The ACIT, Circle-7, Ahmedabad V. Shri Girish Haribhai Trivedi, Ahmedabad

ITA 2986/AHD/2011

• Counselvise Citation: 298620514 RSA 2011
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 30-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Earning of tax free income
• Section: 80C; 10(10D)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD C BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 THE ACIT, CIRCLE-7 AHMEDABAD APPELLANT VS SHRI GIRISH HARIBHAI TRIVEDI 404, SERENE, OPP. KARNAVATI CLUB, PRAHALADNAGAR, AHMEDABAD PAN-AAVPT9042N RESPONDENT DEPARTMENT BY : SHRI C.K. MISHRA, SR. D.R. ASSESSEE BY : SHRI UMAID SINGH BHATI, A.R. DATE OF HEARING : 05.07.2012 DATE OF PRONOUNCEMENT 13.07.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THIS IS REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XIV, AHMEDABAD DATED 26.09.2011. 2. THE EFFECTIVE GROUND TAKEN BY THE REVENUE IS AS UNDER:- THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED I N LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SALE CONSIDERATION OF THE UNITS OF AN INSURANCE POLICY A S THE AMOUNT RECEIVED ON ACCOUNT OF MATURITY OF THE POLICY, AND THE COST OF INVESTMENT AS THE AMOUNT INVESTED BY THE ASSESSEE, AND WORK OUT OF THE LONG TERM CAPITAL GAIN AND TAX PAYABLE T HEREON. I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 2 3. THIS GROUND RELATES TO ADDITION OF RS.32,74,492 /- MADE BY THE A.O. WHILE MAKING THIS ADDITION THE A.O. OBSERVED AS UND ER:- AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CA SE, MATERIAL ON RECORD, REPLY FURNISHED BY THE ASSESSEE AND THE LEGAL PROVISIONS OF THE ACT, THE UNDERSIGNED HAS ARRIVED AT THE FOLLOWING CONCLUSION, WHICH IS DISCUSSED BELOW: *IT IS HELD THAT THE INVESTMENT MADE BY THE ASSESSE E ON ICICI PRU. LIFE IS AN INSURANCE POLICY AND NOT A MUTUAL FUND. *SINCE THE INVESTMENT IN LIFE INSURANCE KPOLICY, HE NCE IT IS HELD THAT THE ASSESSEE HAS WRONGLY CLAIMED EXEMPTIO N U/S 10(35) OF THE ACT ON THE RECEIPTS ON SURRENDER/MATU RITY OF THE POLICY. HENCE, THE EXEMPT INCOME OF RS.14,74,492.9 1/- REGARDING WHICH THE ASSESSEE HAS CLAIMED EXEMPTION, IS BROUGHT TO TAX. *AS PER ACT, THE ASSESSEE IS ENTITLED TO CLAIM EXEM PTION U/S 10(10D) OF THE ACT ON THE RECEIPTS OF RS.32,74, 492.91/- RECEIVED UPON SURRENDER/MATURITY OF THE POLICY, BUT SINCE, THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 10( 10D)(C ) OF THE ACT, THEREFORE, IT IS HELD THAT THE ASSESSEE CA NNOT CLAIM EXEMPTION U/S 10(10D). *THE ASSESSEE IS ENTITLED TO CLAIM THE EXEMPTION (U /S 10(10D) ON THE ENTIRE SUM RECEIVED UPON THE MATURIT Y/SURRENDER OF THE LIFE INSURANCE POLICY (SUBJECT TO THE FULFIL LING OF CONDITIONS MENTIONED THEREIN) I.E. RS.32,74,492.91/-. IT MEAN S THAT IF HE DOES NOT FULFILL THE CONDITIONS MENTIONED IN THE RE LEVANT SECTION THEN THE EXEMPTION WILL BE WITHDRAWN AND THE ENTIRE RECEIPTS WILL BE LIABLE FOR TAXATION. IN THIS REGARD, THE ASSESS EE HAS CLAIMED THAT SINCE HE HAS CLAIMED EXEMPTION U/S 10(35) OF T HE ACT, TAXABILITY HAS TO BE VIEWED RESTRICTING TO SECTION 10(3%) ONLY. SINCE THE SECTION RELEVANT TO CLAIMING OF EXEMPTION WITH RESPECT TO THE INCOME IN QUESTION IS 10(10D) AND NOT SECTIO N 10(35), THEREFORE TAXABILITY/EXEMPTION OF THE INCOME HAS TO BE VIEWED IN THE LIGHT OF THE RELEVANT SECTION (I.E. SECTION 10( 10D) ONLY. IN CASE AN ASSESSEE DISCLOSES INCOME UNDER A WRONG SEC TION/HEAD OF INCOME, IT DOES NOT MEAN THAT THE ASSESSING OFFI CER WILL BE FORCED TO ASSESSEE THE TAXABILITY OF THE DISCLOSED INCOME IN THE SECTION/HEAD OF INCOME CLAIMED BY THE ASSESSEE ONLY . SIMILARLY, IF THE ASSESSEE HAS WRONGLY CLAIMED THE EXEMPTION U NDER CERTAIN SECTION, IT DOES NOT MEAN THAT THE ASSESSING OFFICE R WILL HAVE TO RESTRICT HIMSELF REGARDING THE EXEMPTION/TAXABILITY OF SUCH INCOME FOR THE SECTION UNDER WHICH EXEMPTION HAS BE EN CLAIMED BY THE ASSESSEE ONLY. THE EXEMPTION HAS BEEN CLAIM ED BY THE ASSESSEE ONLY. THE EXEMPTION CLAIMED BY THE ASSESS EE UNDER SECTION 10(3%) IS IN NO WAY RELATED TO THE NATURE O F INCOME. THEREFORE, THE TAXABILITY OF THE PROCEEDS FROM THE SURRENDER OF I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 3 THE POLICY HAS TO BE VIEWED CONSIDERING THE FACT TH AT SINCE THE ASSESSEE WAS LIABLE TO GET TAX BENEFITS ON ENTIRE P ROCEEDS OUT OF MATURITY/SURRENDER OF POLICY, THEREFORE HE IS LIABL E TO PAY TAX ON THE ENTIRE PROCEEDS (RS.32,74,492.91/-) WHICH WAS L IABLE FOR EXEMPTION. *THE ASSESSEE HAS PLEADED THAT THE PREMIUM OF RS.18,00,000/- PAID BY HIM SHOULD BE EXEMPTED FROM TAXATION. IN THIS REGARD, THE ACT HAS A PROVISION IN THE FORM OF SECTION 80C, WHERE THE ASSESSEE CAN CLAIM DEDUCTION AT THE TIME OF INVESTMENT UP TO RS.1,00,000/- PER ANNUM. IF THE A SSESSEE HAS NOT AVAILED THE BENEFITS OF SECTION 80C BECAUSE OF REASONS KNOWN TO HIM (MAY BE HE HAD CLAIMED DEDUCTION OR OT HER INVESTMENTS IN THE RELEVANT ASSESSMENT YEARS), AND/ OR HAS INVESTED MORE SUM IN THE LIFE INSURANCE POLICY THAN IS ALLOWABLE FOR DEDUCTION U/S 80C, THEN IT IS POOR TAX PLANNING ON HIS PART OR, HIS CONCERN TO WHICH TAXABILITY OF PROCEEDS ON SURR ENDER OF POLICY IS NOT RELATED. SINCE IT IS CLEARLY MENTIONED IN T HE RELEVANT SECTION 10(10D) THAT THE ASSESSEE IS LIABLE TO GET TOTAL (100%) EXEMPTION OF SUM RECEIVED UPON