2023 (8) TMI 276 - AT - Income Tax

Characterization of receipts - correct head of income - Surrender proceeds of the ULIP - income from other sources OR Capital gain - addition made on accretion in value of the policy received on surrender and disallowance of long term capital gain by not treating the unit linked market plus policy of LIC as capital asset within the meaning of section 2(14) of the Act - HELD THAT - It is relevant to consider clause (c) of section 2(14) of the Act which has defined capital asset and has included any unit linked insurance policy to which exemption under clause 10D of section 10 does not apply on account of applicability of the fourth and fifth proviso thereof. In the present case, in hand, the assessee has paid a premium more than the limit specified under the fourth proviso to section 10(10D) of the Act. This has been further emphasized by amendment to section 2(14)(c) of the Act vide Act No. 13 of 2021 which has specifically stated the investment in unit linked insurance policy as capital asset . From the above observation, we find merit in the submission of the assessee and we hereby hold that the above mentioned policy will come under the purview of capital asset as per section 2(14) of the Act for which the A.O. is directed to tax the accretion on surrender of the said policy under the head income from capital gains and not as income from other sources . Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this judgment are the challenge against the order of the Commissioner of Income Tax (Appeals) under the Income Tax Act, 1961 for the Assessment Year 2014-15, focusing on the grounds of reopening the assessment, addition made on accretion in value of the policy received on surrender, and the disallowance of long term capital gain.

Reopening of Assessment:
The assessee challenged the grounds of reopening the assessment by notice under section 148 of the Act, arguing that it was barred by limitation. The assessment was reopened by the Assessing Officer who determined the total income by making additions under 'income from other sources' and disallowance of claimed loss. The Commissioner upheld these additions, citing the non-retrospective application of section 2(14)(c) of the Act.

Treatment of ULIP Policy:
The assessee invested in a unit linked insurance plan (ULIP) and surrendered it during the impugned year. The Assessing Officer treated the surrender proceeds as 'income from other sources' due to the policy being considered a pension plan and an investment source. The Commissioner also upheld this treatment, rejecting the assessee's claim that ULIP should be considered a 'capital asset' under section 2(14)(c) of the Act, effective from 01.04.2021. However, the Tribunal held that the ULIP policy falls under the definition of a 'capital asset' and directed the A.O. to tax the accretion on surrender under 'income from capital gains.'

Decision and Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the ULIP policy should be treated as a 'capital asset' under section 2(14) of the Act. Consequently, the accretion on surrender of the policy was directed to be taxed under 'income from capital gains.' The Tribunal granted relief to the assessee on grounds related to the treatment of the ULIP policy, thereby allowing the appeal.