Addition on Premature Surrender of Pension Policy Deleted

The Income Tax Appellate Tribunal delivered an important ruling concerning taxation of amounts received upon premature surrender of pension policies. 

The Tribunal held that the amount received by the assessee on surrender of a pension policy could not be mechanically taxed under the head “Income from Other Sources” under Section 56 of the Income-tax Act, 1961 without properly appreciating the statutory framework governing pension contributions and withdrawals under Section 80CCC of the Act. 

The Tribunal observed that the authorities below had failed to examine both:

• the nature of the receipt; and 

• the legal implications arising from contributions made by the assessee to the pension fund in earlier years. 

Consequently, the Tribunal deleted the addition of Rs. 10,40,593/- and allowed the appeal of the assessee.