2021 (10) TMI 654 - AT - Income Tax

Exemption u/s 10(10D) on the maturity value of the Keyman Insurance Policy - scope of amendment brought to explanation 1 to section 10(10D) - HELD THAT - We will go through the provisions of section 10(10D) of the Act and also the explanation 1 to this section. The provision of section 10D of the Act which was made it clear that any amount under the LIC policy including bonus would not be taxable - aforesaid provision have certain exceptions as provided in clause (A) which provided that any sum received under keyman insurance policy would not be eligible for exemption. In case of the assessee that an assignment of policy was made on 2.6.2009 and maturity amount was received on 22.2.2015. Now the contention of the A.R. is that amendment brought to explanation 1 to section 10(10D) of the Act by the Finance Act, 2013 w.e.f. 1st April, 2014 would not be applicable to the assessee's case since the assignment in the case of name of assessee has taken place much prior to the amendment. As discussed earlier, section 10(10D) of the Act specifically excluded any sum received under a keyman insurance policy from exemption u/s. 10(10D) of the Act. By Finance Act, 2012, w.e.f. 1.4.2013, explanation 1 was inserted explaining the expression Keyman Insurance Policy . 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 relied by assessee 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. Valid Notice u/s. 143(2) - transfer of case u/s 127 - notice issued u/s. 143(2) of the Act by ITO Ward-11(1), Belgaum is without jurisdiction and as such the assessment order was framed is ab initio - HELD THAT - Admittedly notice u/s. 143(2) of the Act dated 25.9.2017 was issued by ITO Ward-1(1) Belgaum. However, he is not the concerned assessing officer of the assessee and actual assessing officer was ITO Ward-1 Bellary/ACIT Circle-1 Bellary. Being so, the notice issued u/s. 143(2) of the Act, ITO Ward-1(1) Belgaum is without jurisdiction. Consequently, the assessment framed by ACIT Circle-1 Bellary on the basis of such notice issued u/s. 143(2) dated 25.9.2017 by ITO Ward-1(1) Belgaum cannot be sustained - We uphold the objections raised by the Assessee against the validity of the impugned order u/s. 143(3) for AY 2015-16. We accordingly hold that since in the present case no valid notice u/s.143(2) was issued by the AO who held jurisdiction over the case of the Assessee the consequent order passed u/s. 143(3) dated 7.12.2017 was legally unsustainable and therefore is null in the eyes of law and therefore quashed. The assessee accordingly succeeds on the preliminary legal issue raised before us.

Summary

Issues Involved:
1. Interpretation of Explanation-1 to Section 10(10D) of the Income Tax Act.
2. Validity of Notice under Section 143(2) issued by a non-jurisdictional officer.

Issue-wise Detailed Analysis:

1. Interpretation of Explanation-1 to Section 10(10D) of the Income Tax Act:

The revenue contended that the CIT(A) erred in interpreting Explanation-1 to Section 10(10D), which states that a Keyman Insurance Policy assigned during its term remains a Keyman Insurance Policy. The CIT(A) considered the date of assignment rather than the date of receipt of the maturity claim for tax assessment. The assessee argued that the policy, assigned before the amendment (effective from 1st April 2014), converted into an ordinary policy and thus, the maturity amount received should not be taxable. The Tribunal referred to various judgments, including the Delhi High Court's decision in the case of Dr. Naresh Kumar Trehan, which held that an assigned Keyman Insurance Policy becomes an ordinary policy, and its maturity value is not taxable. However, the Tribunal concluded that the amendment to Explanation-1 (effective from 1st April 2014) applies to the case since the policy matured in 2015, making the maturity amount taxable. Thus, the appeal of the revenue was allowed without prejudice to the findings in the cross-objection filed by the assessee.

2. Validity of Notice under Section 143(2) issued by a non-jurisdictional officer:

The assessee argued that the notice under Section 143(2) issued by ITO Ward-1(1), Belgaum, was invalid as the officer lacked jurisdiction, and hence, the assessment order was void ab initio. The Tribunal examined the provisions of Section 127, which allows for the transfer of cases and states that re-issuing notices is unnecessary if the transferor officer had valid jurisdiction when the notice was issued. However, in this case, the notice was issued by an officer without jurisdiction, making it invalid. The Tribunal referred to several judgments, including the Supreme Court's decision in Hotel Blue Moon, which held that a valid notice under Section 143(2) is mandatory for a valid assessment. The Tribunal concluded that the assessment order based on the invalid notice was unsustainable and quashed it. Consequently, the cross-objection of the assessee was allowed.

Conclusion:

The Tribunal ruled in favor of the revenue on the issue of the taxability of the maturity amount under the amended Explanation-1 to Section 10(10D). However, it quashed the assessment order due to the invalid notice under Section 143(2) issued by a non-jurisdictional officer, thereby allowing the cross-objection of the assessee. The judgment highlights the importance of jurisdictional validity in tax assessments and the interpretation of amendments to tax provisions.