1. Both these appeals involve common question on identical facts. These are, therefore disposed of by this consolidated order.
2. The assessee-respondents derived share income from M/s Rose Merry & Co. Rengali and also from other sources. In the computation of their total incomes for their previous year ending 31-3-1988 relevant to the assessment year 1988-89 which is under consideration, they claimed deductions under Section 80C of IT Act, 1961 in respect of the sums of Rs. 10,000 each paid by them on 5-8-1987 as contribution to the security of Central Govt. i.e.. National Savings Certificates (NSCs).
The ITO noted that Smt. Gaitri Devi had withdrawn on 5-8-1987 a sum of Rs. 5,000 only from her capital account in the firm and the balance of Rs. 5,000 had been withdrawn from her savings bank account wherein surplus money of earlier years which had already been charged to tax had been kept. In the case of Sri Govardhan Agarwala he noted that he had withdrawn Rs. 2,000 only from his capital account in the firm in the year under consideration and that might have been utilized by him in his household expenses. On query it was stated by the Counsel for the assessee that the amount of Rs.10,000 invested by the assessee in purchasing NSCs had been withdrawn by him from his savings bank account wherein surplus money of earlier years, which had already suffered taxation, had been kept. The ITO was of the opinion that payments made by the assessees out of their past savings, which had already been "charged to tax," did not amount to income "chargeable to tax" as required by Section 80C and, therefore, did not qualify for the deduction contemplated by that provision. He, therefore, allowed deduction of Rs. 5,000 only in the case of Smt. Gayatri Devi and added the balance of Rs. 5,000 to the total income. In the case of Sri Govardhan Agarwala he did not allow the benefit under Section 80C in respect of Rs. 10,000 utilized in purchase of NSCs. The assessees appealed to the DC (Appeals).
3. The DC (Appeals) was of the opinion that there is no necessity that the amount that has to be invested has to come from income chargeable to tax for the year under consideration. It may relate to any year provided the same has suffered taxation and in that event the assessee's claim appeared to him to be in order. He accordingly directed that the additions be deleted. Hence these appeals by the Revenue.
4. The learned Departmental representative submitted that the opinion expressed by the ITO was correct in law in view of the express language used in Section 80C. He further submitted that the learned DC (Appeals) was not at all justified in law to have ignored the difference between 'income charged to tax and 'income chargeable to tax. It was stressed that looking to the history of the legislation purpose of and object behind insertion of Section 80C, the intention of Legislature was to give incentive to the assessees for effecting long term savings by them out of their current and not past incomes (which might have been subjected to tax in earlier years and part taken the character of savings). The learned Departmental representative thus pressed for restoration of the order of the ITO.5. The assessees' Counsel supported the order under appeal almost on the same ground which found favour with DC (Appeals) and as are mentioned in the written submission filed before the DC (Appeals). The assessees' Counsel concluded that credit balances in the respective capital accounts of the assessees far exceeded the amount invested by them in the purchase of NSCs. It was further submitted that failure on their part in not passing the relevant entries in the books of the firm showing withdrawals from their accounts in the firm, depositing the same in savings bank account and then withdrawing therefrom and paying for the NSCs, should not deprive them of the benefit of Section 80C.6. On a patient and thoughtful consideration of the submissions made by the parties and of the conflicting opinions of the two income-tax authorities below over the interpretation of the words "chargeable to tax" used in the language of Section 80C(2)(h) with which I am concerned in these appeals, I feel inclined to agree with the views expressed by the ITO.7. A study of the legislative history of Section 80C would inform that this provision was first inserted in the Act by Finance Act, 1965 with effect from 1 -4-1965 to provide relief relating to payment for securing retiring annuities. The Finance Act, 1967, however, transferred the above mentioned topic to Section 80E recasting, at the same time, Section 80C in the present form w.e.f. 1-4-1968. Ever since thereafter Section 80C has undergone frequent changes with a view to widening its scope and encouraging long term savings by the assessees by providing incentives in the shape of tax rebate to them in the computation of their total income for a particular previous year. The purpose of and object behind the various amendments made in Section 80C from time to time was elaborately explained by the CBDT in their circular Nos. 72 dated 6-1-1972, 126 dated 20-11-1973, 169 dated 23-6-1975. 240 dated 17-5-1978, 258 dated 14-6-1979, 281 dated 22-9-1980 and 346 dated 30-6-1982. A study of the amended provisions made along with the abovementioned circulars of the CBDT brings it out clearly that the Legislative intention in providing incentives for effecting long term savings has been to inculcate and cultivate a habit of "save while you earn" amongst the taxpayers so that their savings might be utilised for providing health to the national economy which may put the country on the path of progress and prosperity. The stress has been on "saving income out of income" and not "saving tax with or out of savings (capital)".
8. Now, to be specific on the point I may advert to the relevant provision of Section 80C which ran as under at the relevant time : 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 rates, namely : (2) The sums referred to in Sub section (1) shall be the following, namely: (h) where the assessee is an individual or a Hindu undivided family or where the assessee is an association of persons or a body of individuals consisting, in either case, only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu any sums paid in the previous year by such assessee out of his or its income chargeable to tax, (i) as subscription to any such security of the Central Government as that Government may, by notification(ia) ** ** **and rest ** ** ** The words "income chargeable to tax" occurring in the language of the above provision may be viewed from two aspects. In one sense they may refer to such income as is not exempt from taxation. In another sense they may indicate that the event of chargeability to tax in respect thereto has not taken place. The words "income charged to tax" would mean that the event of chargeability has already taken place. If the Legislature would have intended that tax rebate be allowed on investment of past savings it could have used the words "charged to tax" in the language of Section 80C(2)(h) as stated above the object behind allowing tax rebate on investments made in long term savings was to encourage savings out of current incomes and not on preserving savings. I am thus of the opinion that investments in the long term savings for benefit under Section 80C(2)(h) were required to be made out of assessees' income of the year under consideration, which they did not do. They were, therefore, not entitled to the deduction claimed.
9. On merits even I find that there is no evidence to show that as on 5-8-1987, on which date the assessee had purchased the NSCs of Rs. 10,000 each they were having funds to that extent in their accounts in the firm. What they had shown in their written submission was that they divided their share income from the firm for the entire year by 12 and multiplied the outcome by 4 to arrive at the figures of Rs. 17,200 and Rs. 24,000. That does not prove that they were having Rs. 10,000 each in their respective accounts on 5-8-1987.
10. Another argument of the assessee in the written submission that they could have passed the relevant entries is simply hypothetical and cannot be accepted. Since it is not brought on the record that they were having Rs. 10,000 each in their respective accounts on 5-8-1987 hypothetical withdrawal of that much of amount each by them cannot be assumed and accepted. The argument is dismissed.
11. Above all there is also no evidence in these cases to show that the savings bank accounts of the assessees had past as well as current incomes of the assessees. On that the two types of incomes were inseparable. Instead the clear finding of the DC (Appeals) is that investments had been made by the assessees out of their past incomes which had already suffered taxation. This position is not challenged by the assessees and they have not contended that their savings bank accounts contained their current incomes also or that it was difficult to bifurcate the two. The assessees cannot, therefore, get benefit of such a situation.
12. In the result, I vacate the order of the learned DC (Appeals) and restore that of the ITO.