May 052021
 

Facts:

Liabilities Assets
Capital a/c

Income earned during the year                         Rs 35,0000

Investment

(For claiming deduction u/s 80CCA & 80CCB)

National Savings Scheme – Rs 40,000

Unit Trust of India – Rs 10,000

Unsecured loans                                                 Rs 2,05,000 Loan and Advances

M/s. Ganesh Prasad Hira Lal – Rs 200,000

Less: withdrawals – (Rs 50,000)

(Invested in NSC and UTI) – Rs 150,000

Whether the above claims of deductions against investment be rejected on the ground that the same had not come out of income chargeable to tax?

Relevant rules:

Section 80CCA – Deduction in respect of deposits under National Savings Scheme or payment to a deferred annuity plan. (1) Where an assessee, being—

(a) an individual, or
(b) a Hindu undivided family, 19[***]
(c) 20[***]

has in the previous year—

(i) deposited any amount in accordance with such scheme as the Central Government may, by notification21 in the Official Gazette, specify in this behalf 22[* * *]; or
(ii) paid any amount to effect or to keep in force a contract for such annuity plan of the Life Insurance Corporation as the Central Government may, by notification23 in the Official Gazette, specify,

out of his income chargeable to tax, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income of the whole of the amount deposited or paid (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of twenty thousand rupees in the previous year :

Section 80CCB – Deduction in respect of investment made under Equity Linked Savings Scheme. (1) Where an assessee, being—

(a) an individual, or
(b) a Hindu undivided family, 31[* * *]
(c) 32[* * *]

has acquired in the previous year, out of his income chargeable to tax, units of any Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), under any plan formulated in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf (hereafter in this section referred to as the Equity Linked Savings Scheme), he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income of so much of the amount invested as does not exceed the amount of ten thousand rupees in the previous year :

Analysis of principles for claiming deductions out of investments made under section 80CCA etc:

  1. Investment in National Savings Certificates, etc. for claiming deduction under section 80C of the Act, need not be from the income earned up to that period.
  2. It is sufficient – if the total income for that year covers the investment

Thus, in the instant case assessee’s current year income is sufficient to cover the current year’s investment and hence deductions shall be allowed for the aforesaid investments. Thus, the mathematical rule for claiming deductions under section 80CCA and section 80CCB would be:

An aggregate of investments under section 80CCA and section 80CCB < Gross taxable income of the previous year whose tax liability needs to be calculated

Sensys