AMI ASHISH SHAH V. INCOME TAX OFFICER

SCA/19328/2019

AI Insights

The case involves Ami Ashish Shah, the petitioner, who challenged the reopening of her income tax assessment for the assessment year 2012-13 by the Income Tax Officer. The reopening was based on the premise that she had not declared an accretion of Rs. 17,65,558 received from a prematurely surrendered Unit Linked Insurance Plan (ULIP). The Income Tax Officer argued that this amount, being interest and bonus, was taxable under Section 56 of the Income Tax Act, 1961, and had escaped assessment. The petitioner contended that the amount was exempt under Section 10(10D) as it was received from a life insurance policy. The court examined the applicability of Sections 10(10D) and 80CCC of the Income Tax Act and the conditions under which the amounts received from such policies are taxable or exempt.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 749800 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 22-03-2021
• Assessment Year: misc
• Other Referred Cases: Sandeep Sukhtankar vs. ITO, Ratna Trayi Reality Service P. Ltd. vs. ITO, CIT vs. Orient Craft Ltd., Inductotherm (India) P. Ltd. vs. M. Gopalan, Dy. CIT, ACIT vs Malli Chand Baid
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT; KARAN SANGHANI
• Assessee Lawyers: HARDIK VORA
• Keywords: Premature surrender of policy; Reopening of assessment; Taxable income; Writ of Certiorari; Accretion on account of interest and bonus
• Section: 147; 148; 143(3); 143(1); 56; 10(10D); 80CCC(2); 80CCC(1)

Judgement Text

"C/SCA/19328/2019 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19328 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 19338 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ========================================================== AMI ASHISH SHAH Versus INCOME TAX OFFICER ========================================================== Appearance: MR. HARDIK V VORA(7123) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) WITH MR KARAN SANGHANI, ADVOCATE for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 22/03/2021 Page 1 of 23 C/SCA/19328/2019 JUDGMENT COMMON ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1 Since the issues raised in both the captioned writ applications are the same and the parties are also the same, those were taken up for hearing analogously and are being disposed of by this common judgement and order. 2 For the sake of convenience, the Special Civil Application No.19328 of 2019 is treated as the lead matter. 3 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: “a. A writ of certiorari or any other writ, order or direction in the nature of certiorari quashing the impugned notice dated 29.03.2019 issued under section 148 of the Act for the assessment year 2012­13. b. Pending the admission, hearing and final disposal of this petition, restrain the respondent from passing the order of re­assessment. c. Pass any other order(s) as this Hon'ble Court may deem fit and more appropriate in order to grant interim relief to the petitioner. d. Any other and further relief deemed just and proper be granted in the interest of justice. e. To provide for the cost of this petition.” 4 This is a case of reopening of assessment for the A.Y. 2012­13 wherein the original return of income filed by the assessee was processed under Section 143(1) of the Act. The reopening is beyond the period of four years. Page 2 of 23 C/SCA/19328/2019 JUDGMENT 5 The assessee is an individual. She filed her return of income for A.Y. 2012­13 on 31st March 2013 declaring her residential status as a N.R.I. In the return of income, the assessee declared total income of Rs.1,12,700/­ under the head “income from house property”. The Assessing Officer received information from the DDIT (I&CI), Ahmedabad, to the effect that the assessee had obtained a Life Insurance Policy on 28th June 2006 and had paid annual premium of Rs.10 Lakh each year upto the financial year 2010­11 and the total amount paid by the assessee was Rs.50 Lakh. The sum assured of the policy was Rs.50,00,000/­ (Rupees Fifty Lakh). The date of commencement of policy is 28th June 2006 and the date of last premium is 28th June 2020. The assessee surrendered the policy prematurely on 15th April 2011. The assessee received the surrender value of Rs.67,65,558/­ on 15th April 2011, which included an amount of Rs.17,65,558/­ being accretion on account of interest and bonus on the credit of the assessee in the policy fund. It is the case of Revenue that the assessee had not offered this accretion value of Rs.17,65,558/­ for tax. 6 The reasons assigned by the Assessing Officer for reopening are as under: “2 In this case information was passed on by the DDIT(I&CI), Ahmedabad vide letter No.DDIT(I&CI)/LIC Pension policies/2018­19 dated 08/10/2018 which was received from the ACIT, Circle­1(2), Ahmedabad vide letter No.ACIT/CIR­1(2)/Transfer/AAS/2018­19 dated 13/11/2018. As per the information received, the assessee had obtained policy No.854168988 on28/06/2006 and has paid annual premium of Rs.10,00,000/­ per year upto the financial year 2010­11 and the total amount paid by the assessee was Rs.50,00,000/­. The date of commencement of policy is 28/06/2006 and date of last premium was 28/06/2020. The assessee has surrendered the policy prematurely on 15/04/2011. The assessee has received surrender value of Rs.67,65,558 on 15/04/2011 which included an amount of Rs.17,65,558/­ being accretion on account of interest and bonus on the credit of the assessee in the policy fund, the assessee did not offer this accretion value of Page 3 of 23 C/SCA/19328/2019 JUDGMENT Rs.17,65,558/­ for taxation. 