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TMI Blog2010 (6) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... ly treating the encashment of key man policy as revenue receipt as against capital receipt." 3. The assessee in this case is a renowned Doctor by profession. During the course of assessment Assessing Officer found that asessee received ₹ 4,27,50,000/- as maturity amount towards key man policy from LIC taken by Escorts Heart Institute and Research Centre Ltd.. Assessing Officer enquired as to why the said amount received on maturity of key man insurance policy be not brought to tax in the hands of the assessee. Assessee replied that as per the policy rules issued by the LIC the key man policy once transferred/assigned becomes a normal policy and encashment of such policy, the proceeds receipt is exempt from tax. Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer shall provide reasonable opportunity of being heard to the assessee. The assessee shall be at liberty to submit the alternative contention before the Assessing Officer to claim the benefit of exemption with regard to the bonus amount on premium paid by the assessee. The Assessing Officer shall consider all contentions and submissions that may be advances by the assessee before him, and he shall pass a well reasoned and speaking order on all aspects of the matter relating to the issue in hand. We order accordingly." 4.1 The assessee further submitted before the Ld. Commissioner of Income Tax (Appeals) that Assessing Officer after verification, as directed by the ITAT, has given effect as exactly same manner as wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount constituting the sum pertaining to the period when it was keyman insurance policy in the total amount of ₹ 4,27,50,000/- received on maturity and the same has to be taxed as income of the appellant based on the principle decision of Hon'ble ITAT in the case of Shri Rajan Nanda for A.Y. 2003-04. The remaining amount of ₹ 1,84,21,274/- is to be treated as exempt u/s 10(10D). Thus appellant gets relief of ₹ 1,84,21,274/- on this ground." 5. Against this order the assessee is in appeal before us. 6. We have heard both the counsels and perused the records. Ld. counsel of the assessee submitted that fact of the case being identical to that of the case of Shri Rajan Nanda. Since both the appeals were heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 1996 the amount received under a keyman insurance policy will not be exempted from tax as per section 10(10D) of the Income Tax Act. The proceeds of the policy will be treated as income u/s 28(vi) of the Act. Provisions applicable to the keyman: 1) In the event of the policy being assigned to the keyman, the proceeds of the policy including bonus will be treated as "profits in lieu of salary" under section 17 (clause 3) of the Income Tax Act. 2) In the event of a director being the assignee under the keyman policy. It will be treated as "income from other sources" and taxed accordingly (section 56(2iv) of the Income Tax Act, 1961. The underlying principle is that the premium paid is allowed as a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify that amount of loans and interest thereon as availed by the assessee on these policies will not effect the maturity value of the policy, which is liable to be considered alongwith amount of bonus thereon, which the assessee is entitled to get. Accordingly, action of the assessee in offering the net amount received from LIC after deduction of loan and interest thereon as availed by the assessee on these policies are not correct." 7.3 From the above it is very clear that Tribunal had directed that the Assessing Officer should make enquiry and examine the issue inter-alia as per the terms and conditions applicable to the keyman policy on assignment to keyman. Ld. counsel of the assessee submitted that subsequent to the directions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is to be treated as surrender value and the equivalent amount 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. 7.5 Now we find that surrender value as per the terms applicable in insurance policy and insurance industry is the value which is received on premature surrender. We note that it is not the case of Ld. Commissioner of Income Tax (Appeals) that the impugned keyman policies do not have a provision of premature surrender and hence there can not be any question of surrender value. We find ourselves in agreement with the contention of the ld. counsel of the assessee that the Ld. Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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