Commissioner of Income Tax, Tamil Nadu-IV vs V.S. Chelliah

Fakkir Mohammed, J.—These references have been made on the application of the Revenue by the Income Tax Appellate Tribunal,

Madras Bench ""C"", in R.A. Nos. 1315 to 1317 of 1972-73, under s. 256(1) arising out of I.T.A. Nos. 2629 to 2631 of 1972-73, in respect of

the assessment years 1967-68, 1968-69 and 1969-70, respectively, on the following common question of law :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law, in holding that the premia paid by the

assessee''s wife out of her income, included in terms of section 64(1)(iv) in the hands to the assessee, should be treated as having been paid by the

assessee and the deduction in terms of section 80C allowed thereon ?

The assessee is an individual during the relevant accounting period. The assessee had made a gift of Rs. 1,02,000 in favour of his wife, Mr. V.

S. C.Saraswathi Ammal, prior to the commencement of the accounting period relevant to the assessment year 1967-68. The amount was kept in

deposit with the assessee. The assessee had paid Rs. 14,158 for 1967-68, Rs. 13,090 for 1968-69 and Rs. 15,699 for 1969-70 towards

interest. Out of the above interest amounts, Rs. 2,628 for 1967-68, Rs. 2,329 for 1968-69 and Rs. 4,169 for 1969-70 formed interest on interest

on Rs. 11,530 for 1967-68, Rs. 10,761 for 1968-69 and Rs. 11,530 for 1969-70 respectively. The ITO included the interest amounts on the

gifted amounts of Rs. 1,02,000 excluding the interest on the interest in computing the total income of the assessee under s. 64(1)(iv) of the I.T. Act

and levied Income Tax.

The assessee had paid life insurance premium of Rs. 1,410 in respect of the life insurance policy of his wife for the above three financial years

from the interest amounts. He had also paid the life insurance premium in respect of the policies taken on his own life. The assessee claimed

deduction of the above premia paid on his own life and on the life of his wife under s. 80C of the Act for all the three financial years. The ITO

restricted the allowance of deduction only in respect of the life insurance premia paid on the life of the assessee out of his own income and did not

allow deduction of the premia paid by the wife out of the interest income derived from the assessee, on the ground that the premium on the life

insurance policy of the wife was paid only from the interest income of the wife and not from the income of the assessee, since s. 80C of the Act

contemplates deduction of the payment of premium made only from his own income.

The assessee went on appeal before the AAC of Income Tax, Madurai, but without success. The assessee filed I.T.A. Nos 2629 to 2631 of

1972-73 before the I.T. Appellate Tribunal, Madras Bench ""C"". The Appellate Tribunal, after considering the provisions of the Act, decided in

favour of the assessee holding that under s. 80C of the Act, the assessee is entitled to claim deduction, since the interest income of the wife had

been included in the total income of the assessee under s. 64(1)(iv). At that stage, the Revenue applied to the Tribunal to make a reference to this

court on the above-referred question of law.

While granting deduction, the Appellate Tribunal has held that the extent of premium which qualified for relief would be only that portion of the

interest income included in the assessment of the assessee, which bears to the total amount of interest received by the assessee''s wife and

calculated the admissible portion of relief as 12/14 of Rs. 1,410 for 1967-68, 11/13 of Rs. 1,410 for 1968-69 and 3/4 of Rs. 1,410 for 1969-70.

On behalf of the Revenue, it is contended before us that s. 80C(2)(a) of the Act contemplates the payment of premium from out of the

assessee''s income chargeable to tax and not from the total income of the assessee chargeable tax and, hence, the payment of premium made by

the wife from the wife''s income towards premium on her policy, though for the purpose of s. 64(1)(iv) was included in computing the taxable

income, is not deductible for claiming benefit under s. 80C(2)(a). In support of the said contention, our attention was drawn to ss. 80C(2)(a), 80B,

80A, 64(1)(iv), 27(1), 2(45), 5 and 4 of the Act. Section 64(1)(iv) of the Act reads thus :

(1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly - .....

(iv) subject to the provisions of clause (i) of section 27, in a case not falling under clause (i) of this sub-section, to the spouse of such individual

from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an

agreement to live apart.

