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Facts
The assessee, a Non-Resident Indian, invested in a Max Life Insurance ULIP plan and received maturity proceeds. The AO reopened the assessment and added the difference between premium paid and surrender value as income. The CIT(A) confirmed the addition.
Held
The Tribunal held that the surplus from the surrender of ULIPs is taxable under 'Income from other sources' and not 'Capital gain'. However, considering a recent Mumbai Tribunal decision, the matter was set aside to the AO for fresh consideration.
Key Issues
Whether the surplus from ULIP surrender is taxable as 'Income from other sources' or 'Capital gain', and whether a recent tribunal decision on treating ULIP as a capital asset is applicable.
Sections Cited
147, 143(3), 10(10D), 2(14), 80CCC(2), 80CCC(1), 144C(3)
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: DR. BRR KUMAR & Shri T.R. SENTHIL KUMAR
Rohit Jayantilal Soni The ACIT, Parekha Sheri, At Circle Int. Taxation, Po Devgadh Baria, Vs Vadodara TA Devgadh Baria, Dahod-389380 Gujarat PAN: GDJPS5813P (Respondent) (Appellant) Assessee Represented: Shri Vipul Khandhar, A.R. Revenue Represented: Shri Alpesh Parmar, Sr. D.R. Date of hearing : 19-03-2025 Date of pronouncement : 26-05-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the appellate order dated 11.12.2023 passed by the Commissioner of Income Tax (Appeals), Ahmedabad-13 arising out of the reassessment order passed under section 147 r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2016-17.
The registry has noted that there is a delay of 250 days in filing the above appeal. The assessee in his Notarized Affidavit stated that he is Non-Resident Indian residing in USA for the last so many years and no income from India except the investment made in Max Life Insurance ULIP plan. Thus he is not aware of the appellate order passed Commissioner (Appeals), only during the recovery proceedings, he came to know about the appellate order which has resulted in filing the present appeal with a delay of 250 days. We are satisfied with the reasons stated by the assessee, thereby we condone the delay of 250 days in filing the above appeal.
Brief facts of the case is that the assessee is an individual and Non-Resident residing in USA. The assessee had invested in Max Life Insurance ULIP plan and received maturity proceeds of Rs.52,70,612/- and claimed to be exempt u/s. 10(10D) of the Act, hence not offered the income for taxation by filing Return of Income. The Assessing Officer reopened the assessment as an escapement of income and added difference between the premium paid and surrender value of Rs. 22,01,977/- as the income of the assessee and demanded tax thereon.
Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A), wherein the assessee claimed it is a capital gain not chargeable under the head “Income from other sources”. The same was considered by the Ld. CIT(A) in a detailed manner and confirmed the addition by observing as follows: ”7.4.3 In this respect, it is pertinent to analyse the provisions of sec 10(10D) of the Act. The provisions of sec 10 (10D) of the Act provides for exemption of any sum received under a life insurance policy, including
the sum allocated by way of bonus on such policy other than (a) any sum received under sub-section (3) of section 80DD or sub-section of (3) of section 80DDA; or (b) any sum received under a Keyman Insurance Policy; or (c) any sum received under and insurance policy issued on or after the 1st day of April 2003 (but before the 31st day of March, 2012) in respect of which the premium payable for any of the years during the term of policy exceeds twenty per cent of the actual capital sum assured, or (d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the terms of policy exceeds ten per cent of the actual capital sum assured. It is an admitted fact that the appellant during the course of assessment proceedings, before the Ld. AO has accepted that the appellant has paid the premium exceeding 20% of sum assured and hence the appellant was not eligible for exemption u/s 10(100) of the Act. The appellant's reliance on the said fourth proviso and fifth proviso to sec 10(10D) of the Act is misplaced as the same have inserted by the Finance Act, 2021, w.e.f. 01.04.2021 and therefore not applicable to the assessment year under consideration. Further, the applicant is not eligible for deduction u/s 10(10D) of the Act as per sec 10(10D) (c) & 10(10D)(d) of the Act. In view of the above discussions, the appellant's contention that the any ULIP maturity amount received before 01.02.2021 is exempt from tax is devoid of any merits and hence rejected. Therefore, no fault can be found with the action of the Ld. AO in taxing the impugned surplus from surrender of ULIPs as taxable income, and including the same in total income and hence the action of the Ld. AO in this respect is CONFIRMED. 7.4.4 The next argument of the appellant is that the profit arising out of surrender of said policies are taxable under the head "Capital gain" and not under the head "Income from other sources are considered carefully. The appellant has submitted that when a person takes an insurance policy, he gets the right to receive sum due against his insurance policy either on maturity or on its surrender or mishappening and therefore, the right to receive a sum from the insurance policy is a capital asset within the meaning of sec 2(14) and any income or loss arising on its transfer shall be chargeable to tax under the head 'Capital Gains'. The appellant has further submitted that he had purchased 'Unit Linked Insurance Policy' and in this type of policy, out of the premium paid during the year, a small portion of the investment goes towards providing the life cover to the person and the residual portion is invested in a fund which in turn invests in stocks or bonds. The investor also has a choice to choose between the equity based funds or the bond based funds and the investor can switch from one form of investment to