ORDER
G. Krishnamurthy, Senior Vice President
1. The issue in this case is perhaps res integra so far as our knowledge is concerned. It is quite interesting too.
2. The assessee belongs, as we are told in the course of the hearing, to Indian Revenue Service working elsewhere in the Government on deputation. While filing return of income for the year under appeal 1981-82, disclosing income from salary, the assessee claimed that the amount of city compensatory allowance received by him was exempt from tax on the authority of the decision of the Gujarat High Court in the case of CIT v. S.G. Pgnatale [1980] 124 ITR 391. Besides, he also claimed deduction in respect of the repayment of instalment of loan taken from the general provident fund under Section 80C of the Income-tax Act 1961 (‘the Act’). Also, claimed deduction was in respect of contribution made towards C.G.H.S. The ITO allowed neither of these claims. By taking the gross salary and allowing therefrom standard deduction and deduction under Section 80C as per salary certificate or normal year contribution to general provident fund and, deduction under Section 80-I of the Act the ITO completed the assessment. The matter was then taken on appeal before the AAC, who agreed with the ITO and, dismissed the assessee’s claims as untenable and unmaintainable. Aggrieved by this order a further appeal was filed before the Tribunal, disputing the disallowances of all these three claims but at the time of hearing’ dispute with regard to contribution to C.G.H.S. was not pressed. The interesting point is, however, not the claim for deduction of city compensatory allowance but the claim for deduction of instalment of repayment of the loan taken from the general provident fund under Section 80C.
3. Before we go to the main point we would like to dispose of the claim for city compensatory allowance. This point has come up for consideration before the Delhi High Court in the case of CIT v. Uma Sankar Joshi and the High Court has decided the matter against the assessee and we are told that Delhi Bench ‘D’ of the Tribunal in IT Appeal Nos. 2341 and 2342 (Delhi) of 1984 decided the matter in favour of the revenue and against the assessee. Following with respect the judgment of the Delhi High Court and the decision of the Tribunal, we hold this issue against the assessee.
4. Coming to the main point, the assessee made a deduction of Rs. 4,440 under the general provident fund and Rs. 600 under compulsory deposit scheme and Rs. 1,876 under life insurance premia aggregating to Rs. 6,976. Out of the sum of Rs. 4,440, Rs. 2,400 represented contribution towards provident fund and the balance of Rs. 2,040 towards repayment of loan taken earlier from the general provident fund. The ITO allowed relief under Section 80C only on the other amount excluding the repayment of loan as in his opinion, this amount was not eligible for relief under Section 80C. We have, therefore, to go to Section 80C to see whether the claim made by the assessee is permissible or not. Section 80C appears under Chapter VIA of the Act which provided for deductions to be made in computing total income. Section 80C provided for deduction in respect of contributions made to life insurance premia and provident fund. Sub-section (1) of this section provided for the aggregate of the sums to be allowed as deductions and Sub-section (2) provided how these sums have to be aggregated. Clause (a) of Sub-section (2) of Section 80C provided that where the assessee is an individual, any sums, specified in stated clause, is paid in the previous year by the assessee out of his income chargeable to tax, the same will be allowed as a deduction subject to the limits provided in Sub-section (1). Sub-clauses (i) and (ii) of Clause (a) of Sub-section (2) deal with the premia paid on life insurance ; with which we are not concerned in this appeal. Sub-clause (iii) provided for the deduction made on account of provident fund, with which we are concerned. We would like to, therefore, reproduce what it contains :
(iii) as a contribution to any provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies ;
Now reading Clause (a) and Sub-clause (in) of that sub-section together, it emerges that where the assessee is an individual any sums paid in the previous year by the assessee out of his income chargeable to tax as a contribution to any provident fund to which the Provident Funds Act, 1925 applies will be allowed as a deduction at the rates specified in subsection (1) of Section 80C. Apparently, three ingredients have to be satisfied before a deduction under Section 80C could be claimed and allowed ; one is the assessee must be an individual and secondly, the sums paid in the previous year must be out of his income chargeable to tax and, thirdly, as a contribution to any provident fund to which the Provident Funds Act applies. There was some debate before us whether the sum paid by the assessee was out of his income chargeable to tax. This argument arose because the repayment of the instalment of loan was at the first blush thought to have been paid not out of the income chargeable to tax but later on when it was known that the amount was deducted from the salary payable to the assessee in the accounting year, which was the income under computation, this controversy ended and this point was given up. We do not now have to dwell on this issue except to state that the instalment towards repayment of loan was paid out of the salary income of the assessee chargeable to tax. The second question is whether the instalment paid towards repayment of loan was a contribution to any provident fund to which the Provident Funds Act applies. The learned Counsel for the assessee submitted and rightly too that the expression ‘contribution’ was not defined in the Act but in the Fourth Schedule which dealt with the recognised provident funds. It defined