ANJALA GOYAL, DELHI V. DCIT , CIRCLE , INTERNATIONAL TAXATION JAIPUR

ITITA 1/JPR/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3372 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 31-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 24-01-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Period of limitation; Cost of acquisition; Wrong claim; Time period of passing order; Set aside; Capital Gains
• Section: 143(3); 2(14); 10(10D)

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR MkWa- ,e- ,y- ehuk] ys[kk lnL; ,oa MkWa- ,l- lhrky{eh] U;kf;d lnL; ds le{k BEFORE: DR. M.L. MEENA, AM & DR. S. SEETHALAKSHMI, JM vk;dj vihy la-@IT(IT)A No. 01/JP/2022 fu/kZkj.ko"kZ@AssessmentYear : 2016-17 Anjala Goyal C/o Kapoor & Associates, A-23, Mount Kailash, DDA SFS Flats, East of Kailash, New Delhi-110065 cuke Vs. DCIT, Circle International Taxation, Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: ANGPG8174J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri Y.K. Kapoor (C.A.) jktLo dh vksjls@Revenue by: Smt. Monisha Chourdhari (JCIT) lquokbZ dh rkjh[k@Date of Hearing :16/06/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 01/08/2022 vkns'k@ORDER PER DR. MITHA LAL MEENA, A.M. The present appeal has been filed by the assessee against the order of CIT(A), Delhi-42 dated 23.11.2021 for the assessment year 2016.17, challenging the impugned order on the issue of rejecting the assessee’s claim of an insurance policy provides for a Market linked return of money, similar to an investment in Capital being an investment linked insurance policy as a capital asset by way of following grounds appeal: 2 IT(IT)A No. 01/JP/2022 Anjala Goyal “ We would like to hereby submit our same grounds of appeal as submitted during the course of our Appellate proceedings before the AO , Hlon'ble ITAT Jaipur bench and with the Learned Commissioner of come Tax ( Appeals )- 42 , New Delhi duly supported with documentary Evidence to support our contentions based on which the order of assessment made u/s 143(3) by the Assessing officer needs to be set aside and thereafter Income tax computed needs to be Nullified, Penalty proceedings dropped and Refund issued as claimed in the Income Tax Return by the Assessee. 1. We would like to enclose the revised Income Tax Computation of the assessee for A.Y. 2016-17 as submitted during all Appellate proceedings by the Assessee, as the original Income Tax return filed, was based on incorrect understanding of the provisions of Section 10(10D), which were actually not applicable in the present case and incorrect professional Advice given to the assessee based on which his original income tax computations were prepared and ITR filed with the Department for the AY 16-17 and case represented by same Professional. 2. The Fact in issue is whether an insurance capital asset or not. An insurance policy that provides for a Market linked return of money is certainly similar to an investment in Capital Markets and is a capital asset. A policyholder has certain rights to receive some amounts under the policy on the happening of certain events or on certain specified dates. A life insurance policy can also be assigned Therefore, a life insurance policy can certainly ue regarded as a capital Asset and the AO & the Learned CIT have failed to appreciate this fact that t necessary that an Asset can only be termed as a Capital, Asset if it is traded on a stock exchange and that 3 IT(IT)A No. 01/JP/2022 Anjala Goyal a LIC Policy can always be held back similarly as an Investment Mutual fund. 3. The first issue which arises is whether there is a transfer of a capital asset when proceeds of a policy are received. The definition of the term “ transfer” includes extinguishment, and when a part of the policy matures and proceeds are paid to the policy holder, there is a particular extinguishment of rights in a policy. There is, therefore, a transfer of a part of the capital asset. That being the position, the income arising on receipt of amounts under a life insurance policy would be computed as capital gains. In computing capital gains, cost of acquisition as well as cost of improvement is deductible. These can be indexed by using the notified cost index if the capital gains are long term capital gains. The policy would be a long term capital asset, if more than three years have elapsed since the commencement of the policy. The initial premium paid would be the cost of acquisition, and indexation of cost would accordingly be worked out year-wise depending upon the year of payment of the respective premiums. We would like to support our above submissions with court ruling to understand the correct Interpretation of law. 108ITR 345 (237 ITR 589 (SC) Diharshankar C. Bhachech vs. CED158 ITR 238 (178 ITR 140)( 159 ITR 18 (MP)4.2. 