ | The next question that arises is whether the presence or absence of the words 'out of income chargeable to tax' make any difference. In the case ofS. Inder Singh Gill v. CIT [1963] 47 ITR 284, it was held by the Bombay High Court that the absence of the words 'out of income chargeable to tax' do not make any difference. The Bombay High Court considered the words 'tax shall not be payable' and held that the said language signify that sources of making payment of LIC premiums should be liable to tax and in that case only the tax shall not be payable if the same is used for making LIC premium payments. [Para 11] | |
| ■ | Thus, the old provisions of section 80C clearly specified the condition that the payments listed out in that section should be paid out of income chargeable to tax. [Para 12] | |
| ■ | However the provisions of section 80C, as applicable to the year under consideration, do not specify the condition that the LIC premium payments should be paid out of income chargeable to tax. Further, section 80C is included in Part-B of Chapter VI-A, which provides for deduction in respect of certain payments. Only Part-C of Chapter VI-A provides for deduction in respect of certain incomes. A plain reading of the above said provisions show that the deduction under section 80C shall be made if the sums specified in sub-section (2) is paid or deposited in the previous year. It does not place any condition about the source for making the payments or deposit. Further the deduction is given while computing the total income, i.e., out of gross total income. This is in total contrast to the provisions of section 15 of the 1922 Act, which used the language that that 'tax shall not be payable'. [Para 13] | |
| ■ | Within the sections included in Part-B of Chapter VI-A, the Parliament has prescribed the condition that the payments should have been made out of income chargeable to tax only in certain sections, meaning thereby, that the Parliament has consciously omitted the above said condition in certain sections. No such condition is prescribed in section 80C. It is a well settled proposition of law that one cannot supplement or add words to a section, which are not intended to be included by the Parliament. [Para 14] | |
| ■ | In view of the foregoing discussions, the payment of LIC premiums made during the previous year out of loan funds are also eligible for deduction under section 80C. Accordingly, the order of the Commissioner (Appeals) is set aside and the Assessing Officer is directed to allow the deduction under section 80C claimed by the assessee. [Para 15] |
CASES REFERRED TO
CIT v. Abraham George [2000] 242 ITR 171 (Ker.) (para 6), S. Inder Singh Gill v. CIT [1963] 47 ITR 284 (para 8) and CIT v. Dr. Usharani Panda [1995] 212 ITR 119/82 Taxman 26 (Ori.) (para 12).
R. Krishnan for the Appellant. Smt. S. Vijayaprabha and M. Anil Kumar for the Respondent.
ORDER
B.R. Baskaran, Accountant Member - The appeal filed by the assessee is directed against the order dated 05-04-2010 passed by Ld CIT(A)-IV, Kochi and it relates to the assessment year 2006-07. This appeal was originally disposed of by the SMC bench of the Tribunal on 31.10.2011. Thereafter, the assessee moved a miscellaneous application seeking recall of the order and upon finding merits in the said petition, the Tribunal recalled its order referred above and thereafter the appeal was heard by this division bench.
2. The solitary issue urged in this appeal is whether the Ld CIT(A) was justified in holding that the assessee is not entitled for deduction u/s 80C of the Act on the LIC premium paid in respect of his LIC policies.
3. The facts relating to the issue are stated in brief. The assessee derives salary income from a concern named M/s Seematti, Ernakulam. He filed his return of income by claiming deduction of Rs.1.00 lakh u/s 80C of the Act. The assessing officer noticed that the premium amounts were paid by the Grand father of the assessee named Shri V.Thiruvenkitam, who was the proprietor of M/s S. Veeraiah Reddiar, Kottayam and the concerned LIC accounts were shown as assets in the books of accounts of M/s S.Veeriah Reddiar. The assessing officer held that the assessee was not in receipt of any amount as gift or loan from Mr. Thiruvenkitam for making payments towards LIC premiums. Accordingly, he rejected the claim of deduction u/s 80C of the Act.
