KOCHI, MAY 06, 2013: THE issues before the Bench are - Whether Sec 80C benefits can be availed even if insurance premium is paid by a relative on behalf of the beneficiary and Whether the provisions of present Section 80C are different from the earlier provisions where the Section had specified that the deduction was available only if the payment was made out of the income chargeable to tax. And the verdict goes in favour of the assessee.

Facts of the case

Assessee, an individual, derives salary income from a concern named M/s Seematti, Ernakulam. He filed his ROI by claiming deduction of Rs.1.00 lakh u/s 80C. During assessment, AO noticed that the premium amounts were paid by the Grandfather 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. Thus, AO 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, AO had rejected the claim of deduction u/s 80C. On appeal, CIT(A) also had not accepted the claim of the assessee. It was held that the premium amounts were paid by the grandfather of the assessee only. It was further held that the benefit of deduction u/s 80C shall be available only to the person who actually made the payment and not to the beneficiary of such payment. CIT(A) held that the object of section 80C was encouragement of thrift and savings by an assessee, meaning thereby the contribution should be made out of funds belonging to the assessee. Accordingly, the CIT(A) dismissed the appeal of the assessee. Before Tribunal, AR had submitted that the assessee derives income from salary and income from other sources. Hence there was no necessity for him to maintain books of accounts. It was further submitted that the LIC premium amounts were paid by the grandfather of the assessee and they were duly debited to the account of the assessee in the books of the proprietary concern of his grandfather. It was submitted that the assessee could not pass corresponding credit entry, since he did not maintain books of account. It was further submitted that the provisions of sec. 80C, 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, which existed prior to the introduction of rebate u/s 88 , was having a condition that the LIC premium amounts should be paid out of income chargeable to tax. On the other hand, DR submitted that the LIC payments had been shown as an asset in the books of accounts of the proprietary concern of the grandfather of the assessee and hence it cannot be said that the assessee had availed loan to pay the LIC premiums. It was further submitted that the payments specified in sec. 80C should be paid out of income chargeable to tax, since the object of the provisions of sec. 80C was to encourage thrift and savings. It was further submitted that the absence of the words the words “out of income chargeable to tax” in the newly introduced provisions of sec. 80C, does not do away the condition that the said payments should be paid out of income chargeable to tax.

Having heard the matter, Tribunal held that,

++ the department heavily placed reliance on the decision of jurisdictional High Court in the case of Abraham George. 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”;

++ the DR submitted that the jurisdictional HC in the case of Abraham George made a reference to the observations made by the Bombay High Court in the case of S. Inder Singh Gill, wherein the Bombay HC 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 Bombay High Court, referred above. The Bombay HC 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 HC 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”. 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;

++ the HC was interpreting the provisions of sec. 80C relating to the AY 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 clearly specified the condition that the payments listed out in that section should be paid out of income chargeable to tax. The Kerala HC also referred to the decision rendered by the Orissa HC in the case of CIT Vs. Dr. Usharani, where in the Orissa HC, by placing reliance on the words “out of income chargeable to tax” found in the old section 80C. Thus, the Kerala HC has only interpreted the provisions of sec. 80C that was applicable to the AY before it and in that context, it made a reference to the decisions of Bombay HC and the Orissa HC;

++ 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. 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”;

++ AR 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 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, 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. 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. Accordingly we set aside the order of CIT(A) and direct the assessing officer to allow the deduction u/s 80C claimed by the assessee.

(See 2013-TIOL-315-ITAT-COCHIN)