SANDEEP MODI,KOLKATA vs. DCIT, CPC, BANGALORE

ORDER This is an appeal preferred by the assessee against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 22.07.2021 for AY 2017-18.

(i) That on the facts and circumstances of the case, the Ld. CIT(A) had erred both in law and on facts in confirming the order by Assessing Officer and making an addition of Rs.10,00,000/- being the premium component of the maturity of Life Insurance Policy as Income from other sources. ii) that on the facts and circumstances of the case, the Ld. CIT(A) had ought to deduct the premium paid on the maturity proceeds received from LIC to determine the correct taxable income.

Sandeep Modi, AY: 2017-18 not claim any benefit of deduction under Sec 80C of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). Since, the assesses did not avail any deduction under Sec 80C of the Act, therefore, he did not include redemption payment of premium amount of Rs. 10,00,000/- in his return of income. However, he had shown appreciation in its maturity payment (Rs.13,09,000/-) over the premium amount paid by the assessee to the SBI (Rs.10,00,000/-) as income to the tune of Rs.3,09,000/- during the year and the same had been disclosed in his return of income. However, when the return of income was processed by the Central Processing Centre (CPC) of the Income Tax department which added Rs.10,00,000/- as income from other sources. Aggrieved by the action of CPC he had filed petition for rectification u/s 154 of the Act to the AO/CPC. However, according to the assessee, the AO at CPC Bangalore did not give any specific reason for rejection of his petition and simply rejected his application and so he appealed before the Ld. CIT(A) who was pleased to confirm the action of the CPC enhancing the total income by Rs. 10 lacs which according to assessee, was the premium paid by the assessee to the SBI. Aggrieved, assessee is before this Tribunal.

Sandeep Modi, AY: 2017-18 been offered to tax by the assessee in his ROI. However, AO/CPC did not accept the plea of the assessee. On appeal the Ld. CIT(A), was pleased to uphold the action of CPC/AO by observing as under:

“I perused the grounds of appeal

, Order u/s 154, Appellant's submission and material available on record. My observations in respect of the grounds raised by the appellant are as follows:

5. Maturity amount from SBI Life Insurance Company Limited; 5.1 In the grounds of appeal the appellant contested that the Assessing Officer at CPC Bangalore erred in considering the return of principal amount from the maturity of life Insurance Policy of Rs.10,00,000/- as income from Other Sources whereas the appellant did not take the benefit of deduction u/s 80C of the income tax act, 1961 in the year of its contribution. 5.2 In the written submission the appellant stated - (i) The appellant took the policy of Rs.10,88,000/- against payment of one time premium of Rs 10,00,000/- from SBI life insurance company limited. (credit of bonus @ 3.25% to policy) (ii) This policy was assigned in favour of the -bank and the maturity proceeds of the policy were directly transferred to the bank. (iii) The insurance company deducted TDS on the full maturity amount of Rs. 13,09,000/- @1% (iv) The appellant had shown the income component of the maturity proceeds as income from other sources in its income tax return. But CPC while processing the return had taken the full maturity proceeds as income of the appellant. (v) This had resulted into double taxation because the premium amount paid is already a tax paid payment and when the same is again taxed on refund of payment. Therefore, this addition of Rs 10,00,000/- should be deleted. 5.3. As per Sec 10(10D) for policies issued on or after April 1, 2012, the exemption is available only if the premium amount in any financial year does not exceed 10 per cent of the actual capital sum assured. This is applicable to all life insurance policies, including SPLI (Single Premium Life Insurance Policy) Thus the maturity proceeds from the single premium life insurance policy will be tax-free only if the minimum sum assured throughout the policy term remains at least 10 times the single premium paid. SPLI taken by the appellant does not satisfy this condition. Hence taxing the entire maturity proceeds is upheld.”

7. Aggrieved, the assessee has assailed the impugned action of Ld. CIT(A) confirming the action of CPC/AO before this Tribunal.