4. We thank the Hon’ble ITAT Jaipur Bench which vide its order dated 27.11.2019 directed to set aside the matter to the file of the AO after due consideration and appreciation of our grounds of appeal and contentions as facts and reliance on our documentary evidences submitted during the course of hearing.” 4 IT(IT)A No. 01/JP/2022 Anjala Goyal 2. There was a delay in filing the appeal by 3 days. The ld. Counsel for the assessee submitted that online appeal was filed within the limitation period on 18.01.2022 against due date of filing of the appeal i.e. 23.01.2022.However, hard copy set was sent through Government speed post from New Delhi on 19.01.2022. He requested to condone the delay in submission of hard copy documents of appeal held up in transit on humanitarian grounds. It was beyond the control of the appellant to file the appeal before ITAT, Jaipur Bench as counsel was suffering from Covid-19 for that he has filed a copy of the Covid report to that effect (APB page 5). 3. The ld. DR has not objection to the request of the assessee, accordingly the delay of 3 days in filing the appeal is condoned and the appeal is admitted to be heard on merits. 4. In the first round of appeal, the ITAT Jaipur Bench in IT(IT) A No. 08/JP/2019 in case of Angala Goyal vs. DCIT dated 27.11.2019 has restored the matter to the file of the assessing Officer by observing vide para 6 which reads as under:- “6. We have heard the rival contentions and perused the material available on record. Undisputed facts are that the assessee has purchased a single premium policy of SBI Life Unit Plus III Pension Plan. The said policy was purchased on 27.01.2010 for a term of 9 years and by way of one time premium, the assessee has paid a sum of Rs. 1.82 crores. The 5 IT(IT)A No. 01/JP/2022 Anjala Goyal assessee has surrendered the policy on 11.01.2016 and received gross surrender value of Rs.2,95,58,154/- and the said amount was credited in the assessee’s NRE account. In the return of income, the assessee has claimed the gross surrender value net of premium paid as exempt u/s 10(10)(d) of the Act. However, the said claim was not accepted by the Assessing Officer. Before the ld CIT(A), assessee has contended that she was wrongly advised and basis wrong professional advice received by her, she has originally claimed the net surrender value as exempt u/s 10(10)(d) of the Act, however, the correct position is that the insurance policy is a capital asset and on surrender of such policy, there is an extinguishment of her rights in the said policy, hence, there is a transfer of capital asset and given that the assessee has actually incurred a loss, no addition should be made in the hands of the assessee. During the course of hearing, the ld. Counsel has reiterated the submissions made before the ld CIT(A) and as rightly pointed out by the ld DR, the Bench has asked the ld AR to submit the details of the policy so purchased by the assessee to help determine the exact nature and terms of the policy as to whether it is a pure life or insurance-cum-investment policy. However, the ld AR submitted that he doesn’t have the copy or any details of the insurance policy, however the same can be submitted after receiving the same from the assessee. It is a settled legal proposition that only real income can be brought to tax in the hands of the assessee and where the assessee has made a wrong claim in the return of income basis wrong professional advice as so claimed, it is incumbent on part of the Assessing officer to determine the real income which can only be brought to tax. Therefore, in the interest of justice and fair play, in absence of details on record, we are constrained to set aside the matter to the file of the Assessing Officer to 6 IT(IT)A No. 01/JP/2022 Anjala Goyal examine the matter afresh after providing reasonable opportunity to the assessee. Needless to say, the assessee shall provide the necessary particulars of the policy to the Assessing Officer and any other details as may be required for disposal of the matter.” 