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Facts
The appellant received Rs. 15,52,159/- from premature withdrawal of a ULIP and claimed long-term capital loss with indexation, treating it as a capital asset for A.Y. 2016-17. The Ld. CIT(A) rejected this, holding the amount taxable as "Income From Other Sources" on the grounds that ULIP was not a capital asset for that assessment year.
Held
The Tribunal held that while the amendment treating ULIP as a capital asset applied from A.Y. 2021-22, a ULIP policy where the benefit under Section 10(10D) was not taken qualifies as a 'capital asset' under the broad definition of Section 2(14)(a). Therefore, the appellant is entitled to treat the amount received as capital gains/loss, and the appeal was allowed.
Key Issues
Whether the premature withdrawal of a ULIP policy, for which benefit under Section 10(10D) was not claimed, should be treated as a capital asset under Section 2(14)(a) allowing for long-term capital loss computation, or as income from other sources for Assessment Year 2016-17.
Sections Cited
2(14)(c), 2(14)(a), 10(10D)
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Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Shri Narender Kumar Choudhry (JM) & Shri Omkareshwar Chidara (AM)
Per Omkareshwar Chidara (AM) :- The issue of dispute in this appeal is whether the appellant is entitled for claim of long term capital loss on the amount received as (premature withdrawal) of ULIP. During this year, the appellant received an amount of Rs. 15,52,159/- from LIC towards ULIP premium amount paid in earlier years. The appellant claims that he had been paying Rs. 1.8 lakhs per annum for a period of 8 years. The amount received/taken by appellant by foreclosing Unit Linked Insurance Premium (ULIP) was treated as ‘capital asset’ and the appellant applied indexation method applicable to capital assets. The “computation” resulted in long term capital loss of Rs. 4 lakh (approximately). The appellant received an amount of Rs. 15,52,159/- on premature sunder of policy whereas the indexed cost of acquisition of the policy is Rs. 19,89,424/-. The exact total amount paid by appellant as insurance premium is not coming out from the assessment order/appeal order of Ld. CIT(A). The Ld. CIT(A), in his appellate order, held that the amount received by way of premature withdrawal, after reducing the amount
2 Balbirsingh Balwantsingh paid towards ULIP is taxable as “Income From Other Sources” and not under the head “Income from Capital Gains”. Hence, the contention that the appellant is eligible for the benefit of indexation and long term capital loss was rejected by Ld. CIT(A).
During the hearing before the ITAT, Ld. AR of the appellant has argued that since the ULIP is “capital asset”, and hence he is entitled for indexation benefit. The indexed cost of acquisition amount received being less than the premature surrendered amount of ULIP, there is a loss under the head of “Income from Capital Gains”. It was further argued that the decision of Ld. CIT(A) is incorrect holding that the differential amount received compared to his payment as taxable under the head “Income from Other Sources”. The Ld. AR of the appellant relied on the decision of Mihir K. Jhaveri Vs. CIT, ITAT decision of Mumbai, A.Y. 2014-15 dated 30.5.2023, for the proposition that such income is taxable under the head “Income from Capital Gains”, and not “Income from Other Sources”.
Per contra, Ld. DR also filed written submissions stating that the order of Ld. CIT(A) is correct, and treating ULIP as “capital asset” is only from w.e.f. 2021. It was also argued that facts of the case relied on by Ld. AR of the appellant are different and hence not applicable.
Heard both sides. There is no dispute that treating ULIP as a “capital asset” under section 2(14)(c) of the Act is only from A.Y. 2021-22 as the amendment has come by way of Finance Act 2021 and there is no retrospective effect. So, the treatment of appellant of ULIP as “capital asset” for A.Y. 2016-17, the impugned A.Y. is incorrect. Unless, the ULIP is treated as “capital asset”, the provisions of “Income from Capital Gains” cannot be pressed into service. So, the Ld. CIT(A) has correctly decided the issue by holding that the differential amount as taxable under the head “income from other sources”, subject to arithmetical computation by Ld. AO. The principle laid down here is “difference” between amount paid by appellant and 3 Balbirsingh Balwantsingh received by appellant is taxable as “Income from Other Sources”, and not “capital gain” because the amendment on which appellant relies is applicable for A.Y. 2021-22 onwards, and not for A.Y. 2016-17. Coming to the case relied on by the appellant, it is distinguishable as follows :- a) In that case, the amount paid was a single premium of Rs. 50 lakh, whereas in this case, appellant is paying Rs. 1.8 lakh p.a. The ITAT Mumbai came to the conclusion that it is a case of “capital asset” because amount payable per annum is more than Rs. 2.5 lakh in terms of section 10(10D) of I.T. Act, whereas in our case, the appellant admitted was paying Rs. 1.8 lakhs p.a. only. In other words, in that case, the appellant paid a premium of Rs. 50 lakh more than the limit specified under the fourth proviso to section 10(10b) of the I.T. Act, i.e. more than Rs. 2.5 lakh. Strictly speaking, appellant is not entitled to the benefit for A.Y. 2016-17, as the amendment comes into effect from A.Y. 2021-22, but still the benefit was given in that case since the amount of premium paid is more than Rs. 2.5 lakh p.a. In our case, even this condition is not satisfied.
b) In the case relied on by appellant, the amount was received after policy period is over, whereas in the impugned case, it is premature withdrawal.
So, the appellant is not eligible to take shelter under the above decision of Coordinate Bench. But, section 2(14)(a) says “capital asset” means property of any kind held by appellant, whether or not connected with his business or profession. So, here the ‘Insurance Policy” where the benefit under section 10(10D) was not taken, can come under section 2(14)(a) and the same is treated as ‘capital asset’. Once, the Market Linked Insurance Policy is treated as capital asset, the consequential computation of capital gains/loss will follow. Hence, appellant is entitled to treat the amount received as capital gains/loss, as the case may be.
4 Balbirsingh Balwantsingh 6. The appeal of appellant is allowed.
Order pronounced in the open Court on 29/07/2025.