It is not disputed that the assessee had transferred by way gift, Rs. 1,02,000 during the accounting year, which had earned interest for the

relevant assessment year of 1967-68 and that, therefore, the interest income, excluding the interest on interest, was collectively included in

computing the total income of the assessee. The inclusion of the wife''s income under s. 64(1)(iv) has not been disputed.

Section 80A(1) of the Act reads thus :

In computing the total income of an assessee, there shall be allowed from his gross total income, accordance with and subject to the provisions of

this Chapter, the deductions specified in sections 80C to 80VV.

Thus, s. 80A(1) contemplates the computation of the total income of an assessee for purpose of levying Income Tax after giving the deductions

specified in s. 80C of the Act from his gross total income. The words used are ""his gross total income"" and ""total income subject to the provisions

of Chapter VIA"". Even though the income of the wife by way of interest earned from the deposit, transferred by the assessee to his wife''s name as

a gift, has been added to his gross total income under s. 64(1)(iv) for the purpose of levying tax, it has been treated as the gross total income of the

assessee by prefixing the words ""his gross total income"" in s. 80A(1). Therefore, whatever words that are used in s. 80C relating to the deduction

of the premia paid by the assessee out of his income chargeable to tax, shall be subject to the words used in s. 80A and such words in s. 80C

cannot run counter to s. 80A.

Now, we will refer to s. 80C(1) and (2)(a)(i) and see whether the same are running counter to s. 80A(1). Section 80C(1) and 80C(2)(a)(i)

are extracted hereunder :

80C. (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section,

an amount calculated, with reference to the aggregate of the sums specified in sub-section (2), at the following rate, namely :- ... (rates are

prescribed)

(2) The sums referred to an sub-section (1) shall be the following, namely :-

(a) where the assessee is an individual, any sum paid in the previous year by the assessee out of his income chargeable to tax -

(1) to effect or to keep in force an insurance on the life of the assessee or on the life of the wife or husband or any child of the assessee.

Just as the words, ""his gross total income"" is referred to in s. 80A(1); in s. 80C(2)(a), the words used are : ""his income chargeable to tax"".

Section 80A contemplates deductions from the gross total income for the purpose of arriving at the income of the assessee. Thus under s. 64(1)(iv)

of the Act it has been deemed that the income of the wife is a part of his gross total income for the purpose of computing the assessee''s total

income chargeable to tax, whereas under s. 80C(2)(a)(i) the payment of premium from such gross total income of the assessee has been deemed

to be from the income of the assessee chargeable to tax. If Parliament wanted to distinguish the payment of premium on the life insurance policy of

the wife from the income of the wife, even though it has been added to the income of the assessee inter s. 64, there would have been specific

exclusion under s. 80C, that the payment of premium by the assessee from the income of wife shall not be deducted for the purpose of s. 80C. The

section to suit be interpreted as it is without straining the language of the section to suit the interpretation of the Revenue. When two interpretation

are possible, justice demands that the court should adopt a liberal interpretation and benevolent construction in favour of the assessee, as it is the

assessee who will stand to lose and not the Revenue. Our above view gains support whom the other provisions of the Act.

u/s 2(7), the assessee has been defined in the following words :

''""assessee"" means a person by whom any tax or any other sum of money is payable under this Act, and includes -

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other

person in respect of which he is assessable, or of the sustained by him or by such other person, or of the amount of refund due to him or touch

other person.''

The above definition in s. 2(7) and the words, ""of the income of any other person in respect of which he is assessable,"" denote not only the

liability of the assessee but also his right to claim the amount to be refunded either to the assessee or to such other person for whose income the

assessee is made liable for the tax. Such other person cannot ask for refund or claim deduction, since the income of such other person has been

deemed to be the income of the assessee himself by the definition.

Under s. 2(45) ""total income"" has been defined follows :

''""total income"" means the total amount of income refereed to in section 5 computed in the manner laid down in this Act''.

The above s. 2(45) embraces includes s. 64 also. Section 64 was substituted by s. 13 of the Taxation Laws (Amendment) Act, 1975, with

effect from April 1, 1976, in order to prevent the avoidance of tax on the income of assessee by transferring such income in the names of close

relatives and friends. Whatever it is, the total income referred to in s. 5 includes the income added under s. 64 of the Act. Section 5(1)(a) reads

thus :

Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source

derived which -

(a) is received or is deemed to be received in India in such year by or on behalf of such person.

