2022 (3) TMI 300 - AT - Income Tax

Addition towards single premium paid on policy taken for the Director by the Company - Determination of sum of addition - Gross amount or Net amount of premium - component of the maturity of Life Insurance Policy as Income from other source - According to the Ld. AR, assessee is not entitled to benefit u/s. 10 of the Act, since the assessee s premium payable exceeds 10% of the actual capital sum assured, so the assessee does not get the benefit of chapter III, section 10 since it is evident that its LIC policy s, one time premium paid by the assessee was almost the assured value i.e. ₹ 10 lacs and the assured value was ₹ 10,88,000/- - it is the premium amount paid by the assessee in AY 2012-13 and the same is his investment which assessee had in his possession/saving being tax paid amount, so, according to assessee in effect the impugned action tantamount to double taxation and confusion happened because SBI (Payer) has deducted tax at source of one (1%) on the entire amount as contemplated u/s. 194DA - HELD THAT - Under section 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 at the rate of one per cent of such sum at the time of payment. Several concerns have been expressed that deducting tax on gross amount creates difficulties to an assessee who otherwise has to pay tax on net income (i.e after deducting the amount of insurance premium paid by him from the total sum received) 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 assessee. The person who is paying a sum to a resident under a life insurance policy is aware of the amount of insurance premium paid by the assessee. From a reading of the aforesaid observation as well as taking note of the contention of the assessee, and taking note of the fact that assessee had neither availed any deduction under Sec 80C of the Act in respect of the premium paid to SBI nor claimed any deduction under section 10(10D) of the Act and offered ₹ 3,09,000/- for tax in his ROI, according to me, no addition was warranted. Therefore in this case only the net amount that is ₹ 3,09,000/- should have been taxed, which assessee has already offered to tax in his ROI. Therefore,assessee s claim is valid and allow the claim of the assessee by directing deletion of the addition of ₹ 10 Lakhs. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the appeal filed by the assessee, which is time-barred by 21 days, should be admitted.
2. Whether the addition of ?10,00,000/- as income from other sources by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] was justified.
3. Whether the premium paid on the maturity proceeds received from the Life Insurance Corporation (LIC) should be deducted to determine the correct taxable income.

Issue-wise Detailed Analysis:

1. Admission of Time-Barred Appeal:
The appeal filed by the assessee was time-barred by 21 days. However, after reviewing the reason for the delay, the Tribunal decided to condone the delay and admit the appeal for hearing.

2. Addition of ?10,00,000/- as Income from Other Sources:
The assessee, an individual and promoter director of a company, had taken a single premium life insurance policy from SBI Life Insurance Co. Ltd. with a premium of ?10,00,000/- maturing after 3 years. The maturity amount received was ?13,09,000/-. The assessee reported the net income of ?3,09,000/- (maturity amount minus premium paid) as "Income from Other Sources" in his Return of Income (ROI). However, the Central Processing Centre (CPC) added the entire premium amount of ?10,00,000/- as income from other sources, which was upheld by the CIT(A).

The CIT(A) reasoned that under Section 10(10D) of the Income Tax Act, for policies issued on or after April 1, 2012, the exemption is available only if the premium amount does not exceed 10% of the actual capital sum assured. Since the assessee’s policy did not meet this condition, the entire maturity proceeds were taxable.

3. Deduction of Premium Paid from Maturity Proceeds:
The assessee argued that the premium amount of ?10,00,000/- was paid from his already taxed income, and only the income component of ?3,09,000/- should be taxable. The confusion arose because SBI deducted TDS at 1% on the entire maturity amount of ?13,09,000/-. The assessee contended that TDS should have been deducted only on the net income component of ?3,09,000/-.

The Tribunal noted that the government had acknowledged this issue in the Finance No. 2 Bill 2019, proposing TDS on the net income component rather than the gross amount. The Tribunal found that the assessee neither claimed any deduction under Section 80C nor under Section 10(10D) and had correctly offered ?3,09,000/- for tax. Thus, the addition of ?10,00,000/- by CPC/AO was unwarranted.

Conclusion:
The Tribunal concluded that only the net amount of ?3,09,000/- was taxable, which the assessee had already offered in his ROI. The addition of ?10,00,000/- was directed to be deleted, and the appeal was allowed.

Order Pronouncement:
The appeal of the assessee was allowed, and the order was pronounced in the open court on March 4, 2022.