Sec. 143(1) adjustment is to be made even if tax is deducted on entire ‘sum’ appearing in Form 26AS: ITAT

Case Details: Swati Dyaneshwar Husukale v. DCIT - [2022] 143 taxmann.com 375 (Nagpur-Trib.)

Judiciary and Counsel Details

• • R. S. Syal, Vice-President
  • Kapil Hirani for the Appellant.
  • G.J. Ninawe for the Respondent.

Facts of the Case

The assessee is an individual and regular taxpayer. During the relevant assessment year, she received a sum towards the premature surrender of the life insurance policy. She filed the return of income without considering such sum as her income.

Since the tax was deducted at source (TDS) on such sum under section 194DA, it was reflected in Form 26AS. Thus, an adjustment under section 143(1) was made while processing the return of income. The maturity amount as reflected in Form 26AS was added to the income of the assessee.

On appeal, the CIT(A) confirmed the addition and the matter reached the Nagpur Tribunal.

The assessee contended before the Tribunal that section 143(1)(a)(vi) uses the expression `addition of income’ whereas section 194DA deals with ‘any sum’ and not ‘any income’. Thus, additions couldn’t be made towards sum appearing on Form 26AS on which tax was deducted under section 194DA.

ITAT Held

The Tribunal held that deduction of tax at source is usually towards the income component, which may be made from the amount of income as such; or in certain cases from the receipt containing the element of income. Where it is difficult to extract the precise element of income hidden in the receipt, the deduction of tax at source is provided under certain sections from the receipt but at a relatively lower rate.

One such example is section 194DA, which provides for deducting tax at source on the gross sum paid but at a lower rate of 1%. Thus deduction of tax at source on the sum paid under a life insurance policy does not convert the income portion embedded in such sum into non-income.

Thus, the contention of assessee that since section 194DA requires deduction of tax at source on the sum payable and not the income and hence non-applicability of section 143(1) which talks about making adjustments as the addition of income is discarded.

Now, comes the applicability of section 143(1)(a)(vi). Section 143(1) provides for making adjustment by way of ‘addition of income appearing in Form no. 26AS’ and not the sum so appearing in the Form. Evidently, it is only the amount of income that can be added through adjustment under section 143(1).

As explained in CBDT’s Circular No. 07/2003, dated 5-9-2003, the quantum of taxable income in case of insurance policies not exempt under section 10(10D) is the income accruing on such policies not including the premium paid by the assessee. Accordingly, the income of the assessee, which would call for adjustment under section 143(1), is the sum received from the policy as reduced by the amount of premium paid by her.