3 The information received from the DDIT(I&CI), Ahmedabad has been analysed. From the details, it is noticed that the assessee has surrendered the policy on 15/04/2011 and an amount of Rs.67,65,558/­ was received towards the surrender value of the policy No.85168988. The assessee claimed before the DDIT(I&CI) that the surrender value of pension plan is exempted from tax u/s 10(10D) of the Income Tax Act and no TDS U/s 194DA of the I.T. Act is deducted. However, the claim of the assessee is found to be not correct as the amount received as interest and bonus on the balance standing in the credit of the fund shall be deemed to be the income of the assessee in the previous year in which such withdrawal is made and shall accordingly be chargeable to tax as income of that previous year. The interest/bonus on premature of surrender of pension plan / annuity plan is not exempted as per the provisions of Section 80CCC(2) or under any other sections of the I.T. Act. 4 In the light of information received from the DDIT(Inv.), Ahmedabad necessary inquiry/verification was also made from the return of income filed by the assessee as well as with the transactions reflected in the ITS data. From the return of income, it is seen that the assessee has not disclosed the income / receipt from LIC under any of the heads or as exempted income. 5 Thus, from the details received from the DDIT(Inv.), Ahmedabad and also from the inquiry/ verification from the return of income filed and ITS data, it is clear that the assessee has not offered amount of Rs.17,65,558/­ being accretion on account of interest and bonus on the credit of the assessee in the pension fund, though the same is taxable u/s 56 of the I.T. Act. 6 In view of the above facts, I have reason to believe that amount of Rs.17,65,558/­ received as interest / bonus on surrender of pension plan / annuity policies of LIC has escaped assessment within the meaning of Section 147 of the Act. 7 In this, a return of income was filed for the year under consideration, but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceedings u/s 147 is reason to believe which has been recorded in above paras. It is pertinent to mention here that in this case the assessee has filed a return of income for the year under consideration but no assessment as stipulated u/s 2(4) of the Act was made and the return of income was only proceeded u/s 143(2) of the Act. In view of the above, provisions of clause 2(b) of explanation 2 to section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.” Page 4 of 23 C/SCA/19328/2019 JUDGMENT 7 To the aforesaid reasons, the assessee filed her objections as under: “Any sum received under life insurance, including the sum allocated by way of bonus on such policies do not form part of total income as per provision of section 10(10D) of the Act, if it is not coming under exception (a) to (d) provided under the same section. For the ready reference and kind perusal of Your Honour, we are reproducing provision of Section 10(10D) of the Act: “any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than­ (a) any sum received under sub­section (3) of section 80DD or sub­ section (3) of section 80DDA; or (b) any sum received under a Keyman insurance policy; or (c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; or (d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:” 2 From the perusal of reason recorded it is clear that it is not claim of assessing officer that assessee falls into any of the exception (a) to (d) of section 10(10D) of the Act. The only claim of assessing Officer for deriving reason to believe is that interest / bonus on premature of surrender of pension plan / annuity policy is not exempted as per the provision of section 80CCC(2) of the Act. 3 For the perusal and ready reference. We are reproducing provision of section SOCCC of the Act: “8OCCC. (1) Where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any Page 5 of 23 C/SCA/19328/2019 JUDGMENT annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund referred to in clause (23AAB) of section 10, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of one hundred and fifty thousand rupees in the previous year. (2) Where any amount standing to the credit of the assessee in a fund, referred to in sub­section (1) in respect of which a deduction has been allowed under sub­section (1), together with the