Delhi High Court
Jugmander Das vs Income-Tax Officer. on 13 February, 1990
Equivalent citations: 1990 33 ITD 127 Delhi
ORDER
This is an assesseds appeal arising out of the assesseds assessment for assessment year 1986-87.
2. I have heard the learned counsel for the assessed and the learned Departmental Representative and have perused the material placed before me.
3. The assesseds accounting period ended on 31-3-1986. The assesseds major source of income is share from two partnership firms. In addition he derived small amounts of income from property and interest. The assessed claimed deduction under section 80C in respect of payments towards life Insurance Premium and purchase of National Savings Certificates. The admissible deduction was claimed in sum of Rs. 12,365. The ITO declined to grant the deduction on the ground that income accrued only on the last day of the accounting year, i. e., 31-3-1986 and the payments for LIP and purchase of NSCs having been made earlier could not be said to be out of the assesseds income chargeable to tax. The learned ITO relied on CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC).
4. On appeal the learned AAC held that the assessed derived income from dividend, interest on government securities and interest on FDRs. The income derived from these sources was Rs. 7,144 and he, therefore, held that to that extent the payments on the aforesaid account were out of the income chargeable to tax and on this amount deduction under section 80C should be allowed.
5. Under section 80C certain deduction is admissible in respect of payment of Life Insurance Premiums and purchase of National Savings Certificates, etc., if such payments are made in the previous year by the assessed out of his income chargeable to tax. For the year under consideration the assessed had an income of Rs. 38,374 as 25% share from a firm, M/s. Sita Ram Ram Richpal and another income of Rs. 17,550 from 25% share from Hotel Hill Kunj, Mussoorie. According to the ITO these incomes accrued to the assessed only at the end of the accounting period and, therefore, the payments in question could not be said to be out of income chargeable to tax. The learned ITO has apparently misconstrued the judgment of Honble Supreme Court in Ashokbhai Chimanbhais case (supra). That was a case in which the question was about the time when income from business accrues for purposes of tax under the Income-tax Act and it was for that limited purpose that it was held that income from a partnership firm does not arise from day-to-day but arises at a stated interval, like the close of the accounting period. The Honble Supreme Court has nowhere held that when an individual or a firm carries on business it earns nothing from day-to-day in the sense in which an ordinary person understands the concept of earning income. This is apparent from various observation of Honble Supreme Court, for example, reference was made to Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR 152 (SC) and the following paragraph was reproduced at page 48 of the Report :-
"There can, therefore, be no question that when the gross sale proceeds were received by the agents in India they necessarily received whatever income, profits and gains were lying dormant or hidden or otherwise embedded in them. Of course, if, on the taking of accounts, it be found that there was no profit during the year, then the question of receipt of income, profits and gains would not arise, but if there were income, profits gins, then the proportionate part thereof attributable to the sale proceeds received by the agents in India were income, profits and gains received by them at the moment the gross sale proceeds were received by them in India and that being the position the provision of section 4(1) (a) were immediately attracted and the income profits and gains so received became chargeable to tax under section 3 of the Act."
After reproduction the above para the Honble Supreme Court observed :
"These observation were, it may be noticed, made in rejecting the contention raised by counsel for the taxpayer that in the gross sale proceeds received by him in India, there was no income at all."
Thus, the Honble Supreme Court specifically reaffirmed that when a businessman sells goods, he does earn or loss something from day-to-day. Since tax is to be levied on the total income of a person earned during particular accounting period, for that purpose the income is deemed to accrue or arise only when the year comes to an end and a final account of the entire years dealings is taken. That concept of the accrual of income cannot be adopted for the purposes of section 80C (2) to find out whether the payments have been made from income chargeable to tam. In this case the ITO has purely relied on the ratio of Ashokbhai Chimanbhais case (supra) and has given no facts to show that the aforesaid payments could not be made by the assessed out of his income chargeable to tax and were made out of capital.
6. It is important to remember that even the Legislature has accepted the general concept that income is earned from day-to-day. That is why under the concept of pay while you earn, provisions for payment of advance tax during the accounting period itself have been made. If the principle of Ashokbhai Chimanbhais case (supra) was applied to all situations then no income is earned when the installments of advance tax have to be paid and on the basis of the ITO's thinking, a person could be said to be paying advance tax on amounts that have not actually been earned.
7. Further, if the ITO's thinking has its way then a businessman would never be able to claim any deduction under section 80C because, according to the ITO, on income arises till the end of the accounting period and if out of the income of one accounting period such investments are made in the following accounting period, the ITO would again decline to grant the exemption under section 80C on the ground that such investments have been made out of capital and not out of income of the year concerned. The learned ITO has nowhere shown that the payments for Life Insurance Premium and purchase of National Savings Certificates could not have been made out of income of the year concerned and, therefore, for the reasons discussed above, I am of the opinion that the assessed was entitled to the deduction with reference to the whole of the payments made towards LIP and purchase of NSCs to the extent admissible under section 80C. I, therefore, allow this appeal by the assessed and direct the ITO to grant deduction under section 80C to the assessed to the extent admissible under section 80C with reference to the amounts paid by the assessed in the relevant accounting period towards Life Insurance Premium and purchase of NSCs.