the expression ‘contribution’ as” ‘contribution’ means any sum credited by or on behalf of any employee out of his salary, or by an employer out of his own moneys, to the individual account of an employee, but does not include any sum credited as interest ;” The argument of the learned Counsel for the assessee is that this definition could be taken as the definition for the purpose of Section 80C also and if this is the definition of the word ‘contribution’, most certainly the instalment paid towards repayment of loan was credited to the individual account of the employees and, therefore, it was a contribution made by an assessee towards provident fund. Merely because it was a repayment of a loan, the argument proceeded, it could not be said that it ceased to be a contribution to the provident fund. The learned Counsel placed utmost reliance upon this expression to emphasise his view that even a repayment of a loan to provident fund is nonetheless a contribution to the provident fund entitled to deduction under Section 80C provided the other conditions are satisfied. Section 80C according to him did not make a distinction between an original contribution made to a provident fund or to a contribution made to the provident fund by way of repayment of loan taken from the provident fund. With the withdrawal of money by way of loan, the provident fund balance got depleted and with the repayment it again got restored to its original amount providing, however, for the variations on account of interest. Since in the ultimate analysis the repayment of loan had to be credited to the individual account of the employee, it partook the character of a contribution to the provident fund.
5. The learned departmental representative, on the other hand, pointed out that the Fourth Schedule by Rule 1 made it clear that that Schedule which dealt with recognised provident fund shall not apply to any provident fund to which the Provident Fund Act applied and since the contributions made by the Government servants are under the Provident Fund Act, the provisions of the Fourth Schedule do not ipso facto apply to them and, therefore, the definition of the expression ‘contribution’ as found in that Fourth Schedule could not have any application to the facts of the case and all the arguments built upon that definition should, therefore, fall to the ground. He then submitted that if the instalment of loan is held eligible to the deduction under Section 80C, it would amount to giving double benefit on the same contribution because the assessee would have got deduction when the original contribution was made and he would be again getting the deduction when the loan taken was repaid. It was not the legislative intent to give double deduction in this manner. Therefore, this alone would show that the interpretation sought to be placed by the learned Counsel for the assessee is incorrect and unintended. He pointed out that merely because deductions were made from salary towards repayment of the loan taken from the provident fund, the character of the repayment of the loan remains repayment of the loan and it cannot take the character of a contribution to a provident fund although the amount of repayment has for the purpose of accounting to be credited to the individual account of the employee. Thus, neither the deduction made from the salary nor the credit given to the individual account of the employee can determine the character of the repayment other than the repayment of loan. It was emphatically submitted by the departmental representative that the instalment paid towards repayment of loan is not eligible for deduction under Section 80C.
6. We have carefully considered these arguments and we found it difficult to determine this matter one way or the other at the first blush. As we have mentioned earlier there is no guidance to us from any decided case. We, have to, therefore, determine the issue on the basis of the scheme of the Act and the definitions provided in the respective enactments. We have already indicated above the purpose of Section 80C and the essential ingredients which required to be satisfied before a deduction under this section can be given in respect of provident fund. To recall the most important thing is ‘contribution’. It is true that the Fourth Schedule appended to the Act dealing with recognised provident fund does not apply to any provident fund to which the Provident Fund Act applies. If we go by that, the definition of the word ‘contribution’ appearing in the Fourth Schedule will not apply but the nature of contribution either for recognised provident fund dealt with in the Fourth Schedule or a provident fund to which the Provident Fund Act applies basically do not differ. In both the cases there must be a contribution made by an employee and the amount of contribution must be credited by the employer to the individual account of the employee. Interest of course excluded. Only this contribution that is qualified for deduction under Section 80C but in the Provident Fund Act the word ‘contribution’ is also defined in the following manner by Clause (b) of Section 2 :
(b) ‘contribution’ means any amount credited in a provident fund, by any authority administering the fund, by way of addition to a subscription to, or deposit or balance at the credit of an individual account in the fund ; and ‘contributory provident fund’ means a provident fund the rules of which provide for the crediting of contribution ;
Reading the definition and the definition in the Fourth Schedule to the Act, it will at once become clear that there is no difference conceptually in the meaning of ‘contribution’ between these two Acts. How the expression ‘contribution’ as defined in the Provident Fund Act means any amount credited in a provident fund by way of addition to, subscription to or deposit or balance at the credit of the individual account.
