2023 (10) TMI 1227 - AT - Income Tax

Surplus on maturity of the policy /prematurely surrendered insurance policy - Income from other sources of capital gain - difference between aggregate surrender value and the purchase value - assessee as contented since the policy was held for more than three years from the date of acquisition/purchase the capital gain arising from such transaction was in the nature of Long Term Capital Gains. The Appellant was entitled to claim benefit of deduction u/s 54F - HELD THAT - Appellant has held investment for a period of more than three years. Single premium was paid on 31/03/2008 and surrender value was received after 31/03/2011 during the relevant previous year. In the present case the investment were in the nature of investment in Debt Mutual Fund. According we hold that the accretion value was in the nature of long term capital gains. Accordingly the addition made by the Assessing Officer in the hands of the Appellant holding the same to be Income from Other Sources is set aside. AO is directed to compute the amount of capital gains tax liability if any as per law. AO is also directed to grant the benefit of Section 54F to the Appellant after verifying the claim of the Appellant taking into consideration the Agreement for Sale dated 09/12/2014 filed by the Appellant.

Summary

Issues Involved:
1. Tax treatment of surrender value of LIC Market Plus policies.
2. Eligibility for deduction under Section 54F of the Income Tax Act, 1961.

Summary:

Issue 1: Tax treatment of surrender value of LIC Market Plus policies

ITA No. 949/MUM/2023 (Assessment Year: 2013-14)

The Appellant challenged the order dated 09/02/2023 by the CIT(A) dismissing the appeal against the Assessment Order dated 03/12/2019, which assessed an additional income of INR 44,91,793/- as 'Income from Other Sources' under Section 144 read with Section 147 of the Income Tax Act, 1961. The Appellant argued that the LIC Market Plus policies were capital assets and the surrender value should be treated as Long Term Capital Gains, not 'Income from Other Sources'. The CIT(A) dismissed the appeal, concluding that the policies were pension plans and not capital assets.

Upon review, the ITAT found the Appellant's claim factually correct, noting the policy was similar to a Debt Mutual Fund as per the letter from the Sr. Branch Manager, LIC. The ITAT held that the accretion value of INR 44,91,793 was in the nature of long-term capital gains and directed the Assessing Officer to compute the capital gains tax liability accordingly.

ITA No. 950/MUM/2023 (Assessment Year: 2014-15) and ITA No. 951/MUM/2023 (Assessment Year: 2016-17)

For the Assessment Years 2014-15 and 2016-17, similar additions were made by the Assessing Officer and confirmed by the CIT(A). The ITAT adopted the findings from the 2013-14 appeal, setting aside the additions and directing the Assessing Officer to treat the accretion value as long-term capital gains and compute the tax liability accordingly.

Issue 2: Eligibility for deduction under Section 54F of the Income Tax Act, 1961

The Appellant claimed deduction under Section 54F, arguing that the surrender value was invested in a residential house property. The ITAT directed the Assessing Officer to verify the claim based on the Agreement for Sale dated 09/12/2014 and grant the benefit of Section 54F if applicable. The ITAT also instructed the Assessing Officer to provide a reasonable opportunity for the Appellant to be heard if necessary.

In conclusion, all three appeals were allowed, and the orders of the CIT(A) were set aside.