SURRENDER/MATURITY O F THE INSURANCE POLICY, THEREFORE, UPON WITHDRAWAL OF EXE MPTION DUE TO VALUATION OF ENABLING CONDITIONS OF THE EXEMPTION, TOTAL SUM OF RS.32,74,492.91/- (UPON SURRENDER OF POLICY) IS TAX ABLE. THE ARGUMENT OF THE ASSESSEE THAT HE HAS NOT CLAIMED EX EMPTION U/S 10(20D) HARDLY MATTERS AS HE HAS KEPT THE ENTIRE AM OUNT ON SURRENDER OF POLICY (RS.32,74,492.91/-) TAX FREE. THOUGH HE HA NOT AVAILED THE BENEFIT OF THE SAID SECTION ACTIVEL Y (BY JOTTING DOWN THE SECTION IN HIS SUBMISSION), BUT BY NOT OFF ERING THE ENTIRE AMOUNT OF RS.32,74,492.91/- FOR TAXATION, HE HAS TAKEN EXEMPTION FOR THE ENTIRE AMOUNT OF RS.32,74,492.91/ - (IRRESPECTIVE OF THE SECTION OF ACT MENTIONED BY HI M IN HIS SUBMISSION). THEREFORE, THE ENTIRE AMOUNT OF RS.32 ,74,492.91/- IS REQUIRED TO BE BROUGHT UNDER THE TAX NET. *THEREFORE, IN THE LIGHT OF THE ABOVE DISCUSSION, A N ADDITION OF RS.32,74,492.91/- IS MADE UNDER THE HEA D INCOME FROM OTHER SOURCES. 4. AGGRIEVED BY THIS ORDER THE ASSESSEE WENT IN AP PEAL BEFORE LD. CIT(A) BEFORE WHOM ASSESSEE PLACED RELIANCE ON THE FOLLOWI NG WRITTEN SUBMISSIONS:- THE APPELLANT WAS INTERESTED IN INVESTING THE MONE Y IN SHARE MARKET BUT SINCE THE APPELLANT DOES NOT HAVE KNOWLEDGE OF SHARE MARKET HE HAS DECIDED TO INVEST HIS SURPLU S FUND ON REGULAR BASIS. THEREFORE, HE CALLED UPON AN AGENT TO SUGGEST THE WAY OF INVESTMENT. THE AGENT CAME TO THE APPELLANT AND ASKED TO MAKE INVESTMENT ON YEARLY BASIS AT FIXED INSTALL MENT. HE I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 4 PROMISED THAT AMOUNT OF INVESTMENT WOULD NEARLY TO BE DOUBLE WITHIN 4 TO 5 YEARS. FOR WHICH HE HAS SUGGESTED UN IT-LINKED BASED PLAN. THE APPELLANT BLINDLY TRUSTED HIM AND GAVE HIS SIGN IN THE FORM HE PUT BEFORE THE APPELLANT. AT THE TIME OF S IGNING THE FORM THE BROKER HAS PROMISED THAT HIS MONEY WOULD B E INVESTED IN EQUITY. AFTER 3 YEARS INSTALLMENT THE APPELLAN T INQUIRE TO THE AGENT FOR ACCUMULATION OF HIS MONEY. ON REALIZATIO N THAT THE MONEY LYING IN MUTUAL FUND IS NOT INCREASING SO FAS T, THE SAME IS SWITCHED TO MAXIMISER FUND (WHICH IS 100% EQUITY ORIENTED). WITHIN A YEAR AND HALF THE MONEY LYING WITH MAXIMI SER FUND WHICH IS 100% EQUITY ORIENTED RENDERS HANDSOME RESU LT TO THE APPELLANT. ON A PARTICULAR DAY, THE APPELLANT HAS DECIDED TO COME OUT OF IT AND REQUEST TO REDEEM THE UNIT AVAIL ABLE IN HIS ACCOUNT. SINCE, THE FUND WAS CONTROLLED BY THE ICICI PRU. LI FE INSURANCE COMPANY, THE REDEMPTION VALUE SHOWN AS SU RRENDER VALUE. THE APPELLANT HAS CREDITED HIS CAPITAL ACCOUNT BY RS.14,74,492.91 CONSIDERING THE SAME AS EXEMPTED UN DER THE LONG TERM CAPITAL GAIN (SINCE THE HOLDING OF THE UN ITS WAS MORE THAN 1 YEAR OLD). