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Income Tax Appellate Tribunal, SMC BENCH, NAGPUR
Before: SHRI R.S. SYAL
PER R.S. SYAL, VP: This appeal by the assessee arises out of the order dated 06-12-2021 passed by the National Faceless Appeal Centre (NFAC), Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2017-18. 2. The only issue raised in this appeal is against the confirmation of adjustment made u/s.143(1) of the Act for a sum of Rs.11,76,000/- relating to amount received on maturity of insurance policy as appearing in Form No.26AS.
Briefly stated, the facts of the case are that the assessee filed her return, which was processed u/s.143(1) by the Centralised Processing Centre, Bengaluru making adjustment, inter alia, of Rs.11,76,000/-. This adjustment was made on the reason that Form No.26AS reflected a receipt of Rs.12,07,419/- from Star Union Dai-Chi Life Insurance Company Limited with the amount of tax deducted at source to the tune of Rs.12,075/-, which was not included in the total income. There was another transaction reflected in Form No.26AS with negative interest income anent to Bank of India amounting to Rs.31,419/-. The adjustment was made u/s 143(1) of the Act by increasing total income with a sum of Rs.11,76,000/- (Rs.12,07,419 – Rs.31,419). The assessee remained unsuccessful before the ld. CIT(A), against which the instant appeal has been preferred.
I have heard the rival submissions and gone through the relevant material on record. It is clear from Form No.26AS that net sum of Rs.11.76 lakh was credited to the assessee’s account and deduction of tax at source was made at Rs.12,075/-. The assessee did not offer any income on this score in the income-tax return. Section 143(1) of the Act provides for processing of the return. Clause (a) states that the total income or loss shall be computed after making certain adjustments to the income returned.
Sub-clause (vi) of clause (a) provides for such an adjustment on account of “addition of income appearing in Form No.26AS ..... which has not been included in computing the total income in the return”. A bare perusal of the provision transpires that any income appearing in Form No.26AS which has not been included in the total income by the assessee will call for adjustment u/s.143(1) of the Act. Form No.26AS, in the present context, has its genesis to section 194DA with the heading `Payment in respect of life insurance policy’. Relevant part of this section reads as under:
`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:’
A careful circumspection of the provision divulges that any person responsible for paying any sum under the life insurance policy, except the amount exempt u/s.10(10D), shall deduct tax at source at the rate of 1% of the sum.
The ld. AR pointed out that section 194DA uses the expression ‘any sum’ in contrast to the expression ‘any income’ used in certain other sections including section 194D. Since section 194DA talks of ‘any sum’ and not ‘any income’, the ld. AR contended that section 143(1)(a)(vi) using the expression `addition of income’ cannot be applied to the facts of the case.
The view canvassed by the ld. AR is bereft of merit.
Deduction of tax at source is usually towards income component, which may be made from the amount of income as such; or in certain cases from the receipt containing the element of income.
Where it is difficult to extract the precise element of income hidden in the receipt, the deduction of tax at source is provided under certain sections from the receipt but at a relatively lower rate. In such cases, deduction of tax remains towards income albeit calculated on the gross sum. One of such examples is section 194DA, which provides for deducting tax at source on the gross sum paid but a lower rate of 1%. Thus deduction of tax at source on the sum paid under a life insurance policy does not convert the income portion embedded in such sum into non-income. When I turn to section 143(1)(a)(vi) referring to ‘addition of income appearing in Form No.26AS’ which have not been included by the assessee in the total income in the return, there remains no doubt whatsoever that it talks of making adjustment of income directly received as such; or as comprised in the gross sum on which tax has been deducted at source. Ergo, the contention that since section 194DA requires deduction of tax at source on the sum payable and not the income and hence section 143(1), talking of making adjustment as addition of income, cannot apply, is jettisoned.
Now comes the application of section 143(1), which refers to making adjustment by way of addition of income. As against section 194DA requiring deduction of tax at source on the gross sum payable but towards income element, section 143(1) mandates the addition of income and not of the gross sum.
It has been noticed supra from the language of section 194DA that deduction of tax at source is contemplated on the sum payable under a life insurance policy other than the amount not includible u/s 10(10D) of the Act. Relevant part of the latter section runs as follows:
`10(10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than—...... (c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured ; or....’
A perusal of section 10(10D) indicates that any sum received under an insurance policy is exempt except where such sum is received under an insurance policy issued on or after the 1.4. 2003 but on or before 31.3.2012 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the capital sum assured. This deciphers that if an insurance policy is issued before 31.3.2012 whose annual premium is more than 20% of sum assured, the sum received under such policy would be subjected to tax and will not qualify for exemption.
Turning to the facts of the extant case, it is seen that the date of commencement of the policy is 30-08-2011 with the amount of premium at Rs.8.00 lakh and sum assured at Rs.16.00 lakh. Such premium exceeds 20% of the sum assured. The sum of Rs.12,07,419/- received by the assessee on the premature surrender of life insurance policy falls in exception clause (c) of section 10(10D). As such, the obligation to deduct tax at source on the sum paid was rightly there u/s 194DA.
Por una parte section 194DA requires deduction of tax at source on the sum paid, por otra parte section 143(1) requires adjustment towards addition of income and not of the sum paid.
The CBDT in its Circular No.07/2003 dated 05-09-2003 has given explanatory notes on the provisions relating to Finance Act, 2003.
The Board has clarified the position regarding section 10(10D) in para 10.3 reading as under:
`10.3 The insurance policies with high premium and minimum risk covers are similar to deposits or bonds. With a view to ensure that such insurance policies are treated at par with other investment schemes, amendments have been made in section 88 and clause (10D) of section 10. The existing clause (10D) of section 10 has been substituted so as to provide that the exemption available under the said clause shall not be allowed on any sum received under an insurance policy issued on or after the 1st day of April, 2003, in respect of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. However, any sum received under such policy on the death of a person shall continue to remain exempt. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause.’
The interpretation of the provision makes it manifest that exemption under section 10(10D) does not apply if the conditions of clause (c) are satisfied, in which case the income becomes chargeable to tax. However, the quantum of taxable income, as explained in the Circular is: `the income accruing on such policies (not including the premium paid by the assessee).’ In the hue of the above, it is patent that though deduction of tax at source u/s 194DA is contemplated on the gross amount paid under a life insurance policy, but the income is such sum received as reduced by the amount of premium paid. Section 143(1) provides for making adjustment by way of `addition of income appearing in Form no. 26AS’ and not the sum so appearing in the Form.
Evidently, it is only the amount of income which can be added by means of adjustment u/s 143(1).
Reverting to the facts, the assessee received a sum of Rs.12,07,419/- towards premature surrender of life insurance policy and the amount of premium paid was Rs.8.00 lakh. The resultant income is Rs.4,07,419/-, which calls for adjustment in the intimation u/s.143(1) of the Act. With another negative interest income of Rs.31,419 in Form No. 26AS, which was reduced by the AO himself, the further sustainable amount of the adjustment comes to Rs.3,76,000/-. I order accordingly.