1. Two questions of law have been referred to this court under s. 256(1) of the I. T. Act at the instance of the Commissioner of Income-tax out of income-tax assessments of Shri Vinay Bharat Ram for the assessment years 1965-66, 1966-67 and 1967-68.
2. The first question which is common to all the three years arises in the following circumstances :
3.The assessed is one of the directors of the company known as Bharat Ram Charat Ram Pvt. Ltd. In the course of the discharge of his duties he had to undertake air travels frequently. The company took out an accident insurance policy covering the risk of accidents as well as riots and civil commotion in the course of air travel and chartered flights. For effecting this insurance the company paid an insurance premium of Rs. 2,388 in the accounting year relevant for the assessment year 1965-66 and a premium of Rs. 1,963 in the two succeeding years. The ITO held that the premia paid by the company in respect of the above insurance policies should be treated as perquisites in the hands of the assessed under s. 17(2) of the I. T. Act, 1961. This Income-tax Appellate Tribunal, however, took a different view and hence the following question has been referred to us for our decision :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the premium paid by the assessed's employer in respect of insurance against accidents, riots and civil commotion and chartered flights of the assessed, was not a perquisite within the meaning of sub-section (2) of section 17 of the Income-tax Act, 1961, and was, thereforee, not taxable ?'
4. This question is directly covered by a decision of this court in CIT v. Lala Shri Dhar : 84ITR192(Delhi) . Exactly the same question came up for the consideration of this court which held that the premium paid by the company could not be treated as perquisite in the hands of the employer either under clause (iii) or (iv) of the Explanationn to s. 7[1) of the Indian I. T. Act, 1922, which corresponds to the provision of s. 17(2) of the I. T. Act, 1961. Following the decision of this court in the above case, we hold that the tribunal was correct in holding that the premium paid by the company on the accident policy, was not a perquisite and was, thereforee, not taxable.
5. The second question arose only in the assessment year 1966-67 and 1967-68. For these assessment years the assessed had to make annuity deposits, and for this purpose he borrowed moneys. He had to pay interest of Rs. 1,903 and Rs. 3,265 in respect of the moneys borrowed for this purpose. The above interest payments were claimed as deductions in the computation of the total income but the claim was rejected by the ITO and the AAC. The Appellate Tribunal, however, held that since the repayment of the annuity deposits was an item of income taxable in the hands of the assessed, he has entitled to the clam for deduction of interest. At the request of the Commissioner the following question has been referred to us for our decision :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the interest paid by the assessed on moneys borrowed for making annuity deposits is an admissible deduction ?'
6. We are of opinion that the view taken by the Tribunal is correct. The assessed had borrowed the moneys for making annuity deposits. From the annuity deposits. From the annuity deposits the assessed derived annual payments which are treated as income under s. 2(24)(viii). Section 56 lays down that annuity payment should be treated as income from other sources. Under s. 57 the assessed is entitled to deduction of amounts of expenditure laid out to derive income assessable under the head 'other sources'. We are of the opinion that the interest paid by the assessed on moneys borrowed for the purpose of making annuity deposits was clearly expenditure laid out for the purpose of making or earning such income. We, thereforee, answer this question also in the affirmative and against the Commissioner.
7. The Commissioner having failed, he will pay the costs of this reference to the assessed.