- (1.) ON an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing full deduction under Section 80C in respect of NSCs which were purchased in the previous year not out of the income chargeable to tax for the relevant assessment year ?"
(2.) THE relevant assessment year is 1985-86. THE assessee has declared the income of Rs. 18,700. Revised return was fifed on March 31, 1987, declaring additional income of Rs. 15,000 from other sources. During the course of assessment, the Assessing Officer has noticed that the assessee has claimed deduction of Rs. 30,000 on account of purchase of National Savings Certificates. He claimed deduction under Section 80C of the Act. THE Income-tax Officer further noticed that investment in the NSCs is from the amount of FDRs which are matured in this year and not from "the income chargeable to tax". THE Assessing Officer has allowed the deduction to the extent of Rs. 19,626 on the ground that till March 23, 1985, the assessee has earned Rs. 19,626. Balance was disallowed in appeal before the Deputy Commissioner (Appeals), has also confirmed the view taken by the Assessing Officer. In appeal before the Tribunal, that the assessee had available income chargeable to the tax sufficient enough to cover the figure out of which the NSCs were purchased and it allowed the claim of the assessee following the decision of the Punjab and Haryana High Court in the case of Ravi Kumar Mehra v. CIT [1988] 172 ITR 108. On a reference, Mr. Mathur argued that the provisions of Clause (h) of subsection (2) of Section 80C provides that if the NSCs are purchased "out of the income chargeable to tax" then only the deduction under Section 80C is eligible and not from the accumulated income of the earlier years. If the assessee purchased the NSCs out of the income accumulated of the earlier years, the assessee is not entitled for deduction on investment on the NSCs out of the accumulated profits. He placed reliance on the decision of the Orissa High Court in the case of CIT v. Dr. Usharani Panda [1995] 212 ITR 119. Mr. J.K. Ranka, learned counsel for the assessee, submits that when one view has been taken by the Punjab and Haryana High Court in favour of the assessee that should be followed, even though, the other view is possible. Mr. Mathur further submits that now the benefit of the provision of Section 80C(2)(h) has been given under Section 88, as the provisions of Section 80C has been omitted with effect from April 1, 1991. If we read combinedly both the provisions of Section 80C(2)(h) and Section 88, it appears that the Legislature has the benefit of investment under Section 80C in NSCs, etc., is given only in case if investment in NSCs out of the income "chargeable to tax". But the similar benefit has been given in Section 88. But in Section 88 the income of the current year is not required, as the words used in Section 88 are "total income with which he is chargeable for any year."
(3.) FOR the benefit under Section 88 the mere requirement is that if the assessee has invested income chargeable to tax for any assessment year then he will be eligible for deduction under Section 88 in the current year in which he made the investment. If we go by the plain language of the provision of Section 80C(2)(h), the assessee is entitled for deduction only if he invests in NSCs out of the income "chargeable to tax" under Section 80C(2)(h). Chargeable to tax means the income of the current year and not the income of any other year. Learned counsel for the assessee has admitted before the Commissioner of Income-tax (Appeals) that the assessee has made the investment in the National Saving Certificates out of the amount of the FDRs, i.e., accumulated income of earlier years and not of the income of the current year. ;