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2022 (10) TMI 102
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....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; ....
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....06 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....
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....ty of LIC policy No. 103235137. It was submitted that the refund towards principal amount is not a part of the income of the appellant. The amount received on maturity was Rs. 14,78,000/- out of which sum assured was Rs. 10,00,000/- and excess portion was Rs, 4,78,000/-. Certain other incomes in the head of IFOS, which were disclosed and reported in the return of income were not included in the Form 26AS, as follows: i) Savings Bank Interest Rs. 14,887/- ii) Other Interest Income Rs. 9,262/- and Rs. 9,845/- from two parties which were not liable to TDS 3.7 The CPC rejected the explanation provided by the appellant via communication notice dated 25.09.2018. The reason for non-acceptance of response was stated by CPC as, 'The response furnished by you is not acceptable for the reason that the income on the basis of which the difference has been arrived at in accordance with section 143(1)(a)(vi) of the IT Act is reflected in your Form 26AS. The head under which the difference has arisen due to non-reporting of income in your return of income was communicated through the notice cited in this communication. Your response to the earlier notice fails to prove tha....
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.... income and in Form 26AS amounting to Rs. 9,66,006. This difference was computed based on income offered under the head income from other sources vis-à-vis income reported in Form 26 AS (Difference between Form 26AS and IFOS as per return of income = Rs. 17,74,288/- - Rs. 8,08,282/- = Rs. 9,66,006/-). The appellant has filed the present appeal contesting the adjustments made by the A.O. CPC and in his submissions contended as under: "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/- 1.3 During the financial year 2006-07, the appellant took a life insurance policy fora 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. ....
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.... TDS, or under such heads of income taxable at such special rates.' 4.5 Ld. CIT(A) stated that the appellant further reiterated that Section 10(10D) contemplates exemption on any sum received under a life insurance policy. It reads as follows-" 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 subsection (3) of section 80DDA; or (b) any sum received under a Keyman insurance policy; or (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 (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 per cent of the actual capital sum assured: Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person" It states that any sum ....
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....ly be taxable under the Act. The above proposition that only net proceeds is taxable on maturity of the life insurance policy is supported by the CBDT in Circular No. 7 of 2003 dated 5.9.2003. Paragraph 10.3 of the circular states as follows: "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 appellant) shall become taxable." Thus, only a sum 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/- was charg....
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....pellant during the subsistence of the policy. The memorandum to the Finance (No.2) Bill, 2019 states as follows: "TDS on non exempt portion of life insurance payout on net basis. Under section 194DA of the Act, a person is obliged to deduct tax at source, if it pays any sum to a resident under a life insurance policy, which is not exempt under sub-section (10D) of section 10. The present requirement is to deduct tax at the rate of one per cent. of such sum at the time of payment. 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 appellant. Hence, it is proposed to provide for tax deduction at source at the rate of five per cent. on income component of the sum paid by the person." It also relevant to note that legislature has admitted that maturity proceeds from a life insurance policy are to be taxed on net basis. The appellant has placed his reliance on the decision of the Delhi Tribunal in DCIT vs. Lloyd Insulation (India) Ltd. in ITA No. 2400/De1/11 decision dated 9.8.2012 in this connection, similar principle ....
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....e policy issued on or after 01.04.2003 in respect of which premium payable in any of the years exceeds 20% of the actual sum assured. The appellant has stated that section 194DA has been amended vide Finance Bill 2019 to provide that TDS on life insurance pay outs should be in respect of proceeds remaining payable after reduction of premium paid by the appellant during the subsistence of the policy. Further, relying on the above amendment, the appellant has stated that the legislature has admitted that maturity proceeds from a life insurance policy are to be taxed on net basis. 4.9 The aforementioned amendment is applicable w.e.f. 01/09/2019 and is not applicable in the instant case as the same pertains to AY 2017-18 relevant to PY 2016-17. 4.10 Before Ld. CIT(A) the appellant has placed reliance on decision of [TAT, Delhi in DCIT vs. Lloyd Insulation (India) Ltd. and decision of ITAT Mumbai in the case of Toyo Engg. India pvt. Ltd. vs. JCIT and stated that it is not possible all the time to co-relate a specific amount of TDS with a specific amount of income earned by the assessee in a particular year. 4.11 In the case of DCIT vs. Lloyd Insulation (India) Ltd, the Tribunal....
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....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 reflects Rs.17,74,288/- and assessee disclosed only Rs.8,08,282/-. The CPC brought into tax a sum of Rs.9,66,006/- into tax. Now the contention of the Ld. A.R. is that the assessee is 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/-. It was submission of the assessee that the assessee made a payment of premium at Rs.10,62,750/-, which was included in maturity value that cannot be brough to tax. In my opinion, this error has been happened because the tax has been deducted on entire amount contemplated u/s 194DA of the Act. This problem has been taken notice while increasing the TDS rate from 1% to 5% albeit in the financial bill 2019, wherein it was mentioned as follows:- "TDS on non exempt portion of 4fe insurance pay out on net basis. Under section under section 194DA of the Act, a person is obliged to deduct tax at source, if it pays a....