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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & MS. KAVITHA RAJAGOPAL, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND MS. KAVITHA RAJAGOPAL, JM ITA No. 21/Mum/2023 (Assessment Year: 2014-15)
Mihir K. Jhaveri CIT(Appeals)-51 6th Floor, Aayakar Bhavan, EE 5011/12/13, Bharat Diamond Bourse, BKC, Bandra (E), Vs. M.K. Road, Mumbai-400 020 Mumbai-400 051
PAN/GIR No. AAAPJ 6129 P (Appellant) (Respondent) :
Assessee by : None Revenue by : Smt. Mahita Nair
Date of Hearing : 01.03.2023 Date of Pronouncement : 30.05.2023
O R D E R Per Kavitha Rajagopal, J M:
This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals)-51, Mumbai (‘ld.CIT(A) for short), passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2014-15.
The assessee has challenged the grounds of reopening the assessment by notice u/s. 148 of the Act as being barred by limitation and has challenged the grounds of addition of Rs.25,73,185/- made on accretion in value of the policy received on surrender and on the disallowance of long term capital gain amounting to Rs.15,15,268/- by not
2 ITA No. 21/Mum/2023 (A.Y.2014-15) Mihir K. Jhaveri vs.CIT(Appeals) treating the unit linked market plus policy of LIC as ‘capital asset’ within the meaning of
section 2(14) of the Act.
As there was no representation on behalf of the assessee, we hereby proceed to
hear this appeal by hearing the learned Departmental Representative (ld. DR for short) for
the Revenue and on perusal of the materials available on record.
The brief facts of the case are that the assessee is an individual and has filed his
return of income on 27.09.2014, declaring total income of Rs.5,52,030/- and the return
was processed u/s. 143(1) of the Act. The assessee’s case was reopened u/s. 147 of the
Act by issue of notice u/s. 148 of the Act dated 31.03.2021. The assessee has filed its
return of income dated 14.04.2021, declaring total income of Rs.5,52,030/- in response to
the notice u/s. 148 of the Act. The assessment order dated 01.03.2022 was passed u/s.
147 of the Act where the Assessing Officer (A.O. for short) determined the total income
at Rs.31,25,215/- by making an addition of Rs.25,73,185/- as ‘income from other
sources’ u/s. 56 of the Act and disallowance of loss claimed amounting to Rs.15,15,268/-.
The assessee was in appeal before the ld. CIT(A), challenging the notice u/s. 148
of the Act and on the addition/disallowances.
The ld. CIT(A) confirmed the additions made by the A.O. on the ground that
section 2(14)(c) of the Act is w.e.f. 01.04.2021 and does not apply retrospectively for this
assessment year, thereby held that the surrender proceeds of the ULIP to be taxed under
the head ‘income from other sources’ by invoking the provision of section 56(1) of the
3 ITA No. 21/Mum/2023 (A.Y.2014-15) Mihir K. Jhaveri vs.CIT(Appeals) Act and thereby confirming the disallowance of long term capital loss along with the
indexation benefit.
The assessee is in appeal before us, challenging the impugned order.
The ld. DR for the Revenue relied on the order of the lower authorities.
It is observed that the assessee has invested in the market plus policy of LIC
(ULIP policy) during A.Y. 2007-08 and had paid single premium of Rs.50 lacs and opted
for ‘BOND’ option of the said policy. The assessee was allotted 470262.703 units at its
NAV. The assessee is said to have surrendered the policy during the impugned year and
had received Rs.75,73,185/- as maturity proceeds for all the units which are redeemed at
its NAV as on the date of the surrender. The assessee in its return of income has shown
this under the head ‘income from capital gains’ by treating ULIP as ‘capital asset’ as per
the provision of section 2(14) of the Act. During the assessment proceeding, the A.O. has
treated the same as ‘income from other sources’ and had made the impugned addition of
Rs.25,73,185/- being accretion in the value of the policy. The A.O. treated the policy as
unit linked differed pension plan intended for pension benefit as per section 10(23AAB)
of the Act along with section 80CCC of the Act. The ld. CIT(A) has also held the same to
be taxed under the head ‘income from other sources’ for the reason that the unit linked
insurance plan is both a pension plan and has also an insurance component in it, where
the hedging of risk of life and related benefits are both available in the said policy and
also for the reason that it is a source of investment. The A.O. and the ld. CIT(A) has
treated this as ULIP for which the exemption is available u/s.10(10D) of the Act. The ld.
CIT(A) further held that the surrender proceeds of ULIP are taxable and the same is taxed
4 ITA No. 21/Mum/2023 (A.Y.2014-15) Mihir K. Jhaveri vs.CIT(Appeals) under the head ‘income from other sources’. The assessee’s contention that ULIP is a
capital asset as per section 2(14)(c) of the Act as per the latest amendment to the
provision was not accepted by the ld. CIT(A) for the reason that section 2(14)(c) of the
Act was effective only from 01.04.2021 and not for the impugned assessment year. The
ld. CIT(A) further held that the amendment is neither clarificatory nor retrospective and
since the assessee has failed to furnish any decision in support of this, the ld. CIT(A)
upheld the view taken by the A.O.
We have heard the ld. DR and perused the materials on record. It is observed that
the assessee has invested in the said policy on 30.12.2006 and had surrendered the same
on 31.12.2013. The assessee has declared the same as ‘long term capital gain’ treating the
said policy as a capital asset u/s.2(14) of the Act and the same is reflected in the balance
sheet of the assessee from A.Y. 2007-08 to A.Y. 2014-15. The assessee further contended
that the same cannot be taxed u/s. 80CCC(2) of the Act as the amount of premium paid
by the assessee was not claimed as ‘deduction’ u/s.80CCC(1) of the Act. It is also
pertinent to point out from the assessee’s submission that ULIP is treated as ‘capital
asset’ as per the Finance Act, 2021 which further substantiates the claim of the assessee.
It is relevant to consider clause (c) of section 2(14) of the Act which has defined capital
asset and has included any unit linked insurance policy to which exemption under clause
10D of section 10 does not apply on account of applicability of the fourth and fifth
proviso thereof. In the present case, in hand, the assessee has paid a premium more than
the limit specified under the fourth proviso to section 10(10D) of the Act. This has been
further emphasized by amendment to section 2(14)(c) of the Act vide Act No. 13 of 2021
5 ITA No. 21/Mum/2023 (A.Y.2014-15) Mihir K. Jhaveri vs.CIT(Appeals) which has specifically stated the investment in unit linked insurance policy as ‘capital
asset’.
From the above observation, we find merit in the submission of the assessee and
we hereby hold that the above mentioned policy will come under the purview of ‘capital
asset’ as per section 2(14) of the Act for which the A.O. is directed to tax the accretion on
surrender of the said policy under the head ‘income from capital gains’ and not as
‘income from other sources’. Hence, ground nos. 2 & 3 raised by the assessee are
allowed. Ground nos. 4 & 5 are consequential in nature. Ground no. 6 being a general
ground requires no adjudication. Since we have decided this issue on merits, ground no. 1
raised by the assessee becomes academic in nature.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 30.05.2023
Sd/- Sd/-
(Prashant Maharishi) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 30.05.2023 Roshani, Sr. PS
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai