1987 (10) TMI 14 - HC - Income Tax

Court allows deduction under section 80C for life insurance premia irrespective of payment source

The High Court of Punjab and Haryana ruled in Income-tax References Nos. 72 and 73 of 1978 that the deduction under section 80C of the Income-tax Act, ... Deduction, Life Insurance Premium Issues involved: Disallowance of deduction under section 80C of the Income-tax Act, 1961 on life insurance premia paid.Summary:The High Court of Punjab and Haryana addressed Income-tax References Nos. 72 and 73 of 1978, where the question of law pertained to the correctness of disallowing a deduction under section 80C of the Income-tax Act, 1961, on life insurance premia paid. The assessee, a Hindu undivided family, had paid a sum of Rs. 10,513 towards insurance policies falling under section 80C(2)(b)(i)(1) of the Act. However, the Income-tax Officer allowed a deduction of only Rs. 4,209 and disallowed the remaining Rs. 6,304. The Tribunal upheld this decision, stating that the payment was made from the assessee's account with a private limited company, from which no taxable income was derived in that assessment year.The Tribunal's reasoning was based on the interpretation of sections 80C(1) and 80C(2) of the Act, emphasizing the nexus between income chargeable to tax and the amount of life insurance premia paid. The Court disagreed with this view, highlighting that the source of payment should not affect the deduction eligibility under section 80C(1). It emphasized that the purpose of the provision is to encourage thrift and should not be nullified by strict interpretations. The Court cited a previous judgment to support its stance.Ultimately, the Court ruled against the Revenue and in favor of the assessee, stating that the deduction for life insurance premia should be allowed irrespective of the source of payment. No costs were awarded in this judgment.