5. Brief facts of the case are that the assessee is non -resident individual who has filed its return of income for 15,880/- for the assessment year 2016-17 on 09.11.2016. The assessment was finalized on 20.12.2018 u/s 143(3) of the Act at a total income of Rs. 1,13,74,034/- by making an addition of Rs. 1,13,58,154/-.The appellant had claimed exemption u/s 10(10)(d) of the Act amounting to Rs. 1,13,58,154/-in respect of redemption of SBl Life Insurance policy, which was invested on 27.01.2010 for a sum of Rs. 1,82,00,000/- on a single premium mode. The appeal of the appellant was dismissed by the CIT(A)- 42, Delhi, vide his order dated 27.03.2019. The assessee appellant preferred second appeal before ITAT, Jaipur. The Hon'ble ITAT, Jaipur vide order in ITA No. 08/JP/2019 dated 27.11.2019 set aside the matter to the file of the AO to examine the matter afresh. The appellant was directed to provide the particulars of policy to the AO. The set aside assessment was finalized vide order dated 27.11.2020 u/s 143(3) r.w.s. 254 of the Act. The AO examined the policy document etc. and observed that it was insurance-cum- investment policy. The AO concluded that a capital asset u/s 2(14) of the Act 7 IT(IT)A No. 01/JP/2022 Anjala Goyal must be capable of being transferred u/s 2(47) of the Act and as the insurance policy could not be transferred in favor of anyone under the modes prescribed u/s 2(47), it was not a capital asset and the income derived from surrender/maturity of policy has to be assessed under income from other sources. Accordingly, retained the addition. Being aggrieved by the assessment, the appellant has filed appeal before the ld. CIT(A) who has confirmed the addition made by the AO by reiterating its earlier finding by observing vide para 7.4 to 7.9 asunder:- “ 7.4 The AO has rightly relied upon the Hon'bie ITAT, Mumbai decision in the case of Ravjibhai L. Kakadiays ACIT (ITA no.175/Mum./2019)wherein the ITAT held that the definition of capital asset cannot be read independently de hors the definition of transfer under section 2(47) of the Act. A conjoint reading of the aforesaid provisions would make it clear that a property tobe considered as a capital asset under section 2(14) of the Act must be capable of being transferred as defined under section 2(47). It was concluded that the life insurance policy was not a properly which can be transferred in the mode and manner prescribed under section 2(47) of the Act. On maturity of a Life Insurance Policy, it is repudiated and the insured receives the maturity value along with bonus, if any, from the insurer. In such cases, there is no question of any transfer of property between the insured and insurer. 8 IT(IT)A No. 01/JP/2022 Anjala Goyal 7.5 It is observed that as per the provisions of Section 10(10)(d) of the Income Tax Act, the exemption is allowed only if the premium paid in any of the year during the term of the policy is not more than 20% of actual capital sum assured. Thus, the impugned insurance policy is not covered u/s 10(10)(d) of the Act. 7.6 It is pertinent to note here that the single premium plans are not about insurance, but are more like fixed deposits with a little insurance cover. Such plans are suited to people looking to park their money for five- and 10-year terms in instruments that offer adequate returns, safety & liquidity and also offer tax-free returns that are guaranteed. In a case, where the return is fixed at the time of investment, then the return is in the nature of interest. The return is not market driven as in the case of capital asset like mutual fund/shares etc. 7.7 An asset class includes things like stocks, bonds, and real estate holdings. Similar to any other type of asset, insurance offers the contract holder with a cash flow in case of happening of an event. With life insurance, the size and timing of the cash flow are different from traditional assets like stocks, bonds, and real estate holdings. Insurance is distinct from the point-of-view of return and risk. In this way, life insurance doesn't conform to a traditional asset class. Unlike an investment in mutual funds, fixed deposits or Postal Scheme, the insurance premium is not a capital contribution. 7.8 During the appeal, vide notice dated 08.11.2021, the appellant was asked to inter-alia submit copy of application form and copy of all communication with SBI Life at the time of purchase and surrender of 9 IT(IT)A No. 01/JP/2022 Anjala Goyal policy. The reply was submitted electronically on 17.11.2021. However, the appellant did not submit these details. The ITAT order was other details as may be required for disposal of matter (para 6). Thus, the appellant has failed to comply with the directions of the Hon'ble ITAT and did not submit important correspondence with the insurance company that was important for deciding the issue. The appeal deserves to be dismissed just on this count. 