On maturity of life insurance policy, where section 10(10D) does not apply, it is only net income which is chargeable to tax

FACTS AND ISSUE OF THE CASE

The assessee, an individual, purchased a Rs. 10,000 single premium life insurance policy from SBI Life Insurance Co. Ltd. After three years, the policy would be ready to be implemented. There was no claim for a deduction under section 80C. The assessee received a value of Rs. 13, 09,000 on the maturity of the insurance during the preceding year relevant to the assessment year under consideration, and included a sum of Rs. 3, 09,000 in his total income under the category Income from Other Sources’.

CPC added a sum of Rs. 10, 00,000 to the total income under the heading Income from Other Sources when the income return was processed. The aggrieved assessee preferred to file a corrective application under section Act. The assessee’s application was denied without being given a reason for the rejection.

The assessee filed an appeal with the CIT(A), who upheld the CPC’s decision to increase total income by Rs. 10,00,000, which the assessee said was due to a premium paid to SBI Life Insurance Co. Ltd. The assessee was upset and decided to go to the Tribunal to file an appeal.

OBSERVATION

The Tribunal noted that because SBI deducted 1% TDS on the entire receipt of Rs. 13,09,000, the overline CPC found that only Rs. 3,09,000 of the Rs. 13,09,000 received by the assessee had been offered for taxation, and thus the balance of Rs. 10,00,000 was added as income of the assessee when processing the return of income. It was also said that the matter was addressed in the Finance Bill of 2019, which increased the TDS rate from 1% to 5%. “…… on Several concerns have been raised that deducting tax on the gross amount causes problems for an assessee who would otherwise have to pay tax on net income” (i.e. after deducting the amount of insurance premium paid by him from the total sum received).

The Tribunal, upon noting the above-stated observations as well as taking note of the contention of the assessee that the addition of Rs. 10,00,000 tantamounts to double taxation and also the fact that the assessee had neither availed any deduction u/s 80C of the Act in respect of premium paid to SBI nor claimed any deduction u/s 10(10D) of the Act and offered Rs. 3,09,000 for tax in his return of income held that the addition made by the AO is not warranted.