JUDGMENT
1. The Income-tax Appellate Tribunal, New Delhi, has referred the following questions of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this court :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was not entitled to relief under Section 80C of the Income-tax Act, 1961, in respect of purchase of National Savings Certificates to the extent of Rs. 5,000 purchased by raising a loan?
2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to relief under Section 80C of the Act in respect of life insurance premium paid in the sum of Rs. 17,915 and National Savings Certificates purchased to the extent of Rs. 5,000 ?"
The reference relates to the assessment year 1985-86.
Briefly stated the facts giving rise to the present reference are as under :
M/s. Raj Kumar Dewan and Sons (HUF) is the assessee, whose relevant accounting year ended on March 31, 1985. The assessee purchased National Savings Certificates for Rs. 10,000 on March 28, 1985. According to the assessing authority these National Savings Certificates were purchased by taking loan from Master Ajay. The assessee also paid life insurance premium amounting to Rs. 17,915. According to the assessing authority this amount was procured by loan from M/s. Raj Kumar and Sons and since the investments, aforesaid, were not made out of the assessee's income chargeable to tax, relief under Section 80C was denied. In appeal the Commissioner of Income-tax (Appeals) directed the grant of deduction under Section 80C. The Tribunal held that where the assessee temporarily raises loan for payment of life insurance premium or purchase of National Savings Certificates and repays the loan within the accounting period itself, investment should be made out of the income chargeable to tax. In the present case, it was found that the National Savings Certificates of Rs. 5,000 were purchased out of the loan not repaid during the accounting period. Therefore, out of the purchase of National Savings Certificates for Rs. 10,000 the assessee would be entitled to relief under Section 80C(2) only on the sum of Rs. 5,000. So far as the payment of life insurance premium is concerned it was held that the assessee was entitled to relief under Section 80C(2) of the whole amount.
Heard Sri Amitabh Agarwal, the advocate, holding brief for Sri P. K. Jain, learned counsel for the assessee, and Sri A.N. Mahajan, learned standing counsel for the Revenue.
We find that this court in I. T. R. No. 14 of 1989, CIT v. Ramesh Chandra Khandelwal decided on December 17, 2004, has held that it is normal behaviour of an individual's private life that all incomes are amalgamated and spent. The Income-tax Act does not require that the investment in NSC should be made from the same amount which an assessee had earned by way of income. It is always open to an assessee to either spend the amount earned by him as an income which is more than the amount invested under Section 80C. The investment in NSC can be said to be out of income of the previous year. This court has agreed with the view taken by the Orissa High Court in the case of CIT v. N. Benugopal Choudhury , the Kerala High Court in the case of CIT v. Jobie K. John and the Punjab and Haryana High Court in the case of Ravi Kumar Mehra v. CIT . This court had respectfully dissented with the view taken by the Orissa High Court in the case of CIT v. Usharani Panda (Dr.) [1995] 212 ITR 119 and CIT v. Ram Mohan Rawat .
For the reasons given in the case of CIT v. Ramesh Chandra Khandelwal with which we respectfully agree we answer question No. 1 referred to us in the negative, i.e., against the Revenue and in favour of the assessee. Question No. 2 is answered in the affirmative, i.e. against the Revenue and in favour of the assessee. There shall be, however, no order as to costs.