1963 (9) TMI 76 - HC - Income Tax

Summary

Issues Involved:
1. Eligibility for rebate under section 15(1) of the Income-tax Act, 1922.
2. Nature of the insurance policy and its effect on the life of the assessee.
3. Interpretation of the terms of the insurance policy.
4. Applicability of legal precedents and principles regarding endowment insurance and trust.

Detailed Analysis:

1. Eligibility for rebate under section 15(1) of the Income-tax Act, 1922:
The primary issue was whether the premium paid on a "Children's Deferred Endowment Assurance" policy qualified for a rebate under section 15(1) of the Income-tax Act, 1922. Section 15(1) provides that "The tax shall not be payable in respect of any sums paid by an assessee to effect an insurance on the life of the assessee." The question was whether the premium of Rs. 1,925 paid by the guardian on behalf of the minor assessee constituted a sum paid to effect an insurance on the life of the assessee.

2. Nature of the insurance policy and its effect on the life of the assessee:
The policy in question was issued by the Life Insurance Corporation of India with the father of the assessee as the proposer and the assessee as the life assured. The policy stipulated that the sum assured would be payable either on the maturity date if the life assured was alive or upon the death of the life assured after the deferred date. The Tribunal and the department authorities concluded that the policy did not cover the risk during the minority of the assessee, as the insurance would only commence upon the life assured attaining majority and adopting the policy. Therefore, during the minority, the policy was essentially a contract between the proposer (the father) and the Life Insurance Corporation, not the assessee.

3. Interpretation of the terms of the insurance policy:
The policy's terms indicated that the contract would be deemed to be between the Life Insurance Corporation and the life assured (the assessee) only if the life assured adopted the policy upon attaining majority. If the life assured did not adopt the policy or died before the deferred date, the premiums paid would be refunded to the proposer, and the policy would stand canceled. The court noted that until the life assured adopted the policy, the contract remained between the proposer and the Life Insurance Corporation, and the life assured had no entitlement to the benefits under the policy.

4. Applicability of legal precedents and principles regarding endowment insurance and trust:
The court referred to Halsbury's Laws of England and the case of In re Webb: Barclays Bank Ltd. v. Webb to discuss the nature of endowment insurance policies and the concept of trust. It was noted that in cases where parents take out policies for their children, a novatio (renewal or substitution of a contract) is necessary upon the child attaining majority. The court found that the policy in question did not indicate that it was taken out in trust for the assessee or for his benefit. The provisions of the policy implied that the benefit would accrue to the proposer unless the life assured adopted the policy upon attaining majority.

Conclusion:
The court concluded that the premium paid during the accounting period did not qualify for a rebate under section 15(1) as it was not paid to effect an insurance on the life of the assessee. The contract remained between the proposer and the Life Insurance Corporation until the life assured adopted the policy. Therefore, the Tribunal's decision to reject the claim for rebate was upheld, and the answer to the reference question was in the negative. The assessee was ordered to pay the costs of the reference to the Commissioner.