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TMI Blog2009 (5) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the learned counsel for the assessee and the learned Departmental Representative. Therefore, we also think it fit to pass a consolidated order. While doing so, we will be referring to the facts of the case for asst. yr. 2003-04. 3. The assessee had filed return of income on30th Sept., 2003declaring total income of Rs. 2,07,87,560. In the course of hearing of the case, it was found that two keyman insurance policies, taken on him by Escorts Heart Institute Research Center Ltd. ("Escorts" for short) and Escotel Mobile Communications Ltd. ("Escotel" for short), were assigned to the assessee on 4th July, 2002, in lieu of which Rs. 54,00,510 and Rs. 37,80,357, respectively were paid by him. It was further found that Escorts had been taking such policies in the name of the assessee every year. Such policies were assigned to him at an amount which was much lower than the amount paid by that company. The policies were assigned to him in the subsequent years, subsequent to the year in which such policies were taken. This pattern was consistently followed, thereby giving benefit to the assessee. It was also found that the assessee was chairman and director of Escorts and Escotel. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54,00,510 to the company. Thus, the difference of Rs. 3,06,02,890 was held to be liable for taxation. The details in respect of policy assigned by Escotel were not furnished. The AO worked out the benefit accruing to the assessee from assignment of this policy at Rs. 2,14,22,023 on pro rata basis. Thus, an amount of Rs. 5,20,24,913 was added to the total income in respect of assignment of these two policies. The assessee also received an amount of Rs. 2.85 crores on maturity of policy No. 112426811 taken from Life Insurance Corporation ofIndia. After deducting loans and interest thereon, the net amount of Rs. 96,15,948 was actually received. It was submitted that this policy was not keyman insurance policy and, therefore, receipt of money thereon was not liable to be included in the total income. The AO made enquiry into the matter and found that this was also a keyman insurance policy. In this connection, the LIC issued a letter to the assessee, which was filed before the AO to the effect that on assignment of the keyman insurance policy, it is treated as ordinary policy. However, the AO did not accept this contention and mentioned that sub-s. (24) of s. 2 includes within its ambi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A) considered the facts of the case and the submissions made before him. It was mentioned that the factum of showing the amount received to be exempt from taxation does not absolve the assessee from levy of penalty if on verification it is found that the stated facts were wrong. The assessee had shown the receipt from the LIC as if it were a receipt on a normal policy and not from the keyman insurance policy. Thus, the facts were disclosed partially and not fully. The position of law in this behalf was very clear that any sum received under keyman insurance policy including bonus was to be treated as income of the assessee for the purpose of taxation. Sec. 17(3)(ii) also provides for taxation of the sum received under a keyman insurance policy as "profit in lieu of salary". After considering the case law cited by the assessee and the decision of Hon'ble Supreme Court in the case of Union of India Ors. vs. Dharamendra Textile Processors Ors. (2008) 219 CTR (SC) 617 : (2008) 14 DTR (SC) 114 : (2008) 306 ITR 277 (SC), it was held that mens rea was not an essential ingredient of the provisions contained in s. 271(1)(c). It was also mentioned that the Hon'ble Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the net amount, i.e., after excluding the amount paid by the assessee to the assigner should be considered as income for the purpose of taxation. The Tribunal mentioned that this plea was not supported by the language of the provision, which speaks of the sums received under the policy. Therefore, the AO was directed to verify the amount of surrender value of the policy at the time of assignment in favour of the assessee for recomputing the addition to be made, as discussed in the order. It was argued that this finding involved interpretation of the provision. Our attention was also drawn towards the Board circular in this matter, which has been reproduced in the order of Tribunal on pp. 15 and 16. The circular deals with "taxation of a sum received under keyman insurance policy" and in para 14.4 of the circular, it is mentioned that the sums received by the company on such policies may be taxed as business profits. The surrender value of the policy endorsed in favour of keyman employee, or the sum received by him at the time of retirement may be taken as "profits in lieu of salary" for the purpose of taxation. Therefore, it was submitted that only surrender value of the poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 670 (Del). In that case, the assessee had disclosed all facts regarding the dividend income, which was claimed as business income, entitled for deduction under s. 80HHC. In view of the disclosure of all facts, the Tribunal came to the conclusion that levy of penalty will not be justified. TheHon'ble Courtmentioned that there was full disclosure of all relevant material and, therefore, it could not be said that the conduct of the assessee attracted provisions of s. 271(1)(c) of the Act. In this very connection, the learned counsel also relied on the decision of Hon'ble Punjab Haryana High Court in CIT vs. Mehta Engineers Ltd. (2008) 219 CTR (P H) 285 : (2008) 8 DTR (P H) 136 : (2008) 300 ITR 308 (P H). 5.2 In reply, the learned Departmental Representative referred to the history of the case and the order of the Tribunal, in which the addition was sustained, in respect of which the AO had levied the penalty after considering the order. It was submitted that the amount was taxable under s. 2(24)(xii). The assessee had been the beneficiary of such keyman insurance policy but no amount was offered for taxation in any year. In the disclosure, the assessee had not mentioned anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to the assigner in the year of assigning. If that is so, the issue whether anything was left for taxation at the time of receipt is a matter of considerable debate and discussion. In view of the decision of Hon'ble Delhi High Court in the case of H.M.A. Udyog (P) Ltd., Bacardi Martini India Ltd. and CIT vs. international Audio Visual, it will have to be held that the explanation tendered by the assessee was bona fide notwithstanding the fact that sketchy disclosure was made in the return of income. The reason being that the whole issue of taxation of the amount received was highly debatable. 6.1 The facts of the case in respect of asst. yr. 2004-05 are similar except that the disclosure in the return was still more cryptic to the effect that the LIC had paid maturity amounts of LIC policies on several occasions which are exempt under s. 10 of the Act. However, as mentioned earlier, the whole question of the taxation of the amount received is debatable and, therefore, the explanation tendered by the assessee can be said to be bona fide even under the ratio of the case of Dharamendra Textile Processors Ors. 6.2 We may add that there was also discussion on the or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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