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LE ARNED A.O. HAS ASKED TO SUBMIT THE DETAILS REGARDING AMOU NT OF RS.14,74,492.91 CREDITED TO THE CAPITAL ACCOUNT IN RELY, THE APPELLANT HAS SUBMITTED THAT THE SAID AMOUNT IS DIF FERENCE BETWEEN COST OF INVESTMENT AND REALIZATION OF INVES TMENT FROM MAXIMISER FUND, THE UNIT-LINK BASED FUND CONTROLLED BY ICICI PRU. LIFE INSURANCE COMPANY. THE LEARNED A.O. IS OF THE OPINION THAT SINCE THE F UND IS CONTROLLED BY ICICI PRU. LIFE INSURANCE COMPANY, TH E AMOUNT RECEIVED ON THAT ACCOUNT WOULD BE TREATED AS SURRE NDER VALUE OF THE POLICY. IN RESPECT OF THIS BEHALF OF THE LEARN ED A.O. THE APPELLANT WOULD LIKE TO SUBMIT THAT NO PRUDENT PERS ON WILL INVEST YEARLY 3 LACS OR MORE AGAINST THE LIFE COVERAGE OF RS.1,00,000/-. THIS IS ABSURD. THE LEARNED A.O. HAS TRIED TO ESTABLISH THAT THE EX EMPTION PROVIDED U/S 10(35) OF THE ACT IS NOT AVAILABLE TO THE APPELLANT LOOKING TO THE DOCUMENTS COLLECTED FROM ICICI PRU. LIFE INSURANCE COMPANY. THEREFORE, THE AVAILABLE SECTIO N FOR EXEMPTION IS U/S 10(10D) ONLY. THE APPELLANT HAS N EITHER CLAIMED THE EXEMPTION U/S 10(10D) OF THE ACT NOR UN DER SECTION 10(35) OF THE ACT. IT WAS BELIEF OF THE APPELLANT THAT THE GAIN ARISES FROM INVESTMENT IN MAXIMISER FUND (100%) E QUITY ORIENTED) WOULD BE EXEMPTED LOOKING TO THE EXEMPTIO N FOR LONG TERM CAPITAL GAIN IF THE SHARES/SECURITY HELD FOR M ORE THAN 1 YEAR. HOWEVER, IT IS FOUND THAT THE SAME IS NOT EX EMPTED BUT IS I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 5 TAXABLE. THEREFORE, THE LEARNED A.O. CANNOT FORCE THE APPELLANT TO CLAIM EXEMPTION U/S 10(10D) OF THE ACT. IMPORTA NTLY, THE APPELLANT HAS NOT CLAIMED SIP (SO-CALLED PREMIUM) U /S 80C OF THE ACT. IT WAS NOT THE INTENTION OF THE APPELLANT TO CLAIM THE DEDUCTION U/S 80C OF THE ACT ON ACCOUNT OF SO-CALLE D PREMIUM. THE APPELLANT WAS INTERESTED TO DOUBLE THE INVESTME NT WITHIN 4 TO 5 YEARS ONLY. HE WAS TEMPTED BY THE AGENT WHO D IRECTED THE APPELLANT TO MAKE INVESTMENT IN THE SO-CALLED MUTUA L FUND CONTROLLED BY ICICI PRU. LIFE INSURANCE COMPANY. IT MAY ALSO BE NOTED THAT THE CAPITAL OF THE APPELL ANT IS INCREASED BY THE PROFIT OF RS.14,74,492.91/-. THER EFORE, EVEN THE ADDITION IS TO BE MADE. IT WOULD BE UP TO THE AMOUNT BY WHICH THE CAPITAL IS INCREASED. IN VIEW OF THE ABOVE, THE LEARNED A.O. IS NOT JUSTI FIED IN TAXING THE FULL AMOUNT OF RS.14,74,492.91/-. HE MA Y DIRECTED TO DELETE SUCH ADDITION. THE APPELLANTS CLAIM IN RESPECT OF SALE PRICE REALI ZED ON SURRENDER OF UNITS WAS ON TWO COUNTS I.E. 1) EXEMPT ION U/S 10(10D) WHICH