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TMI Blog2019 (12) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the instant case and thus have no applicability on the issues raised before us. Action of the Ld. Pr. CIT invoking the provision of section 263 can be tested on twin conditions having been satisfied or not an order sought to be revised should be erroneous and prejudicial to the interest of Revenue. In the present case as per the Pr. CIT the assessment order is erroneous and prejudicial to the interest of revenue on the ground that by virtue of the amendment introduced in the Explanation 1 to section 10(10D) inserted w.e.f. 01.04.2014 would also be applicable in the present case as well on the basis that such explanation is clarificatory in nature. The issue related to taxability of such Keyman Insurance policies assigned in favor of Keyman or other individual has been examined has been examined by Hon ble Delhi High Court in the case of CIT vs. Rajan Nanda [ 2014 (1) TMI 249 - ITAT DELHI] holding them to be exempted u/s.10(10D). In view of this binding precedence we do not find any fault with the assessment order as the assessing officer has taken a view expressed by the Hon ble Delhi High Court which was law of the land. Pertaining to the assessment year under appeal no view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... O to assess the income in the hands of the assessee on account of maturity receipts of the Keyman Insurance Policy amounting to ₹ 7,29,49,460/- and as also, to examine the treatment of the insurance premiums paid by Shri Amandeep Singh Bhatia, on behalf of the appellant, after the assignment of the policy to the appellant. 3.That, the learned Pr. CIT grossly erred in assuming the jurisdiction under s.263 of the Act without considering and appreciating the material fact that during the course of the assessment proceedings, the appellant had duly furnished the necessary particulars and explanation in respect of the subject issue by way of a note while filing her return of income for the relevant assessment year which was duly examined and verified by the learned AO before passing the Assessment Order in the case of the appellant. 4. That, Ld. Pr. CIT grossly erred in invoking provisions of section 263 based merely on 'Change in Opinion' 5. That, the appellant further craves leave to add, alter and/or amend any of the foregoing grounds of appeal as and when considered necessary 3. As the issues raised in both these appeals are common, they were heard together and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amendment is clarificatory in nature and the entire amount received on maturity is liable to tax. Ld. Pr. CIT, issued show cause notice u/s 263 of the Act calling upon the assessee as to why assessment order should not be revised and the maturity amount of Insurance Policy referred above be subjected to tax. In response to the notice assessee filed a detailed submissions placing reliance on various judgments but the same was not found acceptable. Ld. Pr. CIT. after recording detailed finding, discussing the issues on merits as well as the legal aspect decided to set aside the assessment order and directed the AO to make afresh assessment order in accordance with law. 5. Aggrieved by this the assessee is in appeal before the Tribunal raising various grounds of appeal challenging the assuming of jurisdiction u/s.263 of the Act and legality of the order passed u/s 263 of the Act. 6. Ld. Counsel for the assessee reiterated the submissions and various replies given before the Pr. CIT but the crux of the argument were that the Keyman insurance policy issued to the company namely BIC was assigned to the assessee's Husband and thereafter to the assessee. As a result the nature of Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinning Mills vs. CIT in ITANo.3398/Del/2010 4. CIT vs. Max India Ltd. 295 ITR 282 (SC) 5. CIT vs. Gabriel India Ltd. (1993) 203 ITR 108(Bom) 6.CIT vs. R.K. Construction Co. 313 ITR 65 (Gujarat) 7. CIT vs. Arvind Jewellers (2003) 259 ITR 502(Gujarat) 8.CIT vs. Sunbeam Auto Ltd. (20100 189 Taxman 436 (Del) 8. With regard to the contention that the amendment brought in Finance Act 2013 in Explanation (1) to section 10(10D) is prospective in nature, assessee relied following judgments: 1. Nirmal Textiles (1997) 224 ITR 378 (Gujarat High Corut) 2. CIT vs. Essar Teleholding Ltd. (2018) 3 SCC 253 3. CIT vs. M/s Shah Sadiq and Sons (1987) 3 SCC 516 4. CIT vs. Vatika Township Private ltd. (2015) 1SCC 1 5. CIT vs. Sarkar Builders (2015) 7 SCC 579 9. Per contra Ld. Departmental Representative(DR) vehemently argued strongly supporting the detailed finding of Ld. Pr. CIT. 10. We have heard rival contentions and perused the records placed before us and carefully gone through the judgments referred and relied by the Ld. Counsel for the assessee as well as the judgments referred in the impugned order passed by the Ld. Pr. CIT. Before deciding the issue whether the order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must be erroneous. Second is that the error must be such that it is prejudicial to the interests of the revenue. If the order is erroneous but it is not prejudicial to the interests of the revenue, the Commissioner can not exercise the revisional jurisdiction under section 263(1)………………..There cannot be any prejudice to the revenue on account of the ITO's failure to follow the procedure prescribed under section 144B, and unless the prejudice to the interests of the revenue is shown, the jurisdiction under section 263(1) cannot be exercised by the Commissioner, even though the order is erroneous. The