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TMI Blog2010 (6) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,51,25,000 by giving the benefit of exemption under section 10(10D) of the Income-tax Act, 1961 and even the surrender value amount is not liable to tax as the assessee has paid the same to the respective company at the time of assignment of the policies." The assessee in this case derived income from salary and also income from capital gain and income from other sources. From the details filed during the course of assessment, the Assessing Officer noted that the assessee has received the following amounts towards maturity of the following keyman policies from LIC : S. No. Date of receipt Policy No. Maturing amount Taken by 1. 1-4-2005 112963783 7,12,50,000 EHIRCL 2. 1-4-2005 112960968 4,27,50,000 M/s. Escortel Mobile 3. 1-4-2005 112689601 7,12,50,000 EHIRCL 4. 1-4-2005 112960969 4,98,75,000 M/s. Escorts Ltd. The Assessing Officer enquired as to why the maturity of the keyman policy be not brought to tax in the hands of the assessee. The assessee responded that the Income-tax Appellate Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that in all the provisions, what is envisaged is "sum received" either on maturity or on premature surrender, i.e., surrender value under the keyman insurance policy. The scheme of taxation covers the treatment of the premiums paid, i.e., its deductibility in the hands of the employer, taxability in the hands of the employees as 'profits in lieu of salary', taxability under the head 'Profits and gains of business' in case of absence of employee-employer relationship and the residual taxing provision of section 56(2), etc. All this shows that the from the time of taking out the policy upto its maturity, the Legislature has envisaged the treatment to be given with regard to sums involved in the hands of the players involved. The players involved obviously are two-one, the person on life of whom the insurance policy is taken out and the second, the person who takes out such policy. The premium is borne by the second person. Where such a dual role comes to an end, the very essence of the keyman insurance policy is lost. This is the reason why the LIC of India confirmed that after assignment of a keyman insurance policy in the name of the individual and the premiums thereafter being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assignment and the amount which pertains to such period certainly is outside the purview of exemption under section 10(10D) as it represents a sum received on account of the keyman insurance policy. The learned Commissioner of Income-tax (Appeals) further held that : "As regards quantification of such amount, the Income-tax Appellate Tribunal in its order for the assessment year 2003-04 has held the same to be a sum equivalent to the surrender value of the policy at the time of its assignment by the company in favour of the assessee. It appears that the proper facts were not placed before the Income-tax Appellate Tribunal to come to the conclusion of quantification of the sum received on account of the keyman insurance policy out of total sum received on maturity as surrender value is the amount paid by the assessee to the employer on assignment of keyman insurance policy and it has nothing to do with the amount received on maturity as the surrender value does not represent the sum received by the appellant on account of the keyman insurance policy. Therefore it is imperative on my part to ascertain the sum out of the amount so received on maturity which represents a sum rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum received on account of keyman insurance policy should be taxed, which has to be worked out in this manner." In the light of his aforesaid observations, the learned Commissioner of Income-tax (Appeals) commuted the amounts as under : "It is noticed that out of total premium of Rs. 17,81,84,705, the appellant has paid Rs. 7,77,02,351 and effective amount of premium paid by the employer companies is Rs. 10,04,82,354. The total amount received on maturity is Rs. 23,51,25,000. Thus following the guidelines as given hereinabove in paragraph 3.3.5.2., the amount to be taxed, in view of the principle decision of the Income-tax Appellate Tribunal given in the assessment year 200304, has to be worked out as under : 23,51,25,000 X 10,04,82,354 17,81,84,705 which is Rs. 13,25,92,264. The Assessing Officer is, therefore, directed to tax Rs. 13,25,92,264 as income of the appellant during the year following the direction of the Income-tax Appellate Tribunal in principle as given in the assessment years 2003-04, 2004-05 and even in 2005-06 (after verification done by the Assessing Officer as per directions of the Income-tax Appellate Tribunal). The appellant gets relief of Rs. 10,25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that there was no change in the basic features of the original terms and conditions while in the letter issued to the assessee it was stated that after assignment the keyman policy will be treated as ordinary individual policy. After elaborate discussion and taking into account the earlier Tribunal decision the Tribunal finally concluded as under : "In view of the clear contradiction in the two letters issued by the LIC, one hand written directly to the assessee and one to the Department, in the interest of justice and fair play we restore the appeal to the file of the Assessing Officer for getting clarification from the higher authorities of the LIC with regard to correct status of the keyman policy on the occasion of assignment and consequential treatment of taxability in the hands of the assessee, and to decide the issue afresh as per the terms and conditions applicable to the keyman insurance policy on assignment to the keyman. After getting the clear position if the Assessing Officer found that as per clarification issued by the LIC, the keyman policy is converted into ordinary policy, then to follow the observation of co-ordinate Bench as discussed hereinabove. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount received is to be taxed and only that portion of the maturity proceeds which bears a ratio to the premium paid by the assessee should be allowed as proceeds of an ordinary policy and not taxed. Now we find that surrender value as per the terms applicable in the insurance policy and insurance industry is the value which is received on premature surrender. We note that it is not the case of the learned Commissioner of Income-tax (Appeals) that the impugned keyman policies do not have a provision for premature surrender and hence there cannot be any question of surrender value. We find ourselves in agreement with the contention of learned counsel for the assessee that the learned Commissioner of Income-tax (Appeals)'s order is not in accordance with the ratio laid down by the Tribunal in the assessee's own case earlier. We also note that before the learned Commissioner of Income-tax (Appeals) the assessee had submitted that the Assessing Officer be given the same direction as that given by the Tribunal for the assessment year 2005-06. Hence, adhering to the doctrine of stare decisis, we follow the ratio emanating out of the Tribunal's order for the assessment year 2005-06 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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