2020 (9) TMI 323 - AT - Income Tax

Exemption u/s 10(10D) - amount received by the assessee on maturity of the Keyman Insurance Policy - As per AO to be assessed under the head salary as against the long term capital gain claimed by the assessee - HELD THAT - As decided in PRASHANT J. AGARWAL 2016 (9) TMI 1294 - BOMBAY HIGH COURT any sum received under the assigned Keyman Insurance Policy prior to assessment year 2014 15, would be eligible for exemption under section 10(10D) of the Act, as the amendment in Explanation 1 would apply only from 1st April 2014. The aforesaid observations of the Hon'ble Jurisdictional High Court rather supports the case of the Revenue as in the present case, the Keyman Insurance Policy has matured in November 2014. Assessee received the amount on maturity of Keyman Insurance Policy after coming into effect of the amended Explanation 1 to section 10(10D) of the Act. The decision of the Hon ble Supreme Court in case of CIT V/s. Vatika Township 2014 (9) TMI 576 - SUPREME COURT may not be of any help to the assessee as there is no retrospective application of the provision. In this view of the matter, in our considered opinion, the assessee is not eligible to claim exemption under section 10(10D) of the Act on the maturity value of the Keyman Insurance Policy. Legislature in its own wisdom never intended that sum received on maturity of Keyman Insurance Policy is to be assessed under the head income from capital gain. Had it been the case, as the assessee wants us to believe, the legislature would not have restricted the assessability of the amount received under Keyman Insurance Policy to the three heads viz. salary, income from business and profession and income from other sources. In the facts of the present case, undisputedly, the sum received on maturity of Keyman Insurance Policy cannot be assessed either under the head salary or income from business and profession. Thus, the only other head under which it can be assessed is income from other sources as per section 56(2)(iv) of the Act and the Assessing Officer has assessed such income in accordance with the statutory provisions. Grounds raised by the assessee are dismissed.

Summary

Issues Involved:

1. Whether the amount received by the assessee on maturity of the Keyman Insurance Policy is exempt under section 10(10D) of the Income Tax Act, 1961.
2. If the amount received is taxable, the proper head of income under which it can be taxed.

Issue-wise Detailed Analysis:

1. Exemption under Section 10(10D) of the Income Tax Act, 1961:

The primary issue was whether the maturity amount received by the assessee from a Keyman Insurance Policy is exempt under section 10(10D) of the Income Tax Act, 1961. The assessee argued that upon assignment of the Keyman Insurance Policy to him, it transformed into a regular insurance policy, thereby qualifying for exemption under section 10(10D). The assessee supported this argument by citing judicial precedents and the fact that the policy was assigned before the amendment to Explanation-1 to section 10(10D) of the Act, which came into effect from 1st April 2014.

However, the Assessing Officer and the learned Commissioner (Appeals) rejected this claim, stating that the Keyman Insurance Policy remains as such even after assignment, as clarified by the amendment to Explanation-1 to section 10(10D) of the Act. This amendment specifies that a Keyman Insurance Policy, even if assigned, does not change its character and remains taxable. The Tribunal upheld this view, emphasizing that the amendment was applicable from the assessment year 2014-15 and, since the policy matured in November 2014, the maturity amount received was taxable.

2. Proper Head of Income for Taxation:

The second issue was determining the correct head of income under which the maturity amount should be taxed. The assessee contended that the Keyman Insurance Policy is a capital asset, and the gain derived from it should be taxed under the head of long-term capital gain. The assessee argued that the premiums paid for the policy constituted an investment in a capital asset, thus qualifying the maturity proceeds as capital gains.

Contrarily, the Revenue argued that the definition of a capital asset under section 2(14) of the Act does not include life insurance policies, which cannot be transferred in the manner prescribed under section 2(47) of the Act. They asserted that any income derived from the maturity of such a policy should be taxed under the head "income from other sources" as per section 56(2)(iv) r/w section 2(24)(xi) of the Act.

The Tribunal concurred with the Revenue's stance, stating that the life insurance policy is not a transferable property as defined under section 2(47) of the Act. It further clarified that the legislature intended for sums received under a Keyman Insurance Policy to be taxed under the heads of salary, business income, or other sources, but not as capital gains. Consequently, the Tribunal concluded that the maturity amount received should be assessed under the head "income from other sources."

Conclusion:

The Tribunal dismissed the appeal, ruling that the maturity amount received from the Keyman Insurance Policy is not exempt under section 10(10D) of the Income Tax Act, 1961, and should be taxed under the head "income from other sources." The Tribunal's decision was based on the legislative amendments and the statutory provisions governing the taxation of Keyman Insurance Policies.