4. The assessee carried the matter in appeal before Ld CIT(A). The first appellate authority also did not accept the claim of the assessee that the LIC premiums were paid by him by taking loan from his grandfather. The Ld CIT(A) held that the premium amounts were paid by the grand father of the assessee only. He further held that the benefit of deduction u/s 80C of the Act shall be available only to the person who actually made the payment and not to the beneficiary of such payment. By placing reliance on the circular No. 3-P dated 11.10.1965, the Ld CIT(A) held that the object of section 80C is encouragement of thrift and savings by an assessee, meaning thereby the contribution should be made out of funds belonging to the assessee. Accordingly, the Ld CIT(A) dismissed the appeal of the assessee. Aggrieved by the order of the first appellate authority, the assessee has filed this appeal before us.
5. The Ld Counsel for the assessee submitted that the assessee herein derives income from salary and income from other sources. Hence there was no necessity for him to maintain books of accounts. He further submitted that the LIC premium amounts were paid by the grand father of the assessee and they were duly debited to the account of the assessee in the books of the proprietary concern of his grand father. He submitted that the assessee could not pass corresponding credit entry, since he did not maintain books of account. Accordingly he contended that the non-maintenance of books would not alter a loan transaction into some thing else. He further submitted that the provisions of sec. 80C of the Act, as applicable to the year under consideration, do not specify any condition that the contribution towards LIC premiums should be made out of income chargeable to tax. He further submitted that the old provisions of sec. 80C of the Act, which existed prior to the introduction of rebate u/s 88 of the Act, was having a condition that the LIC premium amounts should be paid out of income chargeable to tax. Accordingly he submitted that the impugned LIC premium payments have been made by the assessee out of the loan availed from his grand father and hence the assessee is eligible for deduction u/s 80C of the Act.
6. On the contrary, the Ld D.R submitted that the impugned LIC payments have been shown as an asset in the books of accounts of the proprietary concern of the grand father of the assessee and hence it cannot be said that the assessee has availed loan to pay the LIC premiums. The Ld D.R further submitted that the payments specified in sec. 80C of the Act should be paid out of income chargeable to tax, since the object of the provisions of sec. 80C of the Act is to encourage thrift and savings. He further submitted that the absence of the words the words "out of income chargeable to tax" in the newly introduced provisions of sec. 80C, which are applicable to the year under consideration, does not do away the condition that the said payments should be paid out of income chargeable to tax. In this regard, the Ld D.R placed reliance on the decision of the Hon'ble jurisdictional Kerala High Court in the case of CIT v. Abraham George [2000] 242 ITR 171.
7. In the rejoinder, the Ld A.R submitted that the provisions of income tax should be interpreted strictly without supplementing or deleting any words to the relevant provisions. He submitted that Chapter - VIA of the Act prescribes the "Deductions to be made in computing Total income" and it has been divided in four parts as given below:-
| (a) | "Part A" prescribes certain conditions for availing deductions specified in Chapter -VIA of the Act. | |
| (b) | "Part B" lists out the "Deductions in respect of certain payments" | |
| (c) | "Part C" lists out the "Deductions in respect of certain income". | |
| (d) | "Part D" lists out "Other deductions". |
He submitted that the deductions relating to certain income is listed out only in Part C. Deduction u/s 80C of the Act is included in "Part B" and the deductions listed out in Part B are related to deductions in respect of certain payments made by an assessee during a year. He submitted that the deductions specified in sec. 80C to sec. 80CGC are included in Part B. He submitted that the words "out of income chargeable to tax" finds place only in sections 80CCA, 80CCB, 80CCD, 80D and 80E of the Act. The said words do not find place in sections 80C, 80CCD, 80CCF, 80DD, 80G, 80GG, 80GGA, 80GGB and 80GGC of the Act. Accordingly he submitted that the parliament has consciously included the words "out of income chargeable to tax" only in those sections, where it was felt necessary that the concerned payment should be made out income chargeable to tax. Since the provisions of sec. 80C of the Act, as applicable to the year under consideration, does not contain the words "out of income chargeable to tax", they cannot be supplemented while interpreting the said provision.