Thus, the contribution under the Provident Fund Act contemplates three categories of amounts that could be credited to the provident fund account of an employee, namely, by way of addition to or by way of subscription or by way of deposit. Lastly, balance in the credit of the account of an employee is also contribution. The expression ‘by way of addition to’ requires to be understood. To our mind, it simply means amounts added to an existing fund. The amount that could be added to the fund can include amounts added even by repayment of loans because those amounts do add to the provident fund. If the expression ‘by way of addition’ is to include only yearly contributions made in the normal course and exclude repayment of loans, then there is no reason why the expression ‘subscription to’ was again used. The expression ‘subscription’ coming immediately following the expression ‘by way of addition to’ should mean that the subscription is the yearly ‘subscription’. Therefore, under the definition of the word ‘contribution’ as defined in the Provident Fund Act, takes in amounts credited in a provident fund to the individual account of an employee not only amounts by way of additions to the provident fund which can be repayments of loans but also the yearly subscriptions. The fundamental requirement, however, is that the amount should be deducted from the salary and it must find its place to the credit of the provident fund account of the employee. We are not shown any rule, nor did we find any from the Provident Funds Act, that repayment of loans are required to be credited to any account other than provident fund account of the employee, although different accounting information is used to distinguish between yearly payments and instalments of repayment of loans. Thus, in our opinion, what should follow from the reading of the definition of the word ‘contribution’. Secondly, when the amount is taken by way of a loan, the amount standing to the credit of the provident fund account gets reduced. When the amount is repaid, such amounts are credited to the provident fund account, and thus the contribution to the provident fund would be the amount contributed in the usual course and as increased by the amount of repayment of loan.
7. In this case, Rs. 2,400, was the contribution towards general provident fund and Rs. 2,040 was by way of repayment of loans. The yearly contribution of Rs. 2,400 got increased by Rs. 2,040. The total amount of contribution made by the assessee, thus, became as Rs. 4,440. This was adjusted by the employer, the Government, a part towards yearly contribution and another part towards repayment of loan. If, we look at the problem from the point of view of the employee, the amount contributed is Rs. 4,440 towards provident fund. But if we look at it from the point of view of the employer, a part contribution was towards annual contribution and another part towards repayment of loan. Both were credited to the provident fund account. Thus, looked at from the employee’s point of view, the arisal of need to deduct more by reason of compulsion of repayment of the loans taken earlier, the total amount deducted from his salary and credited to the account of the provident fund was Rs. 4,440. These are only two requirements to bring that amount within the meaning of the word ‘contribution’ defined in the Provident Fund Act, namely, deduction from salary and crediting to provident fund account, then, in our view, those requirements are satisfied. There is no question of the contribution made by an assessee being adjusted towards a separate account called repayment of the loan. Therefore, the total amount contributed by the assessee towards contributions to provident fund is not only the yearly contribution of Rs. 2,400 but also the amount contributed towards repayment of loan. It is well to note, that Section 80C only speaks of contribution to provident fund. It does not speak of splitting up of the contribution into yearly contribution and repayment of loans. If we interpret the contribution as excluding repayment of loan, we thought, we will be rewriting the section. Thus, the entire amount should qualify for deduction subject to the limits set out in Section 80C(1). As regards the argument of the learned departmental representative that the assessee in this process is getting double deduction, we are not able to subscribe to this view because double deduction in the first instance postulates deduction of the same amount twice, which is not the case here. Secondly, what was allowed as a deduction in the earlier years before the loan was taken was different from the amount now deducted because the amount, now, deducted from the salary is assumed the character enhanced contribution. It is like this. An employee may decide to deduct from his salary Rs. 1,000 per month and in the next year be may decide to deduct Rs. 2,000 per month. The sum of Rs. 2,000 deducted will be the contribution made and the amount of Rs. 4,440 now deducted from the assessee’s salary is in the nature of the enhanced amount of contribution we have just referred to, although the motivating factor for the enhanced deduction was the obligation to repay the loan taken from the general provident fund. The employer, the Government might have provided several forms to distinguish repayment of loans from the annual contribution. They are to be understood as a means for facilitating proper and accurate accounting. But from the employee’s point of view, the amount deducted from the salary even though towards repayment of loan is contribution made to a provident fund although it is to repay the loan and, therefore, is a contribution within the meaning of Sub-section (2)(b)(iii) of Section 80C and, therefore, entitled to the deduction subject to the limits specified in Section 80C(1). We, therefore, accept the assessee’s claim on this account and direct the ITO to compute the income accordingly.
8. In the result, the appeal is partly allowed.