2023 (2) TMI 173 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - amount received upon surrender of the pension policy was taxable as income in the hands of the petitioner in view of the provisions of Section 80CCC(2) - HELD THAT - A plain reading of sub-section (2) of section 80CCC of the Act shows that in case wherein the assessee has claimed deduction under sub-section (1) in respect of payment or deposit in relation to pension policy and subsequently, the assignee received such sum on account of surrender of such policy, in such case, the surrender value would be taxable. In the facts of the present case however, the petitioner had neither claimed any deduction under sub-section (1) of Section 80CCC, nor it is the case of the respondent authority that the petitioner claimed such deduction, even in any of the earlier years to make the surrender value taxable. Neither on facts nor in eye of law, the respondent authority could establish that there was any escapement of income chargeable to tax in the hands of the petitioner on account of the transaction of surrendering of policy in question. As stated above, the policy in question was assigned to third party and said assignee had received the surrender value. The petitioner was sought to be taxed by way of reopening, the amount, which was as such received by third party. This was clearly not permissible in law and there existed no ground to reopen assessment under section 147 of the Act. The satisfaction of the AO that he had reason to believe that the income in the hands of the petitioner-assessee had escaped assessment, was without any foundation in law. By virtue of provisions of Section 80CCC (1) read with 80CCC(2), the petitioner had never claimed any deduction in respect of amount of pension policy to render the pension policy to attract liability of taxability. Reasons and discussions, the petition of the petitioner is entitled to succeed.

Summary

Issues:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961 for reopening assessment for the assessment year 2013-14.

Analysis:
The High Court considered the case where the petitioner challenged a notice issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2013-14. The petitioner had invested in a pension policy, which was later surrendered, and the surrender value was received by a third party. The respondent alleged that the surrender value should be taxable in the hands of the petitioner based on Section 80CCC(2) of the Act.

The petitioner argued that no income was received upon surrender of the policy as it was assigned to a third party, and the petitioner had not claimed any deduction under Section 80CCC(1) of the Act. On the other hand, the respondent contended that the assessing officer was satisfied that there was an escapement of income chargeable to tax and that the petitioner had failed to disclose all material facts necessary for assessment.

The Court analyzed the provisions of Section 80CCC of the Act, which deal with deductions in respect of contributions to pension funds. It was noted that for the surrender value to be taxable, the petitioner must have claimed a deduction under Section 80CCC(1), which was not the case here. The Court emphasized that no income was received by the petitioner, and the surrender value was received by the assignee, making the reopening of assessment unjustified.

Ultimately, the Court held that the notice issued by the respondent under Section 147 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2013-14 was set aside. The petition of the petitioner was allowed, and the rule was made absolute.