2010 (6) TMI 783 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of the maturity amount received from the keyman insurance policy.
2. Determination of whether the maturity amount should be treated as revenue receipt or capital receipt.

Summary:

Issue 1: Taxability of the Maturity Amount Received from the Keyman Insurance Policy

The assessee, a renowned doctor, received Rs. 4,27,50,000/- as the maturity amount from a keyman insurance policy taken by Escorts Heart Institute and Research Centre Ltd. The Assessing Officer (AO) brought this amount to tax, rejecting the assessee's contention that the proceeds were exempt from tax once the policy was transferred/assigned and treated as a normal policy. The assessee cited the ITAT's decision in the case of Shri Rajan Nanda for A.Y. 2003-04 and 2004-05, where the Tribunal had restored the matter to the AO for fresh adjudication. The Ld. Commissioner of Income Tax (Appeals) partly confirmed the addition, treating Rs. 2,43,28,726/- as taxable income based on the premium paid by the company and the total maturity amount received.

Issue 2: Determination of Whether the Maturity Amount Should be Treated as Revenue Receipt or Capital Receipt

The Tribunal noted that the identical issue was considered in the case of Shri Rajan Nanda, where it was held that the maturity value of the policy, reduced by the surrender value at the time of assignment, is not to be taxed. The Tribunal directed the AO to get clarification from higher authorities of LIC regarding the status of the keyman policy upon assignment and to decide the issue afresh. The Tribunal emphasized that if the keyman policy is converted into an ordinary policy, the AO should follow the observations of the coordinate bench in earlier assessment years. The Tribunal remitted the matter to the AO for fresh consideration, adhering to the doctrine of stare decisis.

Conclusion:

The appeal filed by the assessee is allowed for statistical purposes, with the matter remitted to the AO to consider afresh with the same directions as in the case of Shri Rajan Nanda. The AO is to get clarification from LIC regarding the status of the keyman policy upon assignment and decide the issue accordingly, providing the assessee with adequate opportunity of being heard.

Order pronounced in the open court on 04.06.2010.