7.9 It is concluded that an insurance policy is not a capital asset because the premium paid is for coverage of risk. When one pays premium on a life insurance policy, he has a guarantee to receive the sum assured or the embedded value in the policy, in an eventuality of death. Moreover, it is in the nature of interest on investment as the maturity amount is in the form of sum assured which was fixed at the time of investment itself. Thus, there is no market driven risk and return in this case. Due to this reason, the gains made on insurance policy are not to be treated as capital gains. The action of the AO in treating the income as income from other sources is justified and is upheld. The grounds of appeal which are not drafted properly are dismissed.” 7. The ld. Counsel for the assessee submitted that the subject insurance provides a Market linked return of money that is certainly similar to an investment in Capital Markets and therefore, it is a capital asset. A policyholder has certain rights to receive some amounts under the policy on the happening of certain events or on certain specified dates. A life insurance policy can also be assigned. Therefore, a life insurance policy can certainly to a capital Asset and 10 IT(IT)A No. 01/JP/2022 Anjala Goyal the AO & the Learned CIT have failed to appreciate this fact that it is not necessary that an Asset can only be termed as a Capital Asset if it is traded on a stock exchange. Since, the present investment in LIC Policy is held back similarly as an Investment in Mutual fund. 8. The ld. Counsel for the assessee has argued that the definition of the term “transfer” includes extinguishment, and when a part of the policy matures and proceeds are paid to the policy holder, there is a particular extinguishment of rights in a policy. There is, therefore, a transfer of a part of the capital asset. That being the position, the income arising on receipt of amounts under a life insurance policy would be computed as capital gains. In computing capital gains, cost of acquisition as well as cost of improvement is deductible. These can be indexed by using the notified cost index if the capital gains are long term capital gains. The policy would be a long term capital asset, if more than three years have elapsed since the commencement of the policy. The initial premium paid would be the cost of acquisition, and indexation of cost would accordingly be worked out year-wise depending upon the year of payment of the respective premiums. In support, the ld. AR placed reliance on the following judgments: - • Smt. TarulataShyam&Ors. vs. CIT 108 ITR 345 (SC). • Orissa State Warehousing Corpn. Vs. CIT 237 ITR 589 (SC). • Dilharshankar C. Bhachech vs. CED 158 ITR 238 (SC) • Elel Hotels & Investment Ltd. vs. UOI 178 ITR 140 (SC). • Mittal Gold Storage vs. CIT 159 ITR 18 (MP). 9. Per contra, the learned that DR defended the order of the learned CIT appeal but the facts of the policy document remained uncontroverted by ld. D.R. at the time of hearing before us. 11 IT(IT)A No. 01/JP/2022 Anjala Goyal 10. We have heard both the sides, perused the material on record, tribunal order, impugned orders and the case law cited. Admittedly, the assessee had bought a market linked capital investment policy from SBI, as observed by the AO in compliance to the direction of the tribunal in the assessment order passed u/s 143(3)/ 254 of the act on examination of the policy document the insurgency policy was an insurance-cum-investment policy that the insurgency policy of the assessee was an insurance-cum-investment policy. The Ld. AR contended that the CIT appeal and the AO were presented with the investment unit linked insurance policy document to understand the policy features, during the course of hearing, but both of them have ignored the facts and taken adverse view based on presumption and conjectures. He argued that the investment on insurance policy is a capital asset and taxable under the head capital gains. It is apparently clear that the AO and CIT (A) failed to appreciate the fact, ignoring the policy document that when a part of the policy matures and proceeds are paid to the policy holder, then there is part extinguishment of rights in a policy. There is, therefore, a transfer of a part of the capital asset. In our view, that’s being the position, the income arising on receipt of such amounts under a life insurance policy would be liable to tax under the head capital gains and certainly not under the income from other sources. In computing capital gains, cost of acquisition as well as cost of improvement is deductible. These can be indexed 12 IT(IT)A No. 01/JP/2022 Anjala Goyal by using the notified cost index if the capital gains are long term capital gains. Thus, the policy would be a long-term capital asset, if more than three years have elapsed since the commencement of the policy and the initial premium paid would be the cost of acquisition, and indexation of cost would accordingly be worked out year-wise depending upon the year of payment of the respective premiums. 