argument that such an order may possibly be challenged in appeal by the assessee, and for this reason it is prejudicial to the interests of the revenue, has no merit. Section 263(1) clearly contemplates that the order of assessment itself should be prejudicial to the interests of the revenue and this prejudice has to be proved by reference to the assessment order only. It cannot be argued that there is some possib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not if his orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realised, has been subjected to tax or not or if it is subjected to tax, whether it has been subjected to tax at a rate at which it could yield the maximum revenue in accordance with law or not. If income in question has been taxed and legitimate revenue due in respect of that income had been realised, though as a result of erroneous order having been made in that respect, in our opinion, the Commissioner cannot exercise powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter-linked and the authority exercising powers under section 263 is under an obligation to consider the entire material about the existence of income and the tax which is realizable in accordance with law and further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation available on records it is noted that you have received maturity amount of insurance policy to the extent of ₹ 6,49,45,710/-. The company Bhatia International Ltd. in which your husband was a director, had purchased insurance policy named as JeevanAnand from LIC of India in April 2005 of the life of your husband, with a sum assurance of ₹ 5 crores. Premium thereon was paid by the company upto Oct, 2010 and claimed deduction thereof, u/s 37 of the Act from its computation of income. You have got the ordinary life insurance policy through assignment from your husband sub-sequent to the payment of surrender value already paid to the company Bhatia International Ltd. for ₹ 1,72,32,045/- dated 31.03.2012 by the husband, as this was a Keyman Policy in his name being the director of M/s Bhatia International Ltd. the source of premium & surrender value paid in your hand have been show as gift received from the husband, the assignment is completed in your favour on 31.03.2013 i.e. before the amendment of section 10(10D) of the I.T. Act LIC has deducted TDS @ 2% under section 194DA on maturity value and you have received premature maturity value in Feb, 2015 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assignment premium of ₹ 1,61,65,193/- i.e. total amount of ₹ 3,33,97,238/-. During the relevant period assessee received maturity amount of insurance policy of ₹ 6,49,45,710/-. The company Bhatia International Ltd. in which the assessee's husband was a director, had purchased insurance policy named as "JeevanAnand" from LIC of India in April 2005, on the life of the assesseee's husband with a sum assurance of ₹ 5.00 cr. Premium thereon was paid by the company upto Oct. 2010 and claimed deduction thereof, u/s 37 from its computation of income (ie. In P/L Account). Assesse has got the ordinary life insurance policy through assignment from her husband on the payment of surrender value paid to the company Bhatia International ltd. for ₹ 1,72,32,045/- dated 31.03.2012 as this is a Keyman Policy in the name of Bhatia International Ltd. (Keymanassessee's husband) and 07 years premium paid by the company(ie from April 2005 to March 2012). Company had assigned this policy to the Keyman on surrender value & for remaining tenure premium is paid by the assessee. The source of premium & surrender value paid in the hand of assessee is gift received from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns such as mismatch the amount paid to related persons, copy of bank account, bill vouchers of sale of jewellery etc. Another notice was issued on 13.11.2017 there also some sundry question like purchase of share and source thereof was asked. In none of the notice the Assessing Officer asked about the maturity of the insurance policy and its treatment thereof. He did not even aske the assessee as to what is the reason for high refund or refund out of self-assessment tax paid. The order sheet entered also do not show any questionor query regarding the receipts of maturity amount from LIC. The officer has recorded some kind of finding on the order sheet towards the end of the proceedings in which he has reproduced the sequence of events narrated by the assessee in the submissions related to the receipt of maturity amount of insurance policy. He has accepted the version given by the assessee without any enquiry regarding the sources of payment of insurance premium, the utilization of the policy maturity receipts etc. The case laws which has been relied by the assessee before the Assessing Officer such as Rajan Nanda 18 taxman.com 98 and Prashan J. Agarwal 243 Taxman 119 is no more app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e policy has been purportedly assigned to the assessee by her husband,the life assured remains the same. The risk of life remained that of the husband of the assessee. Further the enquiries also revealed that the insurance premium of the policy, after purported assignment to the assessee, was paid by Mr. Bhatia to whom the policy was assigned by the company. The Assessing Officer did not make any enquiry about these aspects. Had he made these enquiries he would have come to know about the correct position of the reasons of the purported assignment. The most important point here is that Mr. Bhatia, who had purchased the keyman insurance policy from the company Bhatia International Ltd. by paying the residuary/surrender value of the policy, was still the person assured and he had assigned only the receipts of the policy to his wife i.e. the assessee. The gift is of the maturity proceeds of the policy and not that of the policy itself. There is the difference between assignment of the Keyman insurance policy by the company to its keymanMr. Bhatia and subsequent assignment by Mr. Bhatia to his wife. In the first assignment ie. By the company to thekeyman was for a consideration w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium on the policy and claims the entire sum received under such policy as exempt on the ground that the policy is no longer a keyman insurance policy. 