2010 (6) TMI 671 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of proceeds from maturity of keyman insurance policies.
2. Application of exemption u/s 10(10D) of the Income-tax Act, 1961.
3. Correct quantification of taxable amount from the maturity proceeds.

Summary:

1. Taxability of Proceeds from Maturity of Keyman Insurance Policies:
The primary issue was whether the maturity proceeds of keyman insurance policies, which were later assigned to the appellant, should be taxed. The Assessing Officer added Rs. 23,51,25,000 to the assessee's income, but the Commissioner of Income-tax (Appeals) sustained only Rs. 13,25,92,264 of this amount. The Tribunal had previously ruled that the sum equivalent to the surrender value of the policy at the time of its assignment by the company to the assessee is taxable.

2. Application of Exemption u/s 10(10D) of the Income-tax Act, 1961:
The assessee argued that the entire addition should be deleted under section 10(10D), which exempts sums received under a life insurance policy. However, the Tribunal clarified that sums received under a keyman insurance policy are not exempt. The Commissioner of Income-tax (Appeals) held that the maturity value received by the appellant is exempt u/s 10(10D) except for the amount representing the keyman insurance policy period.

3. Correct Quantification of Taxable Amount:
The Commissioner of Income-tax (Appeals) computed the taxable amount by considering the ratio of premiums paid by the employer and the appellant to the total maturity proceeds. The Tribunal found this computation inconsistent with its earlier rulings. The Tribunal directed the Assessing Officer to get clarification from LIC regarding the status of the keyman policy upon assignment and to decide the issue afresh based on the terms and conditions of the policy. The Tribunal emphasized that if the policy is converted into an ordinary policy, the observation of the co-ordinate Bench should be followed.

Conclusion:
The appeal was allowed for statistical purposes, and the matter was remitted to the Assessing Officer for further clarification and fresh decision-making in line with the Tribunal's earlier directions. The order was pronounced on June 4, 2010.