8. With regard to the decision rendered by the Hon'ble jurisdictional High Court in the case of Abraham George (supra), the Ld A.R submitted that the said decision was related to the assessment year 1989-90 and at the relevant point of time, then existing provisions of sec. 80C of the Act contained the words "out of income chargeable to tax". He submitted that the Hon'ble Kerala High Court did make a reference to the decision rendered by the Hon'ble Bombay High Court in the case of S. Inder Singh Gill v. CIT [1963] 47 ITR 284. The Hon'ble Bombay High Court had rendered its decision in the context of sec. 15 of the erstwhile Income tax Act, 1922 (hereinafter 1922 Act). Under the provisions of sec. 16(1)(a) of the 1922 Act, the sums exempted under the section 15 of the Act are to be included in the "Total income". Further the provisions of sec. 15 was couched with the words "Tax shall not be payable". The Bombay High Court held that the above said language postulates that the sum exempted under sub-section (1) of section 15 would have been chargeable to tax but for the exemptions provided by the Act. Further the deduction specified in sec. 15 is necessarily to be included in the total income as per the provisions of sec. 16(1)(a) of the 1922 Act. Hence, on the combined reading of sec. 15 and sec. 16 of the 1922 Act, the Bombay High Court held that the absence of the words "out of income chargeable to tax" does not make any difference and the payments eligible for deduction u/s 15 of the 1922 Act should be paid out of income chargeable to tax.
9. We have heard the rival contentions and perused the record. Admittedly the assessee did not maintain any books of account. Admittedly, the payments of LIC premiums were reflected in the books of account of M/s Veeriah Reddiar, the proprietary concern of the grand father of the assessee. The assessing officer has stated that the payments relating to LIC premiums were made M/s Veeriah Reddiar to M/s Seematti, Kottayam, where the assessee is working, meaning thereby that the grand father of the assessee has only provided the funds for making payment of LIC premiums. Hence, it cannot be said that the LIC premiums were paid directly by the grand father of the assessee. Accordingly, under these set of facts, it can be said that the assessee has availed loan from his grand father for making LIC premium payments.
10. Now the question that arises is whether the LIC premium amounts paid out of loan funds are eligible for deduction u/s 80C of the Act? The department heavily placed reliance on the decision of Hon'ble jurisdictional High Court in the case of Abraham George (supra). Admittedly, the said decision was rendered in the context of old provisions of sec. 80C which prescribed the condition that the eligible payments should have been made out of income chargeable to tax. There is no dispute that the present provisions of sec. 80C do not contain the words "out of income chargeable to tax".
11. The next question that arises is whether the presence or absence of the words "out of income chargeable to tax" does make any difference? The Ld D.R submitted that the jurisdictional High Court in the case of Abraham George (supra) made a reference to the observations made by the Hon'ble Bombay High Court in the case of S. Inder Singh Gill (supra), wherein the Hon'ble Bombay High Court held that the absence of the words "out of income chargeable to tax" does not make any difference. We have carefully gone through the decision of Ho'ble Bombay High Court, referred above. As submitted by Ld A.R, the said decision was rendered in the context of sec. 15(1) of the Indian Income tax, 1922. Section 15 of the said read as under:-
"15(1) The tax shall not be payable in respect of any sums paid by an assessee to effect an insurance on the life of the assessee or on the life of a wife or husband of the assessee or in respect of a contract for a deferred annuity on the life of the assessee or on the life of a wife or husband of the assessee, or, as a contribution to any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies"
The Bombay High Court considered the words "Tax shall not be payable" and held that the said language signify that sources of making payment of LIC premiums should be liable to tax and in that case only the tax shall not be payable if the same is used for making LIC premium payments. The Bombay High Court also considered the provisions of sec. 16(1)(a) of the 1922 Act which provided that the sums exempted from taxation under section 15 are to be included in the "total income". The relevant observations made by the Hon'ble Bombay High Court are extracted below for the sake of convenience:-
"Sub-section 1(a) of section 16, inter alia, provides that the sums exempted under section 15 are to be included in the total income of the assessee. These provisions of sub-section (1)(a) of section 16 which say that the sums exempted from taxation under section 15 are to be included in the total income show that the sums exempted have the character and quality of being included in the total income of the assessee as the tax payable is determined with reference to the total income of an assessee. It would, therefore, logically follow that, when an exemption or relief is claimed under section 15(1) in respect of any sum it must be shown that the said sum bears the character and quality of being included in the total income of the assessee, with reference to which the tax is levied."