8. It was brought to our notice by the Ld. AR that Ld. CIT(A) erred in denying the claim of the assessee by merely finding that the exemption is not available to the assessee’s Sandeep Modi, AY: 2017-18 claim u/s. 10(10D) of the Act. According to Ld. AR, it was never the case of the assessee that the amount received to the tune of Rs.3,09,000/- (i.e. total amount received minus (-) premium paid by the assessee Rs.10,00,000/-) was not taxable i.e. exempt u/s. 10(10D) of the Act. The assessee’s case is that the net amount i.e. Rs. 3,09,000/- (Rs.13,09,000- Rs.10,00,000) is only the income element and is only exigible to tax and which has been duly offered by the assessee in his return of income. According to the assessee, the whole confusion happened because the payer (SBI) while disbursing the total amount of insurance due for assessee i.e. Rs.13,09,000/- had deducted 1% of the entire amount i.e. of Rs.13,09,000/- which was erroneous. According to Ld. AR, the TDS supposed to have been deducted by SBI/payer ought to have been restricted only to the net amount i.e. Rs.3,09,000/-. In such event, according to Ld. AR, there would have been no problem. To buttress this aspect the Ld. AR submitted that this precise difficulty or problem was taken note by the Parliament while introducing amendment through Finance No. 2 Bill No. 2019 which will be discussed (infra). Drawing our attention to section 10(10D) of the Act, the Ld. AR submitted that the LIC maturity benefit assessee received (Rs.3,09,000/-) was not allowable as a deduction u/s. 10 of the Act (income not included in total income) and drew our attention to section 10(10D) of the Act (income which do not form part of total income under chapter III) which reads as under: “Chapter III Income which do not form part of total income 10. Income not included in total income In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included (1)….. (2)….. ……. …… (10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than- (a) ……. (b) …….. (c) ……. (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 term of the policy exceeds ten percent of the actual capital sum assured.”

9. According to the Ld. AR, assessee is not entitled to benefit u/s. 10 of the Act, since the assessee’s premium payable exceeds 10% of the actual capital sum assured, so the assessee does not get the benefit of chapter III, section 10 of the Act since it is evident that Sandeep Modi, AY: 2017-18 its LIC policy’s, one time premium paid by the assessee was almost the assured value i.e. Rs. 10 lacs and the assured value was Rs.10,88,000/-. So, according to him, the Ld. CIT(A) is right to that extent. However, thereafter the Ld. AR drew our attention to section 194DA of the Act which reads as under: “payment in respect of life insurance policy- 194DA. Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy (other than the amount not includible in the total income under clause (10D) of section 10), shall, at the time of payment thereof, deduct income-tax thereon at the rate of [one per cent on the amount of income comprised therein].”

Sandeep Modi, AY: 2017-18 Several concerns have been expressed that deducting tax on gross amount creates difficulties to an assessee who otherwise has to pay tax on net income (i.e after deducting the amount of insurance premium paid by him from the total sum received). From the point of views of tax administration as well, it is preferable to deduct tax on net income so that the income as per TDS return of the deductor can be matched automatically with the return of income filed by the assessee. The person who is paying a sum to a resident under a life insurance policy is aware of the amount of insurance premium paid by the assessee.” From a reading of the aforesaid observation as well as taking note of the contention of the assessee, and taking note of the fact that assessee had neither availed any deduction under Sec 80C of the Act in respect of the premium paid to SBI nor claimed any deduction under section 10(10D) of the Act and offered Rs 3,09,000/- for tax in his ROI, according to me, no addition was warranted. Therefore in this case only the net amount that is Rs.3,09,000/- should have been taxed, which assessee has already offered to tax in his ROI. Therefore, in the light of the aforesaid discussions I am of the considered opinion that the assessee’s claim is valid and allow the claim of the assessee by directing deletion of the addition of Rs 10 Lakhs.