2013 (6) TMI 378 - AT - Income Tax

Appeal allowed: Loan-funded LIC premiums qualify for deduction under section 80C

The Tribunal allowed the assessee's appeal, determining that LIC premiums paid out of loan funds are eligible for deduction under section 80C, as the ... Deduction u/s 80C on the LIC premium paid in respect of his LIC policies paid out of loan funds - CIT(A) disallowed the claim - Held that:- 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 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 . 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. Thus the payment of LIC premiums made during the previous year out of loan funds are also eligible for deduction u/s 80C - appeal of the assessee allowed. Issues Involved:1. Whether the assessee is entitled to deduction under section 80C of the Income Tax Act for LIC premiums paid by his grandfather.Issue-Wise Detailed Analysis:1. Entitlement to Deduction under Section 80C for LIC Premiums Paid by Grandfather:Background and Facts:The appeal concerns the assessment year 2006-07, where the assessee claimed a deduction of Rs. 1 lakh under section 80C for LIC premiums. The Assessing Officer (AO) disallowed the deduction, noting that the premiums were paid by the assessee's grandfather and shown as assets in the books of the grandfather's proprietary concern, M/s S. Veeraiah Reddiar.First Appellate Authority's Decision:The CIT(A) upheld the AO's decision, emphasizing that the deduction under section 80C is available only to the person who actually makes the payment. The CIT(A) referred to Circular No. 3-P dated 11.10.1965, which clarifies that section 80C aims to encourage thrift and savings by the assessee, implying that the contributions should be made from the assessee's funds.Arguments by Assessee:The assessee argued that he derived income from salary and other sources and did not need to maintain books of accounts. The LIC premiums were paid by his grandfather and debited to the assessee's account in the grandfather's proprietary concern. The assessee contended that the non-maintenance of books should not alter the nature of the loan transaction. He further argued that the current provisions of section 80C do not require the payments to be made out of income chargeable to tax, unlike the old provisions.Arguments by Department:The Department contended that the LIC premiums were shown as assets in the books of the grandfather's proprietary concern, indicating no loan was taken by the assessee. The Department argued that payments under section 80C should be made out of income chargeable to tax, citing the decision in CIT Vs. Abraham George (242 ITR 171).Tribunal's Analysis:The Tribunal noted that the assessee did not maintain books of accounts and that the LIC premiums were reflected in the books of the grandfather's proprietary concern. The Tribunal observed that the payments were made by the grandfather to M/s Seematti, where the assessee worked, indicating that the funds were provided by the grandfather. Thus, it could be inferred that the assessee availed a loan from his grandfather for the LIC premium payments.Interpretation of Section 80C:The Tribunal examined whether LIC premiums paid out of loan funds are eligible for deduction under section 80C. It distinguished the current provisions from the old provisions, noting that the current section 80C does not contain the words 'out of income chargeable to tax.' The Tribunal emphasized that section 80C is included in Part-B of Chapter VI-A, which deals with deductions for certain payments, unlike Part-C, which deals with deductions for certain incomes.Precedents and Legal Interpretations:The Tribunal referred to the Bombay High Court's decision in S. Inder Singh Gill, which interpreted the provisions of the 1922 Act, and noted that the absence of the words 'out of income chargeable to tax' in the current section 80C does make a difference. The Tribunal also noted that the Kerala High Court's decision in Abraham George pertained to the old provisions of section 80C, which explicitly required payments to be made out of income chargeable to tax.Conclusion:The Tribunal concluded that the payment of LIC premiums out of loan funds is eligible for deduction under section 80C, as the current provisions do not specify that the payments must be made out of income chargeable to tax. The Tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction claimed by the assessee.Final Judgment:The appeal of the assessee was allowed.