5.3 The exemption under section 10(10D) is claimed for policies which were originally keyman insurance policies but during the term these were assigned to some other person. The courts have also noticed this loophole in law. 5.4 With a view to plug the loophole and check such practices to avoid payment of taxes, the provisions of clause (10D) of section 10 of the Income Tax Act, 1961 have been amended to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy and consequently would not be eligible for any exemption under section 10(10D) of the Income Tax Act." The wording of the explanation also clearly say that if the keyman insurance policy is assigned to "a person" anytime during the term of the policy with or without consideration the policy would be considered as keyman insurance policy. The legislature has not use the work 'the' which would have signified a limited meaning to the assignee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced below: Letter datedJune 15, 2017(Annexure A/6 of PAPER BOOK filed on 07.05.2019) 01] The assessee has Electronically filed his return of total income for the year under consideration on 31.03.2016 vide Ack. No. 143045360310316. Copy of Acknowledgement of said Return along with computation of total income for the year under consideration are enclosed. Enel.No. 01 to 06. 02] Assessee accounts are not audited U/s 44AB because assesse is not having any business income and she is not fall in any category of section 44AB. 03] Assessee is an individual, copy of Statement of Affairs &Capital account for last 3 years i.e.AY. 2015-16, 2014-15 &2013-14 are enclosed herewith. Encl. No.07 to 13. 04] Your honour is asked to submit the ,evidence of payment of taxes. 04.1] In this regard we are enclosing here with copy of Form No. 26AS showing payment of taxes is enclosed herewith. Encl. No.14 to17. 05] Assessee has claimed deduction under chapter VIA for payment of PPF of ₹ 150000/- Copy of the Pass Book is enclosed herewith for your ready reference. Elcl. No.18 to 19 Letter dated 09.10.2017 (Annexure A/7of PAPER BOOK filed on 07.05.2019) 1. Copy of all bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe assurance of Director Amandeep S. Bhatia in the Year 2005 (April 2005) with a sum assurance of ₹ 5 crores. 2. Bhatia International Ltd. has regularly paid premium on above plan and claimed in profit &loss account up to Oct. 2010 &thereafter above plan assign to Mr. Amandeep S. Bhatia on surrendered value of ₹ 1.72 crores as per certificate dated 23.02.2012. Copy of certificate issued by the LIC of India for surrender value is enclosed here with. Encl. No . 3. That above surrender value is duly offered by the Company " Bhatia International Ltd." in books of accounts as income . Copy of the ledger account, profit &loss account along with order passed by the ITSC are enclosed. Enel.No. 4. Further Mr. A.S.Bhatia has assign policy to his wife Smt. Harleen K. Bhatia on 30.01.2013. Your honour please note that at the time when the policies were taken, the nature of the policies were "keyman insurance policies" as defined in section .JO(lOD). The persons on whose life policies were taken were directors. They were keyman as explained in Boards circular no. 762, dated February 18, 1998 (supra). When the policies were assigned to them in April 2012, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. Premium payment tenure was 10 years i.e. last payment comes on 01.01.2015.The date of maturity is 28th April 2015. The due date of premium payment is quarterly for ₹ 14.69 lacs yearly totalling to ₹ 58.76 lacs. Bhatia International Ltd. had regularly paid premium on above plan and claimed in profit & loss account & thereafter above plan was assigned to Mr. A.S. Bhatia on surrendered value of ₹ 1.72 crores which has been offered to tax by the Company Bhatia International Ltd. in the profit and loss account (PB. 184 of the Paper Book dated 07.05.2019).Mr. A.S. Bhatia had then assigned policy to his wife Smt. H.K. Bhatia on 30.01.2013.Assignee Smt. H.K. Bhatia had taken surrender value during the month of February 2015 just before the 2 month of maturity date as maturity date of the policy was April 2015. Surrender Value received in the hands of Smt. H.K. Bhatia was ₹ 6.49 crores after deducting TDS @ 2% u/s 194DA of Income Tax Act. After verifying the claim of the assessee through various documentary evidences produced by the assesse and computation of income, replies dated 15.06.2017, 09.10.2017, 23.10.2017 and 17.11.2017 and various judicial pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was, connected in any manner what so ever with the business of the first mention person. Expenditure incurred by the organisation by way of premium on keyman insurance policies will be allowed as deduction u/s 37 in its hands.[Re: CIT v. B.N. Exports [2010] 190 Taxman 325 (Bom.)]