In view of the specific provisions of sec.16(1)(a) and the language used in sec. 15(1) viz., "Tax shall not be payable", the Bombay High Court held that the absence of the words "out of income chargeable to tax" does not make any difference in implementing the provisions of sec. 15 of the Act.
12. The Hon'ble Jurisdictional High Court was interpreting the provisions of sec. 80C relating to the assessment year 1989-90 which contained the words "any sum paid in the previous year by the assessee out of his income chargeable to tax". Thus the old provisions of sec. 80C of the Act clearly specified the condition that the payments listed out in that section should be paid out of income chargeable to tax. The Hon'ble Kerala High Court also referred to the decision rendered by the Hon'ble Orissa High Court in the case of CIT v. Dr. Usharani Panda [1995] 212 ITR 119/82 Taxman 26, where in the Hon'ble Orissa High Court, by placing reliance on the words "out of income chargeable to tax" found in the old section 80C of the Act. Thus, the Hon'ble Kerala High Court has only interpreted the provisions of sec. 80C of the Act that was applicable to the assessment year before it and in that context, it made a reference to the decisions of Hon'ble Bombay High Court and the Hon'ble Orissa High Court.
13. However the provisions of sec. 80C, as applicable to the year under consideration, do not specify the condition that the LIC premium payments should be paid out of income chargeable to tax. Further, as stated earlier, section 80C is included in Part-B of Chapter VI-A of the Act which provides for deduction in respect of certain payments. Only Part-C of Chapter VI-A provides for deduction in respect of certain incomes. The sub. sec. (1) of sec. 80C reads as under:-
"80C(1) In computing the total income of an assessee, being an individual or a Hindu Undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one lakh rupees."
A plain reading of the above said provisions show that the deduction under sec. 80C shall be made if the sums specified in sub-section (2) is paid or deposited in the previous year. It does not place any condition about the source for making the payments or deposit. Further the deduction is given while computing the total income, i.e., out of gross total income. This is in total contrast to the provisions of sec. 15 of the 1922 Act, which used the language that that "Tax shall not be payable".
14. The Ld A.R also pointed out that only certain sections included in Part-B of Chapter VI-A contain the words "out of income chargeable to tax" and certain sections do not contain the above said words, i.e., within the sections included in Par-B of Chapter VI-A of the Act, the parliament has prescribed the condition that the payments should have been made out of income chargeable to tax only in certain sections, meaning thereby, the parliament has consciously omitted the above said condition in certain sections. As stated earlier, no such condition is prescribed in sec. 80C of the Act. It is a well settled proposition of law that one cannot supplement or add words to a section, which are not intended to be included by the parliament.
15. In view of the foregoing discussions, in our view, the payment of LIC premiums made during the previous year out of loan funds are also eligible for deduction u/s 80C of the Act. Accordingly we set aside the order of Ld CIT(A) and direct the assessing officer to allow the deduction u/s 80C of the Act claimed by the assessee.
16. In the result, the appeal of the assessee is allowed.
Regards
Prarthana Jalan
__._,_.___
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