WAS DENIED ON TECHNICAL GROUND THAT T HE SUM ASSURED WAS NOT 5 TIMES OF THE VALUE OF PREMIUM AND ALTERNATIVELY 2) AS LONG TERM CAPITAL GAIN FROM THE INVESTMENT IN MUTUAL FUND. THE CLAIM OF EXEMPTION U/S 10(10D) WAS CONSIDERED T O BE ELIGIBLE AS PER LETTER DATED 1 ST AUG., 2011 ISSUED BY THE ICICI PRUDENTIAL LIFE INSURANCE IN THE FOLLOWING TERMS. FURTHER, WE INFORM YOU THAT SUM ASSURED CAN BE INCREASED FROM 1 LAKHS TO 30 LAKHS AUTOMATICALLY FR OM COMPANY, IN CASE IF YOU WISH TO SUM ASSURED FOR THE ABOVE MENTIONED POLICY, THEN WE KINDLY REQUEST YOU TO SUB MIT THE REQUEST FOR THE INCREASE IN SUM ASSURED AT ANY OF THE NEAREST BRANCH. HOWEVER, IN SPITE OF THE APPELLANTS REQUEST FOR THE INCREASE OF SUM ASSURED VIDE LETTER DATED 6-8-2011 WAS SUMMARILY REJECTED ON THE GROUND THAT THE POLICY WA S SURRENDERED IT CANNOT BE ACCEPTED. ONLY IF THE POL ICY STATUS IS ACTIVE THEN IT COULD HAVE BEEN ACCEPTED. THIS NON- ACCEPTANCE WAS AGAINST THE GUIDELINES DATED 21-12.2005 ISSUED BY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY. (CO PIES ENCLOSED). THE APPELLANTS ALTERNATIVE CLAIM AS LONG-TERM CA PITAL GAIN FROM THE INVESTMENT IN MUTUAL FUND WAS DENIED BY HO LDING THAT THE INVESTMENT MADE BY THE ASSESSEE IN ICICI PRU. LIFE IS AN INSURANCE POLICY. IN THIS REGARD, KIND ATTENTION I S INVITED TO PAGE 19 BEING COPY OF STATEMENT OF ACCOUNT OF POLIC Y OF THE ASSESSEE (PG. NO.19-20) AS ENCLOSURE TO THE ASSESSM ENT ORDER. IN THIS STATEMENT OF ACCOUNT THE PREMIUM COLLECTED IS ALLOCATED TO PROTECTOR FUND INITIALLY AND LATER ON SWITCHED T O THE I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 6 MAXIMISER FUND. THE NO. OF UNITS BOUGHT AND ITS NET ASSET VALUE AS ON DATE IS ALSO DISTINCTIVELY MENTIONED TH EREIN. THUS, THIS VERY DOCUMENT WHICH THE A.O. HAS MADE PART OF THE ASSESSMENT ORDER UNEQUIVOCALLY GOES TO PROVE BEYOND DOUBT THAT IT IS AN INVESTMENT IN MUTUAL FUND AND THEREFO RE ELIGIBLE FOR CAPITAL GAIN. IN THE APPELLANT CASE, IT IS A LONG TERM CAPITAL GAIN AS PER WORKING GIVEN BELOW. WORKING OF LONG TERM CAPITAL GAIN: SALE CONSIDERATION RECEIVED ON ACCOUNT OF SALE OF UNITS OF MAXIMISER MUTUAL FUND OF ICICIRS.32,74,493/- LESS: COST OF INVESTMENT + CHARGES AS PER PAGE 19 BEING ENCLOSURE TO THE ORDER..RS.18,00,000/- LONG TERM CAPITAL GAIN ACCRUED ON SALE OF UNITS.RS.14,72,493/- TAX (WITHOUT TAKING BENEFIT OF INDEXATION) UNDER SECTION 112(1) @10% ON RS.14,72,493RS.1,47,249/- ADD: SURCHARGE @ 3%...........................RS.4, 417/- TAX PAYABLERS.1,51,666/- AS THE APPELLANT WAS TO OBTAIN AND SUBMIT A CERTIFI CATE FROM ICICI REGARDING STT ON THE REDEMPTION/SURRENDE RED VALUE OF THE