2022 (8) TMI 519 - AT - Income Tax

Addition made to the total income while processing assessment u/s 143(1)(a) - applicability of provisions of sec. 10(10D) - assessee surrendered insurance policy and received surrendered value - assessee surrendered insurance policy and received surrendered value - A.R submitted that the surrender value of amount received by the assessee should not have been taxed in the hands of the assessee - HELD THAT - As the assessee has not earned any income on surrender of insurance policy. On the contrary, the assessee has only incurred loss - However, it is required to be examined as to whether the assessee has claimed deduction u/s 80C of the Act in respect of premium paid on this insurance product. If the assessee has not claimed deduction u/s 80C of the Act in respect of premium amount paid on this insurance product, then the above said loss should be treated as Capital loss and nothing should be brought to tax, since it supports the stand of the assessee that he has treated these payments as his investment. On the contrary, if the assessee has claimed deduction of the premium amount paid on this insurance product, then the AO is required to deal with the surrender value in accordance with law. Since this matter requires verification, we set aside the order passed by Ld CIT(A) and restore the same to the file of the AO for examining this issue - Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Addition of surrendered insurance policy value to total income under section 143(1)(a) of the Income Tax Act.
2. Interpretation of tax treatment on surrender value of insurance policy.
3. Validity of rejecting rectification application under section 154 of the Act.

Issue 1:
The appeal challenged the addition of Rs. 3,69,999 to the total income under section 143(1)(a) of the Income Tax Act. The assessee, a salaried individual, surrendered an insurance policy and received a value of Rs. 3,69,999, with TDS deducted by the insurance company. The AO included this amount as income due to TDS deduction. The CIT(A) upheld the addition, stating the assessee should have offered income corresponding to the TDS amount. The AR argued the surrender value should not be taxed as income since it represented a loss of Rs. 3,20,768 for the assessee. The Tribunal found merit in the AR's contention, considering the nature of the insurance product as an investment. The Tribunal set aside the CIT(A)'s order for further examination by the AO.

Issue 2:
The interpretation of tax treatment on the surrender value of the insurance policy was crucial. The AR argued that since the assessee treated the insurance premium as an investment product and did not claim it as a deduction under section 80C of the Act, the surrender value should not be taxed as income. The Tribunal agreed, emphasizing the intention of the assessee in treating the premium payments as investments. It highlighted the evolving nature of insurance products that combine elements of insurance and investment, leading to a determination based on the assessee's intention.

Issue 3:
The validity of rejecting the rectification application under section 154 of the Act was also a point of contention. The AR challenged the rejection, stating the surrender value should not be taxed as income due to the loss incurred by the assessee. The Tribunal found the rejection unjustified and set aside the CIT(A)'s order, directing the AO to re-examine the issue based on the nature of the transaction and the treatment of premium payments by the assessee.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a thorough examination of the tax treatment on the surrender value of the insurance policy based on the intention of the assessee and the nature of the transaction.