1987 (11) TMI 112 - AT - Income Tax

Tribunal denies tax relief for NSC investment funded by insurance policy sum

The Tribunal overturned the Appellate Assistant Commissioner's decision and denied relief under section 80C for an individual's National Savings ... Deduction, Insurance Premia, Contribution To Provident Fund Issues:- Appeal against the order of the Appellate Asstt. Commissioner regarding deduction under section 80C on National Savings Certificates investment.Analysis:1. The appeal was filed by the department against the order of the Appellate Asstt. Commissioner related to the assessment year 1985-86, specifically challenging the allowance of deduction under section 80C on National Savings Certificates investment of Rs. 25,000.2. The assessee, an individual deriving income from salary, received a sum from a Life Insurance Policy and invested a portion in National Savings Certificates. The Income-tax Officer rejected the claim for relief under section 80C on the grounds that the investment was not paid out of income chargeable to tax in the previous year. The assessee appealed, arguing that the entire sum should qualify for relief under section 80C.3. The Appellate Assistant Commissioner (AAC) supported the assessee's claim, stating that it was not necessary for the funds invested in NSCs to come from income earned during the same previous year. The AAC emphasized that if the earnings of the entire previous year covered the investment made, the relief under section 80C should be allowed, even if the investment was made from part savings and current income.4. The department's representative argued that the funds should come from income chargeable to tax as per section 80C(2)(a)(i). The representative contended that the maturity amount received from LIC did not represent income chargeable to tax in the previous year, thus disqualifying the investment for relief under section 80C.5. The Tribunal analyzed the statutory provisions and legal principles related to relief under section 80C. It emphasized that the amount for relief should be paid from income chargeable to tax, not necessarily from income of the previous year. The Tribunal cited various judicial decisions to support its interpretation of the law.6. After considering the arguments, the Tribunal concluded that the amount received from LIC on policy maturity did not qualify as income chargeable to tax. The Tribunal found no ambiguity in the language of the statute and upheld the decision of the Income-tax Officer, reversing the AAC's order and denying the relief under section 80C on the investment made from the LIC funds.7. The Tribunal's decision was based on a strict interpretation of the statutory language and legal principles, emphasizing that the investment should be made from income chargeable to tax. The Tribunal also referred to a decision of the Bombay High Court to support its conclusion. Consequently, the appeal was allowed in favor of the department, overturning the AAC's decision.