interest or bonus accrued or credited to the assessee’s account, if any, is received by the assessee or his nominee ­ (a) on account of the surrender of the annuity plan whether in whole or in part, in any previous year, or (b) as pension received from the annuity plan, an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed. To be the income of the assessee or his nominee, as the case may be, in that previous year in which such withdrawal is made or, as the case may be, pension is received, and shall accordingly be chargeable to tax as income of that previous year.” 4 From the perusal 80CCC(1) of the Act it is clear that the same is stating about allowing the deduction of the full amount paid or deposited not exceeding Rs.1,50,000/in previous year. However, assessee has not claim deduction under this section for any year during which premium was paid. The assesse has started to file the return of income from A Y 2010­11. Attached herewith are copies of ITR and Computation for A.Y 2010­11 to 2011­12. Accordingly, provision of section 80CCC(1) of the Act are not applicable to the assessee. 5 Further, from the perusal of sub section 2 of 80CCC of the Act, it is referring to any amount standing to the credit of the assessee in a fund referred to in sub section 1 in respect of which deduction has been allowed. As in the case of assessee, no deduction u/s 8OCCC(1) is claimed, there is no question of allowing of such deduction. Accordingly, when no such deduction u/s 8OCCC(1) is claimed or allowed, 80CCC(2) is not applicable. Page 6 of 23 C/SCA/19328/2019 JUDGMENT On the basis of above detail it is clear that provision of section 8OCCC(2) is not applicable to assessee. Accordingly, no income escaped assessment and there cannot be reopening˙ on the basis of reason recorded which are factually and legally contrary to the records.” 8 The aforesaid objections came to be disposed of vide order dated 9th April 2019. The order reads thus: “4.1 The assessee has stated that under section 10(1OD) of the I.T. Act any sum received under life insurance, including the sum allocated by way of bonus on such policies do not form part of the total income, if it is not coming under exception (a) to (d) provided under the same section. In this connection, it is submitted that the assessee has prematurely surrendered the “’LIC’s MARKET PLUS” which is unit linked plan and not life insurance plan. In view of the same, exemption claimed U/s 10(1OD) of the I.T. Act is not applicable in the case of the assessee. The relevant part of section 10(10D) of the I.T. Act is reproduced as under: Any sum received under a life insurance policy. Including the sum allocated by way of bonus on such policy, other than ­ (a) any sum received under sub­section (3) of Section 10(10D) or subsection (3) of section 8ODDA; or (b) any sum received under a Keyman insurance policy; or (c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured: or (d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured: Provided that the provisions of sub­clauses (c) and (d) shall not apply to any sum received on the death of a person: Page 7 of 23 C/SCA/19328/2019 JUDGMENT Provided further that for the purpose of calculating the actual capital sum assured under sub­clause (c), effect shall be given to the Explanation to subsection (3) of M or the Explanation to sub­section (2A) of M, as the case may be : Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is­ (i) a person with disability or a person with severe disability as referred to in section 80U; or (ii) suffering from disease or ailment as specified in the rules made under section 80DDB. the provisions of this sub­clause shall have effect as if for the words “ten per cent”, the words “fifteen per cent” had been substituted. Explanation 1.­For the purposes of this clause, “Keyman insurance policy” means a life insurance policy taken by a person on the life of another person who is or was the employee of the first­mentioned person or is or was connected in any manner whatsoever with the business of the first­ mentioned person and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration; Explanation 2 ­ For the purposes of sub­clause (d), the expression “actual capital sum assured” shall have the meaning assigned to it in the Explanation to sub­section (3A) of section 8OC; In view of the same, contention as raised above by the assessee that premature surrender value received is exempt U/s 10(1OD) of the I.T. Act is absolutely incorrect and found not acceptable. 