It is such total income which is chargeable to tax under s. 4 of the Act.

Section 4(1) reads thus :

Where any Central Act enacts that Income Tax shall be charged for any assessment year at any rate or rates, Income Tax at that rate or those

rates shall be charged for that year in accordance with, and subject to the provision of, this Act in respect of the total income of the previous year

or previous years, as the case may be, of every person.

On behalf of the Revenue, if is argued that since the word, ""his"", has not been used in the other sections as used in s. 80C(2)(a), it shall be

deemed that the payment of premium was contemplated from the exclusive income of the assessee and not from the income of the wife, which has

been tagged on under s. 64 of the Act. At the most, the inclusion of the word ""his"" in s. 80C(2)(a) and the omission of the same in the other

sections can be treated only as a lacuna in the Act and as an inadvertent omission, which does not in way alter the governing s. 80A wherein also

the word ""his"" has been used for computing the gross total income. Therefore, we are not inclined to hold that the words ""his income chargeable to

tax"", used in s. 80C(2)(a), refers only to the exclusive income of the assessee, which does not appear to be the intention of Parliament, and not to

the gross total income of the assessee as specifically spelt out by the Act.

Our attention was drawn to a decision of the Kerala High Court in P.K. Yeshodamma Vs. Commissioner of Income Tax, , wherein the

question of law referred was :

Whether, on the facts and in the circumstances of the case, the assessee was entitled to the rebate contemplated u/s 87(1)(a) of the Income Tax

Act, 1961, in respect of the sum of Rs. 6,000 being the insurance premium on the policy of life of the assessee''s husband paid not by the assessee

but by the assessee''s husband ?

It is true that the Kerala High Court has held, differing from the view of this court in VD. M. RM. M. RM. Muthiah Chettiar Vs. Commissioner

of Income Tax, Madras, , that simply because the income of the husband was included in the income of the assessee, and if the husband had been

assessed separately he would have become qualified to get rebate of the Income Tax in respect of the insurance premia paid by him, it was not

possible to interpret s. 87 in such a manner as to give a rebate in respect of the Income Tax calculated at the average rate on the sum paid by the

husband on a policy on his own life. With great respect we are unable to agree with the view expressed by the Kerala Hindu Court. In Chapter

VI-A dealing with the deductions in computing total income, sub-s (5) of s. 80B defines gross total income as follows :

''gross total income'' means the total income computed in accordance with the provisions of this Act, before making any deduction under this

Chapter or u/s 280-O.

Income has not been defined separately in s. 80B. We find that sub s. (5) of s. 80B was amended by the Taxation Laws (Amendment) Act,

1970, with effect from April 1, 1968, by omitting the words, ""and without applying the provisions of section 64"". Therefore before the Taxation

Laws (Amendment) Act, 1970, in computing the gross total income for the purpose of Chapter VI-A, the additions contemplated u/s 64 were

sought to be excluded and by the above deletion, Parliament intended to give benefit to the assessee, who is burdened with Income Tax liability for

the income of his wife, to get the benefit of s. 80A. Hence, the exclusion of the addition made under s. 64 in defining gross total income in sub s.

(5) of s. 80B was omitted by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1968. This position has not been considered in

the decision of the Kerala High Court.

In V.D.M.R.M.M.R.M. Muthiah Chettiar Vs. Commissioner of Income Tax, Madras, , the Supreme Court consisting of three judges held that

s. 16(3) of the Indian I.T. Act, 1922 (parallel to s. 64 of the present Act of 1961), imposes an obligation upon the ITO to Compute the total

income of a an individual for the purpose of assessment by including the income of the assessee''s minor sons, etc., that there was no obligation

imposed upon the taxpayer to disclose the income liable to be included in his assessment under s. 16(3) and that, therefore, penal proceedings

under s. 34(1)(a) of the Income I.T. Act, 1922, cannot be commended. The above judicial decision has been followed by a Division Bench of the

Supreme Court in a case in Commissioner of Income Tax, Kerala Vs. Smt. P.K. Kochammu Amma Peroke, . In the above decision, ss. 2(45)

and 64(1) if the Act have been interpreted. It was held that s. 2(45) refers to s. 5, which lays down that all income, profits and gains, which had

accrued or arisen to the assessee or been received by or on behalf of the assessee shall be liable to included in his total income, but this provision is

subject to the other provision of the Act and, therefore, if the income of any other person is declared by any provision of the Act to be includible in

computing the total income of the assessee, such income would form part of the total income exigible to tax under s. 4 of the Act. It was further

held that the total income of the assessee chargeable to tax would include the amounts representing the shares of the spouse and minor child in the

profits of the firm and that, therefore, there can be no doubt that the assessee must disclose in the return submitted by him all amounts representing

the shares of the spouse and minor child in the profits of the firm in which he is a partner, since they form part of his total income chargeable to tax.

