Kantilal Jain Vs ITO (ITAT Bangalore)
Conclusion: Assessee in respect of premium paid to the insurance company could not be brought to tax subject to the fact that assessee should not avail deduction u/s 80C of the Act in respect of premium paid towards that insurance policy.
Held: In the return of income, assessee took a Life Insurance Policy for a period of 10 years in the financial year 2006-07. The sum assured was Rs. 10 lakhs. Assessee had paid half yearly premium of Rs. 1,06,275/- for 5 years totaling of Rs. 10,62,750/- (Rs. 1,06,275 x 10). It was a policy, wherein the annual premium exceeded 10% of sum assured. The maturity proceeds were therefore not exempted u/s 10 (10D) and it was chargeable to tax under the head “income from other sources”. As per policy condition, assessee had received in the assessment year 20 17-18 (on 28.10.20 16) a sum of 14,63,220/- and TDS of it was Rs. 14,780/- totalling (Rs.14,78,000/-). Assessee offered a sum of Rs.4,78,000/- as income on net receipt i.e. (Rs.14,78,000 – Rs10 lakhs). Though assessee was required to offer net receipt of Rs.4,15,250/- (Rs.14,78,000/- – Rs.10,62,750/-). Thus, assessee offered an excess amount of Rs.62,750/-. The return was processed u/s 143(1) by CPC vide their intimation dated 21.5.2018. The Form No.26AS reflected Rs.17,74,288/- and assessee disclosed only Rs.8,08,282/-. CPC brought into tax a sum of Rs.9,66,006/- into tax. Assessee was only liable for net amount issued from maturity of life insurance policy at Rs.4,15,250/- only and the CPC committed an error in taxing the entire amount of Rs. 14,78,000/-. Assessee submitted that he made a payment of premium at Rs.10,62,750/-, which was included in maturity value that could not be brough to tax. It was held that issue was remitted to the file of AO to consider only the net amount to taxation provided the assessee had not claimed deduction u/s 80C in respect of premium paid on the life insurance policy or claimed any deduction u/s 10(10D) partly allowed the appeal filed by the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by assessee is directed against the order of CIT(A), NFAC dated 13.7.2022 for the assessment year 2017-18. The assessee has raised following grounds of appeal:-
1. “General Ground
1.1. The learned Deputy Commissioner of Income Tax, Centralized Processing Centre. Bangalore (hereinafter referred as “DCIT, CPC” for brevity), has erred in passing the intimation under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) in the manner passed by him and the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Center, Delhi (hereinafter referred as `CIT(A), NFAC’) has erred in affirming the variations made by the DCIT, CPC in the intimation. The order passed by the CIT(A), NFAC is bad in law and liable to be quashed.
2. Grounds on addition to Income from Other Sources based on Form 26AS
2.1. The learned DCIT, CPC and learned CIT(A), NFAC have erred in adding Rs. 9,66,006 to the income of the appellant based on Form 26AS without appreciating the facts of the case. Based on facts and circumstances of the case, the amount reflected in Form 26AS is not income chargeable to tax.
2.2. The learned DCIT, CPC and learned CIT(A), NFAC have erred in not appreciating that amount shown in Form 26AS under section 194DA (Payment in respect of life insurance policy) includes maturity proceeds of LIC towards principal component invested by the appellant which is not assessable as income in accordance with law.
2.3. The learned DCIT, CPC and learned CIT(A), NFAC have erred in not appreciating that:
a) The amount of Rs. 14,78,000 shown under section 194DA in Form 26AS includes amount of insurance premium paid by the appellant of Rs. 10,62,750 and the excess portion was Rs. 4,15,250;
b) only net proceeds (after excluding the premium paid by the appellant) is taxable on maturity of the life insurance policy;
c) the appellant had offered the net income of Rs. 4,78,000 being excess of gross maturity proceeds of Rs. 14,78,000 over the sum assured amounting to Rs. 10,00,000, thereby offering an excess income of Rs. 62,750 [4,78,000 — 4,15,250]; and
d) the entry appearing under section 194DA in Form 26AS is not conclusive.
2.4. The learned CIT(A), NFAC has erred in not appreciating that the appellant had relied upon the amendment to section 194DA made by the Finance (No.2) Act, 2019 only to support the proposition that net proceeds (after excluding the premium paid by the appellant) is taxable on maturity of the life insurance policy the date from which the above amendment becomes effective has no bearing in deciding the present case.
