2022 (10) TMI 846 - AT - Income Tax

Adjustment made u/s.143(1) - amount received on maturity of insurance policy as appearing in Form No.26AS - Adjustment by way of addition of income - HELD THAT - Deduction of tax remains towards income albeit calculated on the gross sum. One of such examples is section 194DA, which provides for deducting tax at source on the gross sum paid but a lower rate of 1%. Thus deduction of tax at source on the sum paid under a life insurance policy does not convert the income portion embedded in such sum into non-income. When turn to section 143(1)(a)(vi) referring to addition of income appearing in Form No.26AS which have not been included by the assessee in the total income in the return, there remains no doubt whatsoever that it talks of making adjustment of income directly received as such; or as comprised in the gross sum on which tax has been deducted at source. Ergo, the contention that since section 194DA requires deduction of tax at source on the sum payable and not the income and hence section 143(1), talking of making adjustment as addition of income, cannot apply, is jettisoned. It is clear from Form No.26AS that net sum of Rs.11.76 lakh was credited to the assessee s account and deduction of tax at source was made - The assessee did not offer any income on this score in the income-tax return. Section 143(1) of the Act provides for processing of the return. Clause (a) states that the total income or loss shall be computed after making certain adjustments to the income returned. Sub-clause (vi) of clause (a) provides for such an adjustment on account of addition of income appearing in Form No.26AS which has not been included in computing the total income in the return . A bare perusal of the provision transpires that any income appearing in Form No.26AS which has not been included in the total income by the assessee will call for adjustment u/s.143(1) of the Act. Form No.26AS, in the present context, has its genesis to section 194DA with the heading Payment in respect of life insurance policy . The interpretation of the provision makes it manifest that exemption under section 10(10D) does not apply if the conditions of clause (c) are satisfied, in which case the income becomes chargeable to tax. However, the quantum of taxable income, as explained in the Circular is the income accruing on such policies (not including the premium paid by the assessee) . In the hue of the above, it is patent that though deduction of tax at source u/s 194DA is contemplated on the gross amount paid under a life insurance policy, but the income is such sum received as reduced by the amount of premium paid. Section 143(1) provides for making adjustment by way of addition of income appearing in Form no. 26AS and not the sum so appearing in the Form. Evidently, it is only the amount of income which can be added by means of adjustment u/s 143(1). Reverting to the facts, the assessee received a sum towards premature surrender of life insurance policy and the amount of premium paid was Rs.8.00 lakh. The resultant income is Rs.4,07,419/-, which calls for adjustment in the intimation u/s.143(1) of the Act. With another negative interest income of Rs.31,419 in Form No. 26AS, which was reduced by the AO himself, the further sustainable amount of the adjustment comes to Rs.3,76,000/-. Assessee appeal is partly allowed.

Summary

Issues:
Confirmation of adjustment made u/s.143(1) for amount received on maturity of insurance policy as per Form No.26AS.

Analysis:
The appeal concerned the confirmation of an adjustment made under section 143(1) of the Income-tax Act, 1961, relating to the amount received on maturity of an insurance policy as reflected in Form No.26AS for the assessment year 2017-18. The adjustment was based on the discrepancy between the income reported by the assessee and the amount shown in Form No.26AS, leading to an increase in the total income by Rs.11,76,000. The assessee contended that the adjustment was incorrect, arguing that section 194DA, which mandates tax deduction at source on sums paid under life insurance policies, refers to "any sum" and not "any income," unlike section 143(1)(a)(vi) which mentions "addition of income." The Tribunal rejected this argument, emphasizing that the purpose of tax deduction at source is to ensure tax compliance on income elements, whether directly received or embedded in the gross sum.

The Tribunal analyzed the relevant provisions of section 194DA, which requires tax deduction on sums paid under life insurance policies, and section 10(10D), which exempts certain sums received under insurance policies from tax. The Tribunal noted that section 10(10D) exempts sums received under insurance policies issued before 31.3.2012 if the premium exceeds 20% of the sum assured. In the case at hand, the insurance policy commenced on 30-08-2011 with a premium exceeding 20% of the sum assured, making the sum received on surrender taxable. The Tribunal clarified that while section 194DA mandates tax deduction on sums paid, section 143(1) requires adjustment for addition of income, not the gross sum.

Further, the Tribunal referred to a CBDT Circular explaining the provisions of section 10(10D), emphasizing that the exemption does not apply if the conditions of clause (c) are met, making the income chargeable to tax. The Circular specified that the taxable income is the sum received reduced by the premium paid. Therefore, the Tribunal concluded that only the income component, not the gross sum, should be subject to adjustment under section 143(1). In the present case, considering the premium paid and the sum received, the Tribunal recalculated the adjustment amount to be Rs.3,76,000, partially allowing the appeal and ordering the adjustment accordingly.

In conclusion, the Tribunal upheld the adjustment made under section 143(1) for the amount received on maturity of the insurance policy, emphasizing the distinction between tax deduction on sums paid under insurance policies and the addition of income for tax purposes. The Tribunal's decision was based on a thorough analysis of the relevant provisions and the specific circumstances of the case, resulting in a recalculated adjustment amount based on the income component.