4.2 The assessee has contended that only claim of the AO for deriving reason to believe is that interest/bonus on premature of surrender of pension plan/annuity policy is not exempted as per provision of section BOCCC(2) of the Act. In this connection, it is stated that the AO has elaborated stated that the exemption claimed U/s 10(1OD) of the LT. Act is found not correct and Is deemed to be the income of the assessee in the previous year in which such withdrawal is made and be chargeable to tax as income of that previous year. In view of the same, this contention of the assessee is also not acceptable. Page 8 of 23 C/SCA/19328/2019 JUDGMENT 4.3 Further, the assessee has claimed that provision of section 80CCC(2) is not applicable as he has not claimed deduction U/s 80CCC(1) of the I.T. Act. In this connection, it is stated that Interest or bonus received by the assessee on account of surrender of annuity plan of LIC of India or any other insurer should be taxable where no deduction claimed U/s 8OCCC(1) of the I.T. Act. Whereas any amount standing to the credit of assessee’s account including interest or bonus in respect of which deduction U/s 8OCCC(1) of the Income Tax Act has been allowed should be taxable U/s 80CCC(2) r.w.s. 56 of the Income Tax Act when received on account of surrender of the annuity plan. In the case of the assessee, the assessee has stated that he has not claimed deduction U/s 8OCCC(1) of the I.T. Act, accordingly only interest and bonus amount were considered as taxable income in the case of the assessee. In view of the same, the contention of the assessee is not acceptable and is not correct.” 9 The following is discernible from the aforesaid order disposing of the objections: [1] The policy was a Unit Linked Plan and not a plain Life Insurance Plan. [2] The principal premature surrender value received is not covered under Section 10(10D) of the Income Tax Act. [3] Even if no deduction has been claimed under Section 80CCC(1) of the Act, the interest or bonus received by the assessee on account of surrender of annuity plan of LIC is taxable. 10 In view of the aforesaid, the writ applicant is hereby before this Court with the present writ application. 11 Mr. Hardik Vora, the learned counsel appearing for the writ applicant vehemently submitted that the impugned notice of reopening is not sustainable in law as the authority had no jurisdictional fact to Page 9 of 23 C/SCA/19328/2019 JUDGMENT issue such notice. He would submit that any amount received under the Life Insurance including the sum allocated by way of bonus policy would not form part of the total income as per Section 10(10D) of the Act. According to Mr. Vora, such an amount would form a part of the total income only if it falls within the exceptions (a) to (d) respectively as provided under Section 10(10D) of the Act. 12 The second contention, as raised by Mr. Vora, is that as no deduction under Section 80CCC(1) was claimed, there is no question of the applicability of Section 80CCC(2) of the Act. In other words, when no deduction under Section 80CCC(1) is claimed or allowed, Section 80CCC(2) would not be applicable. 13 On the other hand, this writ application has been vehemently opposed by Ms. Mauna Bhatt, the learned Senior Standing Counsel appearing for the Revenue. Ms. Bhatt would submit that the return was processed under Section 143(1) of the Act on 6th May 2013. The same was not subjected to scrutiny assessment under Section 143(3) of the Act. She would submit that the assessee had obtained policy No.854168988 on 28th June 2006 and had paid annual premium of Rs.10,00,000/­ per year up to the financial year 2010­11. The total amount paid by the assessee was Rs.50,00,000/­. The date of commencement of policy was 28th June 2006 and date of last premium was 28th June 2020. The assessee had surrendered the policy prematurely on 15th April 2011. The assessee received the surrender value of Rs.67,65,558 on 15th April 2011, which included an amount of Rs.17,65,558/­ being accretion on account of interest and bonus on the credit of the assessee in the policy fund. The assessee did not offer this accretion value of Rs.17,65,558 for taxation. The accretion value of Rs.17,65,558 was taxable under section 56 of the I.T. Act, 1961. 14 Ms. Bhatt further submits that the contention canvassed on behalf Page 10 of 23 C/SCA/19328/2019 JUDGMENT of the assessee that as the surrender value of the pension plan is exempt from tax under Section 10(10D) of the Act, no TDS under Section 194DA of the Act is to be deducted, is without any merit. According to Ms. Bhatt, the amount received as interest and bonus on the balance, standing in the credit of such withdrawal is chargeable to tax as income of that previous year. According to Ms. Bhatt, the income chargeable to tax could be said to have escaped assessment, for which, no opinion is formed at the summary assessment stage and there was failure on the part of the assessee to disclose true and correct particulars of her income for the A.Y. 2012­13. 15 In such circumstances referred to above, Ms. Bhatt prays that there being no merit in both the writ applications, the same be rejected. 16 Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the Revenue is justified in issuance of notice of reopening. ● UNIT LINKED INSURANCE PLAN: 17 The Unit Linked Insurance Plan is a hybrid investment option which consists of a mix of insurance and investment to serve the needs of the respective investors. The amount of premium of a ULIP scheme is partly towards the insurance of the policyholder and partly towards the investment. Some portion of the premium is invested in equity, debt, money market or a mix of all based on the goals and risk appetite of the investor. 