1. These appeals are by the assessee against the order of the learned Commissioner of Income-tax under Section 263(1) of the Income-tax Act, 1961.
2. The assessee is an individual, suffering from a permanent physical disability and he had claimed a deduction of Rs. 10,000 for the assessment years 1983-84 to 1985-86 under the provisions of Section 80U of the Income-tax Act and the assessments were completed on that basis under Section 143(1) of the Act. The Commissioner of Income-tax invoked the provisions of Section 263(1) on the following grounds : under Section 80U of the Income-tax Act for a person, not suffering from blindness, to be entitled to the deduction referred to therein, he must be subject to, or suffer from, a permanent physical disability which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation. It is not enough if an assessee proves by the production of a certificate from a doctor that he suffers from a permanent physical disability. He should further prove that his physical disability has reduced substantially his capacity to engage himself in a gainful employment. Whether a person's capacity is substantially reduced by his physical disability or not is a matter of fact which can be judged by the various circumstances. In the instant case of the assessee I find that he has been working with the Life Insurance Corporation as a Stenographer and deriving an income (gross emoluments) of Rs. 35,730 from his employer. This fact goes to show that the disability of his has not had the effect of reducing substantially his capacity to engage himself in a gainful employment.
He also referred to Circular No. 246 dated 20-9-1978 and Circular No.429 dated 8-8-1985 issued by the Central Board of Direct Taxes but held that the circulars did not mean that every employee suffering from a permanent physical disability should be granted automatic deduction under Section 80U. In this view of the matter, he drew adverse inference against the assessee, set aside the orders of the Income-tax Officer and directed him to recompute the income of the assessee by withdrawing the deduction originally allowed under Section 80U of the Act.
3. The assessee is on appeal. Sri V. Seetaramaiah, learned Chartered Accountant for the assessee, submitted that the assessee was suffering from permanent physical disability with impairment of one leg below the knee. His one leg is shorter than the other leg and he has to walk only with support. The learned Commissioner has held that this permanent physical disability has not prevented the assessee from having gainful employment because the assessee has been engaged as a stenographer with the Life Insurance Cor-poration for over 20 years. This view of the learned Commissioner is untenable on the face of it if one were to realise that the assessee, who joined as a stenographer, continues to remain as a stenographer in spite of the passage of 2 decades of dedicated service. In other words, he stays put in his employment with avenues of promotion closed to Mm because of his physical disability; nor could he improve his prospects by obtaining more gainful employment elsewhere in any other capacity. The doors of promotion vertically or alternative employment are permanently denied to him because of the disability from which he is suffering. These aspects of the matter the learned Commissioner has conveniently overlooked and the adverse inference drawn by him is obviously wrong and not justified. In this process, he has also not applied the spirit of the circulars of the Central Board of Direct Taxes which are binding on him. Sri Seetaramaiah relied on the decision of the Tribunal in the case of Anand Prakash Saksena v. ITO [1983] 3 ITD 151 (Indore), wherein the Tribunal held that an IAS officer suffering from defective hearing had his capacity reduced to engage in a gainful employment and, as such, he was entitled to deduction under Section 80U. He also relied on another decision of the Tribunal in the case of Prem Narayan Somani v. ITO [1983] 4 ITD 317 (Indore), wherein the Tribunal accepted the plea of the assessee who was suffering from bilateral paralysis of lower limb for being entitled to deduction under Section 80U. Therefore, he submitted that the order of the Commissioner of Income-tax should be set aside and justice rendered.
4. Sri P. Radhakrishm Murty, learned departmental representative, submitted that the assessee is already engaged in a gainful 'employment as a stenographer with the Life Insurance Corporation of India notwithstanding his disability and, therefore, the assessee was not entitled to deduction under Section 80U. He also submitted that it should be shown that the assessee was not only suffering from a permanent disability as specified in the Board's circular but it should also be proved to the satisfaction of the Income-tax Officer that the disability resulted in preventing the assessee from engaging in gainful employment. There is a conjunctive 'and' used in Section 80U which would mean that it is not enough for the assessee to suffer from a permanent disability but it is also necessary that such disability disabled the assessee from having gainful employment. This test not having been satisfied in the case of the assessee, the Commissioner rightly interfered by invoking his jurisdiction under Section 263(1) of the Income-tax Act.
5. Having regard to rival submissions and the materials on hand, we vacate the order of the learned Commissioner of Income-tax. The assessee suffers from Post Polio Paralysis of left lower limb with the knee joint and ankle affected, resulting in a disability of 50 per cent. As a result of this, his left leg is shorter than his right leg and he has to walk only with support. Thus, the defect from which the assessee suffers is of the nature of permanent disability. The only ground on which the Commissioner set aside the order of the Income-tax Officer is that the assessee is employed as a stenographer for over 20 years with the Life Insurance Corporation and, therefore, he was in gainful employment. In our considered opinion, he has misinterpreted the purpose of Section 80U. Section 80U offers a deduction of Rs. 10,000 from the total income of an assessee suffering from a permanent physical disability which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation. This was the section in force for the assessment years 1983-84 and 1984-85. The proviso to that section provided for the production of a certificate from a registered medical practitioner while taking the claim before the Income-tax Officer. This is all that is required under the provisions of Section 80U as it stood for the assessment years 1983-84 and 1984-85. The assessee in this case has produced the certificate from the Orthopaedic Surgeon vouchsafing for the disability from which he is suffering. There was no rule framed under Section 80U for these two assessment years and the nature of disability was governed by the circulars issued by the Board, Circular No. 246 [F. No. 178/37/77-IT (A-II) dated 20-9-1978] issued by the Central Boa-rd of Direct Taxes is as follows :-- 1. The Board has been receiving numerous references from individual assessees and medical practitioners seeking clarification regarding the scope of deduction under Section 80U. 2. Section 80U(ii) provides that in computing the total income of an individual being a resident, who as at the end of the previous year is subject to or suffers from a permanent physical disability (other than blindness) which has the effect of reducing substantially his capacity to engage in a gainful employment or occupation, a deduction of Rs. 5,000* is allowed. This is subject to the condition that such individual produces before the Income-tax Officer in respect of the first assessment year for which the deduction is claimed in a case referred to in Clause (ii) of Section 80, a certificate as to the permanent physical disability from a registered medical practitioner.