UNITS FOR EXEMPTION U/S 10(38), BUT AS ON DA TE HE IS UNABLE TO SUBMIT THE SAME, THEREFORE, THE ABOVE WOR KING IS PREPARED. (REFER PARA-12.5 AT PAGE 13 OF THE ASST. ORDER). IN VIEW OF THE FACTS AVAILABLE ON RECORD AND SUBMIS SIONS MADE, IT MAY KINDLY BE HELD THAT THE A.O. HAS WRONG LY MADE ADDITION OF RS.32,74,492/- AGAINST THE ABOVE STATED LONG-TERM CAPITAL GAIN OF RS.14,72,493 CHARGEABLE @ 10% + SURCHARGE @ 3%. 5. AFTER TAKING INTO CONSIDERATION THESE SUB MISSI ONS OF THE ASSESSEE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THIS ORDER OF LD. CIT(A) NOW THE REVENUE IS IN APPEAL BEFORE US. I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 7 6. AT THE TIME OF HEARING, LD. D.R. RELIED ON THE ORDER OF THE A.O. WHILE LEARNED COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT LD. CIT(A), AFTER PROPERLY APPRECIATING THE FACTS OF TH IS CASE, HAS PASSED A WELL REASONED SPEAKING ORDER BY PARTLY ALLOWING THE APPE AL OF THE ASSESSEE. THE FINDINGS OF THE LD. CIT(A) HAS REMAINED UNCONTROVER TED BY LD. D.R. AT THE TIME OF HEARING BEFORE US. THEREFORE, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A). FOR THE SAKE OF CLARITY, THE RELEVANT PORTION OF THE ORDER OF LD. CIT(A) IS REPRODUCED AS UNDER:- I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIONS GIVEN BY THE APPELLANT. THE BRIEF FACT S OF THE CASE ARE THAT THE APPELLANT PURCHASED A UNIT LINKED INSU RANCE POLICY FROM ICICI PRUDENTIAL LIFE INSURANCE COMPANY LIMITE D. THE NAME OF THE POLICY WAS ICICI PRU. LIFE TIME. THE P OLICY WAS PURCHASED BY THE APPELLANT ON 31.07.2003. THE SUM ASSURED WAS RS.1,00,000/-. THE APPELLANT INITIALLY MADE A PAYMENT OF RS.3,00,000/- BY CHEQUE ON 30.07.2003. SUBSEQUENTL Y PAYMENT OF ANOTHER 15,00,000/- WERE ALSO MADE BY HIM DURING THE NEXT TWO YEARS. THE POLICY WAS ENCASHED BY HIM ON 22.08 .2007. ACCORDINGLY, THE RETURN OF INCOME FOR THE PRESENT A SSESSMENT YEAR WAS FILED BY THE APPELLANT SHOWING THE SURPLUS AMOUNT OF RS.14,74,492/- AS AMOUNT RECEIVED ON MATURITY OF PO LICY IN THE CAPITAL ACCOUNT. THE A.O. ANALYSED THE VARIOUS ASP ECTS OF THE POLICY AND HELD THAT THE RECEIPTS FROM THE POLICY W OULD NOT BE EXEMPT IN VIEW OF THE LIMITATIONS IMPOSED BY SECTIO N 10(10D) AND HELD THAT THE RECEIPTS WOULD NOT BE EXEMPT FROM TAX. AFTER CAREFUL PERUSAL OF ALL THE FACTS, IT IS EVIDE NT THAT THE POLICY PURCHASED BY THE APPELLANT WAS A UNIT LINKED INSURANCE POLICY. IN THIS TYPE OF POLICY, OUT OF THE PREMIUM PAID DURING THE YEAR, A SMALL PORTION OF THE INVESTMENT GOES TOWARD S PROVIDING THE LIFE COVER TO THE PERSON AND THE RESIDUAL PORTI ON IS INVESTED IN A FUND WHICH IN TURN INVESTS