2.5. On facts and circumstances of the case and law applicable, the addition Rs. 9,66,006 to the income of the appellant based on entry appearing in Form 26AS is bad in law and liable to be deleted.
3. Grounds relating to short grant of TDS credit
3.1. The learned DCIT, CPC has erred in not granting credit for tax deducted at source at Rs.84,056 as against Rs. 1,21,659 claimed by the appellant in the return of income.
3.2. The learned CIT(A), NFAC has erred in not adjudicating the specific ground raised by the appellant in relation to the short grant of tax deducted at source.
3.3. On facts and circumstances of the case and law applicable, the appellant is entitled to claim the entire credit for tax deducted at source amounting to Rs. 1,21,659.
4. Levy of consequential interest under sections 234B and 234C
4.1. The learned DCIT, CPC has erred in levying consequential interest under section 234B and under section 234C of the Act amounting to Rs. 87,090 and Rs. 16,979 respectively. On facts and circumstances of the case and law applicable, levy of consequential interest under section 234B and under section 234C is incorrect. The appellant denies its liability to pay the consequential interest under section 234B and under section 234C.
Prayer:
5.1. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT(A), NFAC under section 250 of the Act being bad in law, be quashed, or in the alternative the
a) addition of income of Rs. 9,66,006 be deleted,
b) Full TDS credit of Rs. 1,21,659 be allowed, and
c) Interest levied under sections 234B and 234C be deleted.
The Appellant prays accordingly.”
2. With regard to the additions to income from other sources, based on Form 26AS, short grant of TDS credit and levy of interest u/s 234B of the Income-tax Act,1961 [‘the Act’ for short].
3. Facts of the issue are that the appellant, a resident individual, filed his return of income for Assessment Year (AY)2017-18 on 05.08.2017 vide Ack. No. 146483630050817 declaring a total income of Rs.16,13,080/- after claiming deductions under Chapter Vl-A of the Income Tax Act of Rs. 1,60,000/-. The total income of the appellant included Income from Salary, House property and Income from other sources.
3.1 The Income from Other Sources (IFOS) included interest income of Rs. 3,30,282/- and income of Rs. 4,78,000/- out of LIC maturity proceeds. Total tax payable in the return of income amounted to Rs. 3,34,331/-, which was paid via advance tax Rs. 32,000/-, Tax deducted at source Rs. 1,21,659/- and self-assessment tax Rs. 1,80,672/-
3.2 During the financial year 2006-07, the appellant took a life insurance policy for a period of 10 years. The sum assured of the policy was Rs. 10,00,000 and the appellant was mandated to pay the half yearly premium of Rs. 1,06,275 for the first five years. Total premium paid for 5 years amounted to Rs. 10,62,750 [1,06,275 x 10]. It was a policy wherein the annual premium exceeded 10% of the sum assured. The maturity proceeds were therefore not exempt under section 10(10D) and it was chargeable to tax under the head ‘Income from other sources’. As per the policy, maturity proceeds would be received by the appellant at the end of the 10th year i.e. in FY 2016-17 relevant to AY 2017-18. The maturity proceeds were received by the appellant on 28.10.2016 amounting to Rs. 14,63,220 [Rs. 14,78,000Rs. 14,780(TDS)].
3.3 In the IT return, the appellant offered Rs. 4,78,000/- being excess of gross maturity proceeds of Rs. 14,78,000/- over the sum assured amounting to Rs. 10,00,000/-. Ideally, the appellant should have offered income of Rs. 4,15,250/- being excess of maturity proceeds of Rs. 14,78,000/- over total premium paid for all 5 years amounting to Rs. 10,62,750/-. Thus, a sum of Rs. 62,750/- [4,78,000 — 4,15,250] was offered to tax excessively in the return of income.
3.4 The return was processed by the CPC and a communication notice was received from CPC dated 21.05.2018 informing about an error, being inconsistency between IFOS in the return of income and in Form 26AS amounting to Rs. 9,66,006. This difference was computed based on income offered under the head IFOS vis-a-vis income reported in Form 26AS.
3.5 Following table explains how the difference of Rs. 9,66,006/- was computed by the CPC.