18 The Finance Bill, 2021 proposes to tax certain Unit Linked Insurance Plans (ULIPs). The relevant change in the taxation regime of ULIPs is proposed by withdrawing the exemption under Section 10(10D) Page 11 of 23 C/SCA/19328/2019 JUDGMENT of the Act in respect of such plans and consequently, taxing them under Section 112A of the Act. It is proposed that no exemption under Section 10(10D) shall be available in respect of the ULIPs issued on or after the 1st February 2021 if the amount of premium payable for any of the previous year during the term of the policy exceeds Rs.2,50,000. Further, if the premium is payable by a person for more than one ULIPs, the exemption shall be available only for those policies whose aggregate premium does not exceed Rs.2,50,000, for any of the previous years during the terms of any of the policy (hereinafter referred to as 'high premium ULIP'). The new taxation regime of ULIPs shall apply only to those insurance policies which are issued on or after 1st February 2021. ● SECTION 10(10D) AS ON 1 ST APRIL 2021: 19 Incomes not included in total income. “10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— … … (10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than— (a) any sum received under sub­section (3) of section 80DD or sub­ section (3) of section 80DDA; or (b) any sum received under a Keyman insurance policy; or (c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; or Provided that the provisions of sub­clauses shall not apply to any sum received on the death of a person: Page 12 of 23 C/SCA/19328/2019 JUDGMENT Provided further that for the purpose of calculating the actual capital sum assured under sub­clause, effect shall be given to the Explanation to sub­section (3) of section 80C or the Explanation to sub­section (2A) of section 88, as the case may be : Explanation.—For the purposes of this clause, \"Keyman insurance policy\" means a life insurance policy taken by a person on the life of another person who is or was the employee of the first­mentioned person or is or was connected in any manner whatsoever with the business of the first­mentioned person.” From the reading of the section as applicable for the assessment year under consideration, all that is required for an insurance policy to meet the requirements of Section 10(10D) has to be – (a) it should be a life insurance policy; (b) it should be taken by the assessee on its life, and (c) for insurance policies issued after 1st April 2003, premium payable for any of the years during the term of the policy should not exceed 20% of the actual capital sum assured. Once these criteria are fulfilled, any sum received under such life insurance policy including bonus (accretions over and above the premiums paid) is exempt. 20 We may put it more elaborately as under: [1] If the policy is issued on or after 1st April 2003 but before 31st March 2012, the premium should not be more than 20% of the sum assured of the policy. If the premium is more than 20% of the sum assured, the exemption would not be available and the policy benefit would be taxable in the hands of the policyholder. For example, if the premium is INR 20,000 and the sum assured is INR 2 lakhs, the benefit received would be completely exempt from tax. However, if the premium is INR 50,000 and the sum assured is INR 2 lakhs, the benefit received from the policy would be taxable. Page 13 of 23 C/SCA/19328/2019 JUDGMENT [2] If the policy is issued on or after 1st April 2012, the premium should not be more than 10% of the sum assured of the policy. [3] If the policy is issued on or after 1st April 2021, the premium should not be more than 10% of the sum assured of the policy. If the premium is more than 10% of the sum assured, the exemption would not be available and the policy benefit would be taxable in the hands of the policyholder. So, if the premium of the policy is INR 15,000 and the sum assured is INR 2 lakhs, the benefit would be exempted from tax. If, however, the premium is INR 25,000, the benefit would be taxable. 21 From the reasons assigned by the Revenue referred to above, it is not clear as to how the aforesaid basic conditions are not fulfilled so as to even prima facie suggest that the benefit of Section 10(10D) of the Act is not available to the assessee. The only thing, which seems to have weighed heavily with the Revenue, is that the assessee has not offered the amount of Rs.17,65,558/­ being the excess sum received over and above the premium paid for tax. In view of this, this amount is nothing, but, bonus, which is otherwise covered under Section 10(10D) of the Act. However, for this amount to be taxable, the Revenue has to prima facie indicate as to which of the conditions of Section 10(10D) of the Act are not fulfilled. In other words, how the