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TMI Blog2014 (4) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... as a case of tax evasion - It is a case of arranging the affairs in such a manner as to avail the exemption as per provisions of section 10(D) of the Act – thus, nothing is taxable out of the maturity value of the policy received from the insurance company by the assessee employee – Decided in favour of Assessee. - I.T.A. No. 2905/Del/2013 - - - Dated:- 17-4-2014 - Shri S. V. Mehrotra And Shri Chandramohan Garg,JJ. For the Appellant : Shri Parag Mohanty For the Respondent : Shri Satpal Singh, Sr. DR ORDER Per Chandra Mohan Garg, Judicial Member This appeal has been preferred by the assessee against the order of Commissioner of Income Tax(A)-XXII, New Delhi dated 24.12.2012 in Appeal No. 337/10-11 for AY 2008-09. 2. Ground no. 7 and 8 of the assessee are general in nature which need no adjudication. Remaining grounds of the assessee read as under:- 1. The ld.CIT(A) - XXII, New Delhi ( Ld. CIT(A) ) has erred in law and on the facts and circumstances of the case by not accepting the returned income of Rs. 16,18,6501- and confirming the assessment at income of Rs. 73,04,440/- as made by the Learned Assistant Commissioner of Income Tax, Circle-20(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the true facts of the case and has tried to deny the basic terms and conditions of the policy and has made a claim that there was no supplementary account contrary to the terms of the policy and the assessee has also claimed that there was no special surrender value of the policy which is again contrary to the terms of policy. Now, the assessee is in this second appeal with the grounds as mentioned hereinabove. Ground nos. 1 to 5 of the assessee 4. We have heard rival arguments of both the parties and carefully perused the record inter alia the assessment order and appellate order of the Commissioner of Income Tax(A). The counsel of the assessee has drawn our attention towards the decision of Hon ble Jurisdictional High Court of Delhi in the case of C.I.T. vs Rajan Nanda (2012) 349 ITR 8 (Del) wherein it has been held that there is no prohibition as to the assignment or conversion under the Act. Their lordships have held that once there is an assignment, it leads to conversion and the character of policy changes and as per the clarification of the insurance policy on assignment, the policy does not remain a keyman policy and the same gets converted into an ordinary policy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the Keyman insurance policy. 14.1 A Keyman insurance policy of the Life Insurance corporation of India, etc. provides for an insurance policy taken by a business organization or a professional organization on the life of an employee, in order to protect the business against the financial loss, which may occur from the employees premature death. The Keyman is an employee or a director, whose services are perceived to have a significant effect on the profitability of the business. The premium is paid by the employer. 14.2 There were some doubts on the taxability of the income including bonus, etc. from such policy, and also regarding the treatment of the premium paid - whether it should be allowed as a capital expenditure or as a revenue expenditure. The Finance (No.2) Act, 1996, therefore, lays down the tax treatment of the Keyman Insurance Policy. 14.3 Clause (10D) of Section 10 of the Income Tax Act exempts certain income from tax. The Finance (No.2) Act, 1996 mends clause (10D) of Section 10 to exclude any sum received under a Keyman Insurance Policy including the sum allocated by way of bonus of such policy for this purpose. 14.4 The Finance (No.2) Act, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after assignment of a Keyman Insurance Policy in the name of the individual and the premiums thereafter being paid by such individual, the hitherto Keyman Insurance Policy becomes an ordinary policy. In this case, on the date of maturity, the policy in question is rightly to be accepted as an ordinary insurance policy. 51. The Tribunal while giving requisite relief brought to tax the amount of surrender value at the time of assignment subject to verification by the AO. It also rejected the alternative argument of the assessee that in case the sum received on maturity was held to be taxable, then deduction be allowed for the premia paid by the assessee after the assignment of the policy, which were embedded in the maturity amount and not claimed as a deduction in the tax assessments. 52. Thus, the issue depends on the question as to whether on assignment of the insurance policy to the assessee, it changes its character from Keyman insurance also to an ordinary policy. It is because of the reason that if it remains Keyman insurance policy, then the maturity value received is subjected to tax as per Section 10(10D) of the Act. On the other hand, if it had become ordinary policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received on maturity on any basis whatsoever. Nothing can be read in Section 10 (10D) of the Act, which is not specifically provided because any attempt in that behalf as contended by Revenue would be tantamount to legislation and not interpretation. 55. Accordingly, we answer the questions of law as framed in favour of the assessees and against the Revenue. As a result, the appeals of the Revenue are dismissed and those of the assessees are hereby allowed.' 9. Thus, the Hon'ble High Court has effectively held in favour of the assessee to the effect that once there is an assignment of the employer in favour of the individual, the character of the insurance policy changes and it gets converted into an ordinary policy; that such assignment is duly permitted by law; that even the LIC accepted the assignment, itself clarifying that on assignment, the policy no longer remains a Keyman Policy and gets converted into an ordinary policy; that as such, it is not open to the Department to still allege that the policy is a Keyman Policy and when it matures, the advantage drawn therefrom is taxable; that on maturity of the policy, it is not the employer, but the individual, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the individual employee who is getting maturity value/benefits of the insurance policy and no doubt the employer as well as the individual take huge benefit by such assignment and at the same time, it cannot be treated as a case of tax evasion. It is a case of arranging the affairs in such a manner as to avail the exemption as per provisions of section 10(D) of the Act. 7. Dismissing the appeal of the revenue for the AY 2007-08 to 2009-10, ITAT Delhi Bench F approved and upheld the observations and findings of the Commissioner of Income Tax(A) in favour of the assessee on the same issue and held that the benefit incurred owing to the combined effect of a prudent investment and statutory exemption provided u/s 10(10D) of the Act. The section does not envisage any bifurcation in the amount received on maturity on any basis whatsoever. Nothing can be read in section 10(10D) of the Act, which is not specifically provided therein. The Tribunal further held that since any such attempt would tantamount to legislation and not interpretation, on the basis of foregoing discussion, we are of the considered view that on the basis of above enunciation of law by Hon ble High Court, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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