2010 (9) TMI 53 - HC - Income Tax

Interpretation of Income Tax Act's Section 88 & CBDT Circular on PPF rebate eligibility

Shri Adarsh Kumar Jain Versus Commissioner of Income Tax

The High Court considered the interpretation of Section 88 of the Income Tax Act and CBDT circular No.3P in a case involving a rebate for deposits in PPF. ... PPF Deposit- Question raised was whether the tribunal was right in disallowing the rebate u/s 88 in respect of PPF deposit on the ground that it was not made out of the income chargeable to Income Tax- The asseessee had made the deposit out of borrowed money but he had sufficient income chargeable to tax to make that deposit. Court declined to decide the case as no body had appeared for the assessee. Issues:1. Interpretation of Section 88 of the Income Tax Act regarding rebate for deposits in PPF.2. Interpretation of CBDT circular No.3P dated 11.10.1965 regarding the expression 'out of his income chargeable to tax.'3. Consideration of whether the assessee had sufficient income chargeable to tax to meet the investment in PPF.Issue 1: Interpretation of Section 88 of the Income Tax Act regarding rebate for deposits in PPF:The High Court was tasked with determining whether the authorities erred in law by not allowing a rebate under Section 88 of the Income Tax Act for deposits in PPF. The question revolved around the interpretation of the phrase 'out of his income chargeable to tax' in Section 88(2) of the Act. The authorities were criticized for their stance that the deposit must be linked solely to the income of the previous year, and the rebate could not be granted if the deposit was made from other available funds, even if the assessee had sufficient taxable income to cover the deposit.Issue 2: Interpretation of CBDT circular No.3P dated 11.10.1965 regarding the expression 'out of his income chargeable to tax':Another issue before the Court was the interpretation of CBDT circular No.3P dated 11.10.1965, specifically clarifying the expression 'out of his income chargeable to tax.' The authorities were accused of disregarding a crucial part of the explanation in the circular, which stated that the assessee was not required to specifically link or identify the deposit with funds representing taxable income. Instead, they focused on a portion suggesting that benefits could not be availed if payments could not be directly or indirectly attributed to the assessee's taxable income.Issue 3: Consideration of whether the assessee had sufficient income chargeable to tax to meet the investment in PPF:The Court also considered whether the authorities had erred in ignoring the fact that the assessee had taxable income of Rs.76100, which was deemed adequate to cover the investment of Rs.49000 in PPF. The rebate was disallowed because the deposit was made from the assessee's bank account, where borrowed monies were received. The authorities were criticized for not recognizing the sufficiency of the taxable income to meet the investment.The High Court noted that the matter appeared to be settled against the assessee based on judgments of the Kerala High Court and the Orissa High Court. However, since no representation was made on behalf of the assessee, the Court deemed it inappropriate to provide a detailed response to the reference on its merits and returned the same unanswered.