amount in question is not exempted under Section 10(10D) of the Act. ● SURRENDERING POLICY BEFORE MATURITY: 22 If the policy is surrendered before maturity, then its value is exempted under Section 10(10D) provided two of the following conditions are satisfied: Page 14 of 23 C/SCA/19328/2019 JUDGMENT (a) The premium paid does not exceed 10% (policy taken after 31st March 2012), 15% (policy taken after 31st March 2013 for a person covered under 80C and 80DDB0, and 20% (policy taken between 1st April 2003 to 31st March 2012) of the sum assured and, (b) If the plan is a traditional plan like an endowment plan, money back plan, etc and the premium has been successfully paid for the first two years. (i) If it is a single traditional plan, the policy is surrendered upon completion of the first two years. (ii) If it is ULIP, then the policy is surrendered after five years. If both of the above conditions are fulfilled, then the surrendered value is exempted under Section 10(10D). ● Section 80CCC of the Act: 23 Section 80CCC of the Act reads thus: “80CCC. Deduction in respect of contribution to certain pension funds. ­ (1) Where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India [or any other insurer] for receiving pension from the fund referred to in clause (23AAB) of section 10, he shall, in accordance with, and subject to, the provisions of this section, be allowed & deduction in the computation of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of [one hundred and fifty thousand] rupees in the previous year. (2) Where any amount standing to the credit of the assessee in a fund, referred to in sub­section (1) in respect of which a deduction has been allowed under sub­section (1), together with the interest or bonus accrued or credited to the assessee’s account, if any, is received by the assessee or Page 15 of 23 C/SCA/19328/2019 JUDGMENT his nominee­ (a) on account of the surrender of the annuity plan whether in whole or in part, in any previous year, or (b) as pension received from the annuity plan, an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in that previous year in which such withdrawal is made or, as the case may be, pension is received, and shall accordingly be chargeable to tax as income of that previous year. [(3) Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section,­ (a) a rebate with reference to such amount shall not be allowed under section 88 for any assessment year ending before the 1st day of April, 2006; (b) a deduction with reference to such amount shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.]” 24 We shall now come to Section 80CCC of the Act. The Section 80CCC exemption limit includes the money spent on the purchase of a new policy or payments made towards the renewal or continuation of an existing policy. The primary condition for availing this exemption is that the policy for which the money has been spent must be providing for pension or a periodical annuity. Section 80CCC is read along with Section 80C and Section 80CCD(1), thereby limiting the total exemption limit to Rs.1,50,000/­ per annum. Following are the terms and conditions applicable under the Act: (i) Available to those individuals who have paid the sum for renewal or purchase of a life insurance policy from their taxable income. Page 16 of 23 C/SCA/19328/2019 JUDGMENT (ii) The payment of funds from the policy should be made as per the terms of Section 10(23AAB) from the accumulated funds. (iii) If any bonus is received or interest is accrued, it is not eligible for deduction under Section 80CCC. (iv) Any amount received from the policy as a monthly pension is liable for taxation as per the prevailing rates. (v) If the policy is surrendered, the amount would also be subject to taxation. (vi) Any rebates that were available on investment in annuity plans before April 2006 are not allowed under Section 88. (vii) Any amount deposited before April 2006 is not eligible for deduction. The provisions of Section 10(23AAB) are inherently linked with Section 80CCC. It relates to the income earned from a fund that has been set up by a recognized insurer, including the LIC. The fund must have been set up before August 1996 as a pension scheme. The contributions made by the taxpayer to the policy must have been with the intention of earning pension income in the future. The conditions regarding eligibility for deductions are: (i) An individual taxpayer who has subscribed to an annuity plan which has been offered by an approved insurance company. (ii) HUF or Hindu Undivided Family is not eligible for exemption under Section 80CCC. Page 17 of 23 C/SCA/19328/2019 JUDGMENT (iii) These provisions apply to both residents as well as non­ residents. 