In a significant ruling, the Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the assessee is entitled to deduct the proportionate principal amount paid for obtaining the 1st installment on maturity of the LIC policy under the provisions of the Income Tax Act, 1961.
The assessee, Vinayna Veljee, is an individual senior citizen deriving “income from other sources” only. During the year under consideration, the assessee received 1st installment of Rs. 7,95,000/- from LIC in respect of one-time premium policy (single premium policy) after deduction of TDS of Rs. 7,950/-.
While furnishing the original return of income, the assessee included entire 1st installment of Rs. 7,95,000/- from LIC as taxable income without deducting therefrom proportionate premium paid on the aforesaid sum. Thereafter, the assessee furnished revised return of contending that as per the CBDT circular number 7/2003 at paragraph 10.3 on taxability of maturity of policies under section 10(10D) states that the income accruing on such policies (but not including the premium paid by the assessee) shall become taxable.
Before the Tribunal, the assessee contended that he is entitled to deduct therefrom the proportionate principal amount paid for obtaining the aforesaid 1st installment.
A bench of Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member allowed the plea of the assessee that he would be entitled to be taxed on the maturity amount received in terms of CBDT Circular number 7/2003 dated 5-9-2003 on taxability of maturity of policies under section 10(10D) of the Act, as per which only net income is chargeable to tax in the hands of the assessee.
“Accordingly, in the interest of justice, we set aside the order passed by Ld. CIT(A) to the file of Ld. Assessing Officer for re-computing the taxable amount of maturity amount of LIC received by the assessee in light of the CBDT Circular No. 7/2003 dated 5-9-2003 referred to above. The Ld. Assessing Officer is directed to work out the correct taxable amount in the hands of the assessee in terms of CBDT Circular No. 7/2003 dated 5-9-2003 referred to above,” the Tribunal said
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