The above decisions were rendered in construing the effect of ss. 139(1) and 271(c) of the Act. Of course, we are not concerned with the

application of ss. 139(1) and 27(1)(c) in this proceeding and we are concerned only with the effect of s. 80C read with ss. 64(1), 2(45), 4 and 5

of the Act. We find support from the above Supreme Court decision for the interpretation and construction adopted by us on the above sections.

It was held by the Calcutta High Court in Radheshyam Ladia Vs. Income Tax Officer, ""B"" Ward and Others, , that because of the feeler of the

assessee to include in his return the amount of capital gain received by the sale of jewels presented by him to his wife, under s. 16(3) of the Indian

I.T. Act, 1922, proceedings for reassessment cannot be commenced under s. 147 of the Act of of 1961, following the decision of the Supreme

Court rendered in V.D.M.R.M.M.R.M. Muthiah Chettiar Vs. Commissioner of Income Tax, Madras, . The above decisions were relied on by the

Revenue in support of the argument that because of the failure of the assessee to include in his return the income of his wife, proceedings for

reassessment or penalty cannot be commenced and that the intention was that it is only the personal income of the assessee that was contemplated

in giving the benefit of deduction under s. 80C and not the other source of income like that of his wife and child.

The construction and interpretation adopted by the Revenue is not correct and is against the intendment of Parliament It cannot be said that the

total income of the assessee has got one identity for the purpose of exigibility to Income Tax under ss. 4 and 5 and another indentity for the

purpose of s. 64 of the Act and that is not and cannot be the intention of Parliament. None of the decision relied on by the Revenue will go against

the conclusion that we have arrived at to the effect that the total income of the assessee as computed under ss. 4 and 5 read with s. 64 is the same

total income, which has to be adopted for the purpose of Chapter VI-A and, in particular, for s. 80C(2)(a).

The Appellate Tribunal has extracted the speeches of the Finance Minister while raising the ceiling to 1/5th of the income through the

amendment effected by the Finance Act for the year 1955 for granting relief in respect of payments of life insurance premium, reported in [1955]

27 ITR 42 as under :

I should like to mention two other changes which are being made in the structure of taxation. The first is an increase in the limit for rebate allowed

for payment of premia on life insurance polices and subscriptions to recognised provident funds. In accordance with the Commission''s

recommendations, the existing limit of one-sixth of income subject to a ceiling of Rs. 6,000 is being raised to one-fifth of income with a ceiling of

Rs. 8,000. Corresponding increase are being made for Hindu undivided families. This concession is designed to provide an incentive to savings and

will cost the exchequer Rs. 25 lakhs.

Before the I.T. Act of 1961, the relief was granted in the from rebate and now under s. 80C, the relief is being granted in the form of a

deduction from the total income. Thus, the intention of Parliament was two-fold, namely, one, an incentive to savings at the cost of the exchequer

and two, to increase the benefit of deduction in favour of the assessee. Under these circumstances, it will be unfair to adopt a stringent and

unfavourable construction of the provisions of the Act, which do not ex facie support such construction. Whatever it is, we found from Chapter

VI-A and especially from s. 80B, that the definition of ""total income"" specifically includes all the sources of income computed under the provisions

of the Act. Therefore, the view taken by the Tribunal is quite correct and the contention of the Revenue has to be rejected. What has been granted

by the specific provisions of an enactment to the assessee cannot be taken away by straining the language of a particular provision and by adopting

imaginary and unfair interpretations or constructions.

In the result, we answer the reference in the affirmative, confirming the view adopted by the Appellate Tribunal in favour of the assessee. The

assessee will get his costs from the Revenue. Counsel''s fee Rs. 500.