25 In our opinion, the reference to Section 80CCC(2) is thoroughly misconceived for two reasons: first, Section 80CCC deals with annuity plans whereas we are concerned with life insurance policy; secondly, Section 80CCC(2) of the Act makes any sum received by the assessee from the insurer towards contract for any annuity plan, taxable provided premium paid for such plan is claimed as allowable deduction under Section 80CCC(1) of the Act. In the facts of the present case, there is no such averment or findings that the amount of premium paid has been claimed and allowed as deduction under Section 80CCC(1) of the Act. 26 As regards the applicability of Section 80CCC(2) of the Act is concerned, we may refer to a decision of the ITAT, Mumbai Bench in the case of Sandeep Sukhtankar vs. ITO [ITA No.2690/Mum/2012 decided on 18th June 2014], wherein it was held as under: \"We have heard the rival submissions. AO had admitted that the assessee had not claimed deduction under the provisions of chapter VI A of the Act,that he had had received an amount in dispute by surrendering lifetime pension policy and life insurance policy from ICICI Prudential life insurance. These two factors in themselves are sufficient to hold that money received by the assessee is a capital receipt and not taxable. Provisions of section 2 of the section 80CCC are very clear. In light of the said sub section, we decide ground no.4 in favour of the assessee.\" 27 Where the original assessment is without scrutiny i.e. under Section 143(1), even in such cases tangible material is necessary to reopen the assessment. In this connection, a reference may be made to the Explanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987, contained in the Circular No. 549, dated 31st Page 18 of 23 C/SCA/19328/2019 JUDGMENT October 1989, issued by the CBDT [182 ITR (St) 1]. Para 7 of the aforesaid Circular deals with income escaping assessment. As per para 7.2, amendment was made in Section 147 by the Amending Act, 1989, to re­introduce the expression “reason to believe”, in Section 147 of the Act. Further, para 7.3 of the aforesaid Circular deals with deemed cases of income escaping assessment (Explanation 1 to section 147). Explanation 2 to Section 147 is more elaborate and cover those cases where the assessments have been completed (called as the scrutiny cases) as well as those cases where no assessments have been completed (called as the non­scrutiny cases). As per the aforesaid Explanation 2, no distinction has been made between the cases where assessment has been made after scrutiny and those cases where no assessment has been made viz. cases where assessment has been made under Section 143(1) only. From the aforesaid Circular of the CBDT, it is quite evident that no distinction under Section 147 is contemplated between the assessment under Section 143(3) called as the scrutiny assessment and the assessment accepted under Section 143(1) called as the non­scrutiny assessment. Therefore, a tangible material is necessary to reopen even an assessment made without scrutiny under Section 143(1) of the Act. We may refer to the following legal precedents : (1) Ratna Trayi Reality Service P. Ltd. vs. ITO [2013]356 ITR 493 (Guj) : 215 Taxman 650 (Guj) In this case, previously no scrutiny assessment was framed. Subsequently, the Assessing Officer issued a notice under section 148 of the Act in order to reopen the assessment. It was held in this case that merely because an assessment was not previously framed after scrutiny, that would not give unlimited right to the Assessing Officer to reopen Page 19 of 23 C/SCA/19328/2019 JUDGMENT the assessment by merely issuing a notice without valid reasons. In this case a reference was made to the observations on pages 489 and 492 of the judgement of Gujarat High Court in the case of Inductotherm (India) Pvt. Ltd. vs. M. Gopalan, Dy. CIT [2013] 356 ITR 481 (Guj), wherein the judgement of the Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC) and other judgements were referred to. As per the aforesaid observations, even in the case of reopening of an assessment which was previously accepted under Section 143(1) of the Act without scrutiny, the Assessing Officer would have the power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that the income chargeable to tax had escaped assessment. In the light of the aforesaid reasons, it was further held that the impugned notice under Section 148 of the Act was invalid and therefore, the same was quashed. (2) CIT vs. Orient Craft Ltd. [2013] 354 ITR 536 (Del) : 87 DTR 313 (Del). In this case the original assessment which was accepted under Section 143(1), was sought to be reopened by the issuance of a notice under Section 148 of the Act. It was held in this case that even where the proceedings under Section 147 are sought to be initiated, with reference to an intimation under Section 143(1), the ingredients of Section 147 have to be fulfilled. There should exist “reason to believe” that income chargeable to tax has escaped assessment. The language employed in Section 147 makes no distinction between an order passed under Section 143(3) and the intimation issued under Section 143(1). Therefore, it is not permissible to adopt different standards while interpreting the words “reason to believe” vis­a­vis, section 143(1) and