DIPENDU BAPALAL SHAH,MUMBAI vs. COMMISSIONER OF INCOME TAX-APPEAL-58, MUMBAI

The assessee has raised following grounds of appeal: “The learned Commissioner of Income Tax Appeal has erred in confirming Rs 16,39,726 u/s 56 of the Income Tax Act 1961 being accretion value on account of premature surrender of pension policies from LIC.

Brief facts of the case are that the assessee had e-filed his original return on 28.08.2015 declaring total income of Rs. 12,66,660/-. The same was processed u/s 143(1) of the Act on 15.12.2015. Subsequently, on receipt of information regarding pension policies of LIC, purchased by the assessee which had been surrender during the year. A notice u/s 148 of the Act was issued on 31.03.2021, as the assessee had not declared these transactions in his return of income. The assessee had purchased 3 pension policies on different dates and surrender these on 13.08.2014 for Rs. 51,23,726/- as under:

Before us, the Ld. AR has reiterated his arguments that since no deduction u/s 80CCC(1) was claimed, there is no question of applicability of section 80CCC(2) of the Act. He cited a favourable decision 0f the co-ordinate bench in case of Sandeep Sukhtankar v/s ITO in on this issue. He also placed reliance on the decisions of the Hon’ble Gujarat High Court in the following cases: i) Civil Application No. 17829 of 2018 of Piyush Ambalal Gandhi V/s DCIT-Circle-2. ii) Ami Ashish Shah v/s ITO 440 ITR 417 (Gujrat).

On the other hand, Ld. DR vehemently argued that the interpretation being given regarding the applicability of section 80CCC is erroneous. In his written submission, he has made the following arguments: “It is assessee’s contention that since no deduction is claimed under chapter VIA in either of the earlier years, no income shall be liable to be taxed in the year of surrender, i.e. AY 2014-15, according to the provisions of section 80CCC. However, while doing so the assessee has not appropriately considered the provisions of section 80CCC of the Act. The assessee has misinterpreted the provisions of section 80CCC in saying that if no deduction is claimed under chapter VIA, no income shall be liable to be taxed in the year of surrender. It is noted that the Assessee has considered the expression "referred to in sub-section (1) in respect of which a deduction has been allowed under sub section (1)" as a pre-requisite condition, for an amount, in order to fall under the purview of income as provided in section 80CCC(2) whereas the said expression needs to be read in conjunction with the Page 3 of 6 A.Y. 2015-16 Dipendu Bapalal Shah expression prior to it, i.e., "Where any amount standing to the credit of the assessee in a fund". The provisions of the section may read into three parts: (a) Where any amount standing to the credit of the assessee (b) In a fund, referred to in sub-section (1) in respect of which a deduction has been allowed under sub section (1). (c) together with the interest or bonus accrued or credited to the assessee's account. On perusal of the above three parts, it is clear that the section determines the amount of income, on surrender of a pension policy under a fund as referred to in section 10(23AAB) of the Act, constituents of which are two sums the sum which has been availed as a deduction in sub-section (1) and the interest or bonus accrued or credited to the assessee's account. Hence, the expression "referred to in sub-section (1) in respect of which a deduction has been allowed Under sub-section (1)" when read with the text prior to it gives a clear understanding that it qualifies the amount which has to be included in the income under this section along with the interest or bonus accrued. However, it nowhere sets a condition that if deduction has been claimed in section 80CCC(1) of the Act, only then the income under section 80CCC(2) of the Act would arise. Hence, in assessee's case, in order to determine to what extent the proceeds received on premature surrender of pension policy should be taxed, the interpretation, of the provisions of section 80CCC(2) of the Act, as discussed above needs to be adopted. Therefore, as the Assessee has not claimed deduction under section 80CCC(1) or under any other section in respect of the pension policy, the first constituent i.e. Investment in the policy (Rs.34,84,000/-) is not considered while determining the amount of income under section 80CCC(2) of the Act and the only amount over and above the investment i.e. interest or bonus of Rs.16,39,726/- (being the difference of total proceeds of Rs.51,23,726/- and the investment of Rs.34,84,000/-) is the amount of income determined under section 80CCC(2) of the Act and the same is liable to be added to total income of the assessee under section 56 under the head "Income from other sources.”

We have carefully considered the rival submissions as well as the judicial pronouncement on the issue. In order to decide the issue, it is relevant to go through the provisions of section 80CCC which are reproduced below: “Deduction in respect of contribution to certain pension funds.

On a plain reading of section 80CCC, it clear that 80CCC(2) is applicable only when the assessee is covered under sub section (1) i.e. where a deduction had been claimed and allowed under sub section (1). Admittedly, there has been no claim of deduction u/s 80CCC(1) of the Act by assessee and therefore 80CCC(2) is not applicable. However, in respect of the accretion of Rs. 16,39,726/- [ i.e. surrender value (51,23,726) -