IN STOCKS OR BONDS. THE VALUE OF INVESTMENT GROWS OR DECLINES AS PER THE TYPE OF THE INVESTMENT MADE BY THE FUND. THE INVESTOR ALSO HAS A CHOICE T O CHOOSE BETWEEN THE EQUITY BASED FUNDS OR THE BOND BASED FU NDS. THE INVESTOR ALSO CAN REGULARLY CHANGE HIS INVESTMENT F ROM ONE TYPE OF FUND TO ANOTHER CONSIDERING THE OVERALL SCENARIO OF THE EQUITY MARKET. THESE KIND OF CHANGES ARE CALLED SWITCH. AT THE TIME I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 8 OF THE MATURITY, THE INVESTOR IS PAID THE AMOUNT EQ UAL TO THE VALUE OF THE UNITS OF THE DATE OF MATURITY. IT IS OBSERVED FROM THE STATEMENT OF ACCOUNT OF THE POLICY WHICH HAS BEEN ENCLOSED TO THE ASSESSMENT ORDER BY THE A.O. THAT THE APPELLANT INITIALLY OPTED FOR INVESTMENT I N PROTECTOR FUND AND LATER ON IS SWITCHED CERTAIN PART OF MAXIMISER FUND. AT THE TIME OF SURRENDER I.E. ON 21.08.2007, THE FULL VALU E OF POLICY WAS RS.32,74,492.91 FOR WHICH THE CHEQUE WAS ISSUED TO THE APPELLANT. THE A.O. WAS NOT JUSTIFIED IN TREATING THE ENTIRE RECEIPTS AS INCOME OF THE APPELLANT AS ONLY THE SUR PLUS COULD HAVE BEEN CONSIDERED FOR THE PURPOSE OF TAXATION. AS EVIDENT FROM ABOVE, THE INVESTMENT BY THE APPELLANT WAS IN A UNIT LINKED INSURANCE POLICY IN WHICH MAJOR PORTION WAS INVESTE D IN MUTUAL FUNDS AND ACCORDINGLY, THE SURPLUS ON MATURITY OF T HE POLICY SHOULD BE TREATED AS CAPITAL GAIN. SINCE NO SECURI TY TRANSACTION TAX HAS BEEN DEDUCTED AT THE TIME OF TRANSACTION BY THE FUND, THE BENEFIT OF INDEXATION WILL BE AVAILABLE TO THE APPELLANT. THE LAST PAYMENT IN THE FUND WAS MADE BY THE APPELLANT ON 25.08.2005 AND THE POLICY HAS BEEN SURRENDERED ON 2 2.08.2007 WHICH SHOWS THAT THE INVESTMENT WAS FOR MORE THAN T HREE YEARS FOR THE OVERALL POLICY AND MORE THAN ONE YEAR FROM THE DATE OF LAST INVESTMENT. THE SURPLUS WILL, THEREFORE, BE T REATED AS LONG TERM CAPITAL GAIN ON INVESTMENT IN MUTUAL FUNDS. T HE A.O. IS, THEREFORE, DIRECTED TO TAKE THE SALE CONSIDERATION OF UNITS AS THE AMOUNT RECEIVED ON ACCOUNT OF MATURITY OF THE POLIC Y AND THE COST OF INVESTMENT AS THE AMOUNT INVESTED BY APPELL ANT DURING THE SPAN OF 2-3 YEARS I.E. RS.18,00,000/- AND ACCOR DINGLY WORK OUT THE LONG TERM CAPITAL GAIN AND TAX PAYABLE THER EON, IF ANY. THE GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. 8. IN VIEW OF THE ABOVE, THE ORDER PASSED BY LD. C IT(A) IS HEREBY UPHELD. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13.07.2012 SD/- SD/- (T.R. MEENA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. / COPY OF ORDER FORWARDED TO:- I.T.A. NO.2986/AHD/2011 A. Y. 2008-09 9 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '# *