Page 20 of 23 C/SCA/19328/2019 JUDGMENT Section 143(3). An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” in cases where assessments were framed earlier under Section 143(3) and cases where intimations were issued earlier under Section 143(1), may well lead to an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be avoided. In the present case there is no whisper in the reasons recorded, of any tangible material which came into possession of the Assessing Officer subsequent to the issuance of the intimation under Section 143(1). It reflects an arbitrary exercise of the power conferred under Section 147 of the Act. In other words, it was held that even where proceedings under Section 147 are sought to be initiated, with reference to intimation under section 143(1), the ingredients of Section 147 have to be fulfilled. Therefore, there should exist “reason to believe” that income chargeable to tax has escaped assessment. Accordingly, in the absence of any tangible material in possession of the Assessing Officer, subsequent to the intimation under Section 143(1), the reopening was not sustainable. (3) Inductotherm (India) P. Ltd. vs. M. Gopalan, Dy.CIT [2013] 356 ITR 481 (Guj) : [2012] 77 DTR 1 (Guj) In this case for the A.Y. 2002­03, the assessee’s return was processed by the Assessing Officer by sending intimation under section 143(1). Thereafter, a notice under section 148 of the Act for the A.Y. 2002­03, was issued to the assessee. It was, inter­alia, held that the power to reopen an assessment is available either in a case where a return has been accepted under Section 143(1) of the Act or a scrutiny assessment has been framed under Section 143(3) of the Act. A common requirement in both the cases is that the Assessing Officer should have Page 21 of 23 C/SCA/19328/2019 JUDGMENT reason to believe that any income chargeable to tax has escaped assessment. There should be tangible material to come to the conclusion that there is escapement of income from assessment. The reasons recorded must have a live link with the formation of the belief. (4) Indivest Pte. Ltd. Vs Addl. DIT [2013] 350 ITR 120 (Bom) : [2012] 69 DTR 369 (Bom) In this case, for the AY 2006­07, the assessee received intimation under Section 143(1) on 28th March 2008. Thereafter, a notice was issued under section 148 on 16.3.2011, proposing to reopen the assessment. It was held that on the basis of the reasons recorded, there was absolutely no tangible material on the basis of which the assessment could have been reopened. There was a disclosure clearly made by the assessee that it was a body corporate incorporated in Singapore, the principal business of which was to invest in Indian securities. It was also disclosed that the assessee was a tax­resident of Singapore and the profits which the assessee realized from its transactions in securities constituted its profits from business which were not liable to tax in India. The only basis on which the assessment was sought to be reopened was on the assumption that the provisions of section 115AD would stand attracted though on the assessee’s clarification the Assessing Officer accepted that Section 115AD was not attracted. The succeeding Assessing Officer had clearly attempted to improve upon the reasons which were originally communicated to the assessee, which was not permissible. Clearly, the notice under Section 148 was not valid and was liable to be quashed. (5) ACIT Vs Malli Chand Baid [2006] 99 TTJ 1016 (Nagpur). It was held in this case that the Assessing Officer having failed to Page 22 of 23 C/SCA/19328/2019 JUDGMENT verify the return by making an enquiry by issuing notice under Section 143(2) within the time allowed, he could not take recourse to the provisions of Section 147 for that purpose. The Assessing Officer having no information on the basis of which he could entertain a “reason to believe”, the CIT(A) was justified in annulling the reassessment. 28 On the basis of the aforesaid legal precedents, it is clearly established that even where the proceedings under Section 147 of the Act are sought to be initiated with reference to an intimation under Section 143(1), the ingredients of Section 147 are required to be fulfilled. Therefore, even in such a case there should exist “reason to believe” that income chargeable to tax has escaped assessment. Hence, in the absence of any tangible material in possession of the Assessing Officer, subsequent to the intimation under Section 143(1), the reopening will not be sustainable. In other words, even an assessment under Section 143(1), in the form of an intimation, cannot be reopened under Section 147 unless some new / fresh tangible material comes into possession of the Assessing Officer, subsequent to the intimation under Section 143(1) of the Act. 29 In view of the aforesaid, both the writ applications succeed and are hereby allowed. The impugned notice in both the matters is hereby quashed and set aside. (J. B. PARDIWALA, J) (ILESH J. VORA,J) CHANDRESH Page 23 of 23 "