- (1.) THE Income Tax Appellate Tribunal, Allahabad has referred the following question of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this court : 'Whether on the facts and in the circumstances of the case the Tribunal was correct in law in holding that the assessee is eligible for deduction under section 80C in respect of NSCs of the value of Rs. 25,000 purchased by him on 24 -6 -1984?' However, the Tribunal has also referred the following two questions of law at the instance of the assessee : '1. Whether in the facts and circumstances of the case, the Income Tax Officer was justified in law in reopening under section 143(2)(b) the assessment for the year 1985 -86 of the assessee, already made under section 143(1) of the Income Tax Act, 1961 ?
(2.) WHETHER in the facts and circumstances of the case, the Tribunal was correct in law in interpreting the words 'income chargeable to tax' used in section 80(2)(h)(i) as 'income chargeable to tax' in the previous year?' The present reference relates to the assessment year 1985 -86. 2. Briefly stated the facts giving rise of the present reference are as follows : The assessee is an individual. His accounting period for the assessment year 1985 -86 commenced on 1 -4 -1984 and ended on 31 -3 -1985. His income is from salary from Laxmi Ratan Cotton Mills, Kanpur. The assessee filed his return of income for the assessment year 1985 -86 on 26 -8 -1985 showing an income of Rs. 23,655. As per the aforesaid statement of income, gross salary stood at Rs. 49,947 and interest from bank was shown at Rs. 2,250. With regard to the interest from bank, exemption under section 80L was claimed. From the gross salary income of Rs. 49,947 the assessee sought standard deduction of Rs. 6,000. Gross total income was, thus determined at Rs. 43,944. From the aforesaid gross total income, the assessee sought deduction under section 80C in respect of the following : Provident Fund Rs. 7,348 LIC Rs. 30,000 From the aforesaid amount, the qualifying amount was Rs. 20,192. Deducting this from the gross total income, total income was showing by the assessee at Rs. 23,670. The aforesaid return of income filed by the assessee was accepted by the Income Tax Officer under section 143(i) of the Income Tax Act, 1961, on 6 -3 -1986. Subsequently, the Income Tax Officer obtained the approval of the Inspecting Assistant Commissioner D -Range, Kanpur, to reopen the assessment under section 143(2)(b). The Inspecting Assistant Commissioner granted permission vide his letter dated 17 -3 -1986. In the reassessment proceeding, the Income Tax Officer asked the assessee to explain as to why deduction under section 80C be granted in respect of NSCs of the value of Rs. 30,000. The assessee stated in his reply to the Income Tax Officer that he had purchased NSCs of the value of Rs. 5,000 on 27 -3 -1985 partly by cheque Rs. 3,000 and partly by cash and Rs. 25,000 by cheque. The assessee enclosed a copy of the Pass Book with Punjab National Bank, Juhi, Kanpur to prove the sources of payment for the purchases of NSCS. After examining the said Pass Book the Income Tax Officer gave the finding that there was a debit entry of Rs. 25,000 as 27 -6 -1986 which represented the purchase of NSCS. On that amount on that date. The aforesaid amount of Rs. 25,000 was as per the assessee's explanation from the receipts of Provident Fund, receipt from the previous employer. According to the Income Tax Officer, NSC is purchased from such funds could not be eligible for deduction under section 80C. He made the following observation in this regard. 'Thus, in view of section 80C, the NSCs should have been purchased out of income chargeable to tax in the assessment year 1985 -86. The provident fund which was received from his employer is not chargeable to tax in the previous year ended 31 -3 -1985. Hence, the claim for NSCs of Rs. 30,000 is disallowed.'
(3.) THE assessee appealed against the aforesaid order to the learned Appellate Assistant Commissioner who concurred with the Income Tax Officer and dismissed the appeal. The assessee thereupon appealed to the Tribunal and raised before us the following points : '(1) That it was not the requirement of section 80C that the payment in question must be made out of the current year's taxable income. The section refers to taxable income and not to current year's taxable income. Reference was made by him in this connection to the wordings of clause (b) of sub -section (2) of section 80C of the Income Tax Act, 1961 wherein the words 'income chargeable to tax.' According to the learned counsel, there was nojustification to add to the aforesaid words further phraseology suggesting as if the phraseology used was 'income chargeable to tax in the previous year.' (2) On facts, it was submitted that he purchased NSC of Rs. 25,000 on 27 -6 -1984 out of his earlier year's savings from taxable incomes, which were to the extent of Rs. 46,232 as on 1 -4 -1974. According to him, his total salary during the accounting period under consideration exclusive of perquisites Rs. 47,745. The purchase of NSCs was much less than the aforesaid figure. So, according to him, even if the narrower view was taken, it could not be said that the NSCs were not out of current year's taxable income. (3) That the reopening of the assessment under section 143(2)(h) was wrong become according to the learned counsel, reopening could be done only to verify the correctness and completeness of the return and not to check up whether the claim of the assessee was rightly made or not.';