3. The question under consideration is the scope of the expression 'permanent physical disability.' The Board has [in consultation with the Ministry of Health, evolved the following guidelines for the purposes of Section 80U.Section 80U providing a deduction of Rs. 5,000* in cases of assessees computing the total income of an individual should apply if a person suffers from the following permanent physical disabilities :** ** ** (Underlining is ours - *Inoreased to Rs. 10,000 by Finance (No. 2) Act, 1980, w.e.f. 1-4-1981).
From the italicised portion of the circular extracted above, it will be obvious that if a person suffers from the kind of disability illustrated in the circular, the underlying" assumption is that such a defect or deficiency has the effect of reducing the capacity of the person to engage in a gainful employment and no further proof is necessary except to prove such disability in the form of a medical certificate as provided for in the section. The learned Commissioner erred, in assuming that the assessee has to further prove that his physical disability has in fact reduced his chances of gainful employment, to which topic we will advert later. This circular of the Board underwent a clarification also in Circular No. 375 [P. No.178/17/83-IT (A-I)] dated 2-1-1984 wherein the Board explained that the circular cited above was only illustrative and there could be other situations or other categories of physically handicaps such as deafness, dumbness and mental retardation 6. Section 80U was amended by Finance Act, 1984 (21 of 1984) with effect from 1-4-1985, which is relevant for the assessment year 1985-86. The scope and effect of this amendment were elaborated upon in paragraphs 25.1 to 25.3 of the departmental circular No. 387 dated 6-7-1984 as follows :-- 25.1 Under section SOU of the Income-tax Act, a resident individual who is either totally blind or is subject to or suffers from a permanent physical disability (other than blindness) which has the effect of reducing substantially his capacity for engaging in a gainful employment or occupation is allowed a deduction of Rs. 10,000 in the computation of his taxable income. In order to avail of this deduction, such individual has to produce before the Income-tax Officer, in the first assessment year for which the deduction is claimed, in a case of total blindness, a certificate from a registered medical practitioner being an oculist, and in the case of any other permanent physical disability, a certificate from a registered medical practitioner.
25.2 This concession has led to litigation as claims for deduction under this provision have been made by persons with a physical disability of a relatively minor nature. With a view to preventing disputes and litigation on this issue, the Finance Act has amended Section 80U and empowered the Central Board of Direct Taxes to frame rules for specifying the various categories of permanent disabilities for the purposes of this section. A person who is suffering from one of the specified disabilities will alone be eligible for the tax concession under this provision. In specifying the categories of permanent physical disabilities the Board will have to take into account the nature of such disability and effect such disability is likely to have on the capacity of the person suffering therefrom to engage in gainful employment or occupation.
25.3 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years.
As a result of this amendment, in order to avoid litigation, Rule 11D of the Income-tax Rules was inserted by the Income-tax (Fourth Amendment) Rules, 1985 [Notification No. SO 529 (E), dated 17-7-1985] with effect from 1-4-1985, which is as follows : 11D. Permanent physical disabilities for the purposes of deduction under Section 80U.--A permanent physical disability shall be regarded as a permanent physical disability for the purposes of Clause (ii) of Sub-section (1) of Section 80U if it falls in any one of the categories specified below, namely :-- (a) permanent physical disability of more than 50 per cent in one limb ; or (b) permanent physical disability of more than 60 per cent in two or more limbs ; or (c) permanent deafness with hearing impairment of 71 decibels and above ; or Thus, for the assessment year 1985-86, if the assessee suffers from a permanent physical disability not of a minor nature but as specified in the rules, he is entitled for deduction, and here again, there is an inbuilt assumption that such permanent disability will have the effect of reducing his capacity to engage in gainful employment. The learned Commissioner erred in assuming that what is envisaged in Section 80U is that the assessee should not only have a permanent disability which is evidenced by a medical certificate, but also he should prove that he was incapacitated in engaging himself in gainful employment. The latter assumption is not warranted in terms of Section 80U or under the circulars or rules framed thereunder. In fact, the Board's instructions are binding on the learned Commissioner and as such he should not have interfered with the orders of the Income-tax Officer.
7. Even assuming that what the Commissioner had in mind, vis., that it is for the assessee to prove that his permanent disability has the effect of reducing his capacity to engage in gainful employment, the proof is not far to seek. The assessee who was employed as a stenographer 20 years ago continues to be a stenographer in spite of efflux of two decades of dedicated service. Mere employment to eke out one's own livelihood or an employment which enables a person to sustain himself cannot by called a gainful employment. A gainful employment is one which offers opportunities to a person to get himself elevated vertically in his occupation or employment or to seek more lucrative avenues of employment elsewhere. The persons suffering from permanent disability or handicapped persons as we may call them, have got slender chances for elevation. In fact their very employment itself is based on humanitarian consideration only. It is stated before us that the assessee could not get promotion as Development Officer though he is otherwise qualified. Thus, from the angle of gainful employment also, it can be said that a permanent disability is certainly a permanent barrier and mere employment which does not offer chances of promotion cannot be called a gainful employment, as it can only be described, as a subsistence employment. Looking from this angle also, we cannot sustain the order of the learned Commissioner of Income-tax.