11. In the case of the “ACIT Vs. Shri Girish Haribbhai Trivedi”, in ITA number 1986/AHD/2011 in respect of assessment year 2008 – 09, the ITAT in the Ahmedabad bench has adjudicated an identical issue on identical facts in favor of assessee by dismissing the appeal of the Department and sustaining the CIT(A) finding by observing vide para 7, as under: 7. After hearing both the parties and perusing the record we find that ld. CIT(A), after properly appreciating the facts of this case, has passed a well reasoned speaking order by partly allowing the appeal of the assessee. The findings of the ld. CIT(A) has remained uncontroverted 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 facts of the case are that the appellant purchased a unit linked insurance policy from ICICI Prudential Life Insurance Company Limited. The name of the policy was ICICI Pru. Life Time. The policy 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. Subsequently 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 assessment year was filed by the appellant showing the surplus amount of Rs.14,74,492/- as amount received on maturity of policy in the capital account. The A.O. analysed the various aspects of the policy and held that the receipts from the policy would not be exempt in view of the limitations imposed by section 10(10D) and held that the receipts would not be exempt from tax. After careful perusal of all the facts, it is evident that the policy purchased by the appellant was a unit linked insurance policy. In this type of policy, out of the 13 IT(IT)A No. 01/JP/2022 Anjala Goyal premium paid during the year, a small portion of the investment goes towards providing the life cover to the person and the residual portion 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 to choose between the equity based funds or the bond based funds. The investor also can regularly change his investment from 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 equal 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 in 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 value 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 surplus 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 invested in mutual funds and accordingly, the surplus on maturity of the policy should be treated as capital gain. Since no security 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 22.08.2007 which shows that the investment was for more than three years for the overall policy and more than one year from the date of last investment. The surplus will, therefore, be treated as long term capital gain on investment in mutual funds. The A.O. is, therefore, directed to take the sale consideration of units as the amount received on account of maturity of the policy and the cost of investment as the amount invested by appellant during the span of 2-3 years i.e. Rs.18,00,000/- and accordingly work out the long term capital gain and tax payable thereon, if any. The ground of appeal is accordingly partly allowed.” 12. From the above, it is evident that the policy in question was not a pure life but it was an insurance-cum-investment policy. It is a settled legal proposition that only real income can be brought to tax in the hands of the assessee and where the assessee has made a wrong claim in the return of income on the basis of wrong professional advice as so claimed, it is incumbent on part of the Assessing officer to determine the real income which can only be brought to tax. 14 IT(IT)A No. 01/JP/2022 Anjala Goyal Thus, the income arising on receipt of amounts under a life insurance policy linked with investment would be liable to capital gains tax. 13. In the above view, we accept the grievance of the assessee as genuine and accordingly, direct the AO to compute the long term capital gain tax payable thereon, if any. 14. In the result, the appeal of the assessee is allowed in the terms indicated as above. Order pronounced in the open court on 01/08/2022 Sd/- Sd/- ¼MkWa- ,l- lhrky{eh ½ ¼MkWa- ,e- ,y- ehuk ½ (Dr. S. Seethalakshmi) (Dr. M.L. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 01/08/2022 Santosh vkns'k dh izfrfyfivxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Anjala Goyal, New York 999999 Foreign, India 2. izR;FkhZ@ The Respondent- DCIT, Circle (International Taxation) Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (IT(IT)A No. 01/JP/2022) vkns'kkuqlkj@ By order, lgk;diathdkj@Asstt. Registrar