another. Therefore, the appellant has requested to tax the impugned sum received on surrender of said ULIPs under the head 'Capital gain' and in support of said contention has relied upon the decision of the Hon'ble Ahmedabad Tribunal in the case of Shri Girish Haribhai Trivedi (supra) The said contentions of the appellant have been considered carefully. The sec 2(14), which defines the 'Capital asset' as stood in relevant assessment year did not specifically include 'Unit linked Insurance Policy' and it is also an admitted fact that sec 2(14) of the Act was amended by the Finance Act 2021 wef. of 01.04 2021 and brought any unit linked insurance policy to which exemption under clause (100) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof, within the definition of 'Capital Asset. From said amendment which is wef. 01.04 2021, it is evident that the legislature in their own wisdom has not brought all the 'Unit link Insurance Policy' within the definition of 'Capital asset', but has brought only such 'Unit linked Insurance policy' to which sec 10(10D) of the Act does not apply on account of the applicability of fourth and fifth proviso thereof, within the definition 'Capital asset and it is an admitted fact that the fourth and fifth proviso to sec 10(10D) of the Act refers to certain specified ULIP, issued on or after the 01st day of February, 2021. The said amendment brought in sec 2(14) of the Act by the Finance Act 2021, makes it evident that only the ULIP specified therein can be treated as 'Capital asset as if all the ULIPs were covered within the definition of 'Capital asset' then there was no need to bring any such amendment in sec 2(14) of the Act by the Finance Act 2021 and it is an admitted fact that the ULIPs under considerations were not issued on or after the 0151 day of February, 2021 and therefore are not covered under said fourth and fifth proviso to sec 10(10D) of the Act. 7.4.5 Further, from perusal of the in the case of Shri Girish Haribhal Trivedi, it is observed that the Ld. CIT(A) had considered therein the investment made in ICICI Pru Life, and had held that the 'The surplus will, therefore, be treated as long term capital gain on investment in mutual funds' and the Hon'ble Tribunal has simply concurred with the finding of the Ld. CIT(A), therein and upheld his order. However, with due respect to the appellate authority and the Hon'ble Tribunal, the said decision in the case of Shri Girish Haribhai Trivedi cannot be accepted as therein the Ld. CIT(A) and the Hon'ble Tribunal had erred in holding that the ULIP is mutual funds, whereas it is a fact that the ULIP and Mutual fund are different financial products and also the regulatory authority for both the products are different, i.e. the regulatory body for ULIP is Insurance Regulatory and Development Authority of India (IRDAI) and the regulatory authority for mutual fund is Security and Exchange Board of India (SEBI). Further, the said decision of the Hon'ble Ahmedabad was rendered on 13.07.2012 and therefore had no occasion to consider and adjudicate the said amendment brought in sec 2(14) by the Finance Act 2021. 7.4.6 In view of above discussions, I am of the considered view that the surplus from the surrender of ULIPs under consideration is taxable under the head 'Income from other sources' and not under the head 'Capital gain'. Therefore, the impugned action of the Ld. AO in making the impugned addition at Rs 22,01,977/- is CONFIRMED. Accordingly, the Ground No.2 raised in appeal is DISMISSED.”
Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:
1. The Ld. CIT(Appela-13) erred in law and on facts in passing the order u/s. 147 read with section 144C(3) of IT Act, 1961 which is requested to be quashed.
2. The Ld. CIT(Appela-13) erred in making addition of Rs. 22,01,977/- being amount of difference between premium paid and surrender value of ULIP. (3) Prayer: (i) Drop the proposed addition of Rs. 22,01,977/- to the income of the applicant (ii) Set-aside the draft assessment order u/s. 147 r.w.s. 144C(3) of Income Tax Act, 1961.
6. Ld. Counsel appearing for the assessee brought to our attention that Tribunal decision in the case of Shri Girish Haribhai Trivedi relied before Ld.CIT(A) was distinguished, wherein the Tribunal holding that ULIP has mutual funds. Whereas ULIP and Mutual Fund are different financial products and also the regulatory authority for both the products are different namely for ULIP it is Insurance Regulatory and Development Authority of India and for Mutual Funds its Regulatory Authority is SEBI. Thus the case law is not applicable to the facts of the assessee case. However Ld. Counsel now relied upon recent decision of Mumbai Tribunal in the case of Mihir K. Jhaveri Vs. CIT(A) in dated 30-05-2023 wherein it was held that sale of ULIP is treated as capital asset by observing as follows: “….10. 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 which has specifically stated the investment in unit linked insurance policy as ‘capital asset’.
11. 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.”
Per contra, Ld. Sr. D.R. appearing for the Revenue supported the orders passed by the Lower Authorities and requested to uphold the addition.
We have considered the rival submissions and perused the materials available on record. The contention that the sale of ULIP as capital gains raised by the assesse was not examined by the Lower Authorities specially with reference to the decision rendered by the Mumbai Bench Tribunal in the case of Mihir K. Jhaveri (cited supra) which considered the amendment to Section 2(14)(c) of the Act. Therefore in the interest of justice, we deem it fit to set- aside the matter back to the file of Jurisdictional Assessing Officer to consider the issue afresh and pass orders in accordance with law by providing opportunity of hearing to the assessee. Needless to state that the assessee should cooperate by filing all the details before the JAO to pass order on merits.
In the result, the appeal filed by the Assessee is allowed for statistical purpose.