. In CIT v. Rajan Nanda [2012] 18 taxmann.com 98 (Delhi)] regarding sum received on maturity of keyman insurance policies, it was held that the Act lays down that such will be taxed u/s 28 as business profits in its hands or where payment of premium is not part of business expenditure then sum received on maturity will be taxed u/s 56. Thus when there is "no assignment", Section 37 and Section 28 or Section 56 of the Act operate in the case of employer. Now in case there is assignment of the Keyman Insurance Policy 30. A policy initially taken on the life of the keyman of the organisation may be assigned to that person or to some other person. The premium thereafter has to be paid by that person. No deduction is allowed as business expenditure in the hands of the organisation in respect of premium paid after assignment. When the policies is assigned to the employee then surrender value received from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual and not the company/employer which initially took the policy. Such company/employer no more remains the contracting parties. We have to bear in mind that law permits such an assignment even LIC accepted the assignment and the same is permissible. There is no prohibition as to the assignment or conversion under the Act. Once there is an assignment, it leads to conversion and the character of policy changes. The insurance company has itself clarified that on assignment, it does not remain a keyman policy and gets converted into an ordinary policy. In these circumstances, it is not open to the Revenue to still allege that the policy in question is keyman policy and when it matures, the advantage drawn there from is taxable. One has to keep in mind on maturity, it does not the company but who is an individual getting the matured value of the insurance." 33. Following this decision the ITAT in DCIT v. Rajan Nanda [2013] 37 taxmann.com 335 (Delhi - Trib.)held as under: "9. Thus, the Hon'ble High Court has effectively held in favour of the assessee to the effect that once there is assignment of the employer in favour of the individual, the character of the insurance p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible view provided in law after considering the judgements, as has been held by Hon'ble Apex Court in the case of CIT Vs.Max India Ltd (295 ITR 282). 34A. However, Ld. Pr. CIT while setting aside the assessment order in question took a view that the amendment brought in by Finance Act 2013 Explanation 1 is retrospective and clarificatory in nature and thus the alleged maturity proceeds are taxable as they were received subsequent to the amendment. In order to adjudicate this issue ,we find that in the notes on clauses to amendment by Finance Act 2013 it was observed that: "5.1 The provisions of clause (10D) of section 10 of the Income Tax Act, 1961 before amendment by Act, inter alia, exempt any sum received under a life insurance policy other than a keyman insurance policy. Explanation 1 to the said clause (10D) defines a keyman insurance policy to mean a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person. 5.2 It has been noticed that the policies taken as keyman insurance policy are being assigned to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to have retrospective operations. Legal Maxim "nova constitutiofuturisformamimponeredebet non praeteritis", i.e. 'a new law ought to regulate what is to follow, not the past', contain a principle of presumption of prospectively of a statute. 24. Justice G.P. Singh in "Principles of Statutory Interpretation" (14th Edition, in Chapter 6) while dealing with operation of fiscal statute elaborates the principles of statutory interpretation in the following words: "Fiscal legislation imposing liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. The above rule applies to the charging section and other substantive provisions such as a provision imposing penalty and does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings. But a procedural provision, as far as possible, will not be so construed as to affect finality of tax assessment or to open up liability which had become barred. Assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed as being prospective. 39. In the case of Controller of Estate Duty Vs. Merchant (M.A.) (1989) 177 ITR 490 (SC) :Hon'ble Court held that subsequent legislation should not to affect vested rights, unless legislation is made retrospective expressly or by necessary implication. There is a well-settled principle against interference with vested rights by subsequent legislation unless the legislation has been made retrospective expressly or by necessary implication. 40. In the case of Ritz Ltd. Vs. Union of India (1990) 184 ITR 104 (Bomb.) :Irrespective of the language in which amending provisions are couched, an amendment cannot be retrospective with effect from a date earlier to the date on which the provision sought to be amended itself was brought on the statute book. 41. In the case of Saurastra Agencies Pvt. Ltd. Vs. Union of India (1990) 186 ITR 634 (Cal) :Rule is against retrospectively. Unless provided in the statute, the law is always presumed to be prospective in nature. There cannot be any implicit inference of any retrospective operation of law. The retrospective operation must be clear and unambiguous. 42. The expression "such" in the added portion "and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any impact. 45. Even in the notes on clause toAmendment in finance Act 2013 in para 5.2 takes note of the fact that various policies taken as Keyman Insurance Policy are being assigned to the Keyman before its maturity and thereafter, maturity amount is claimed as exempt. In para 5.3 of the notes also notice that this is loophole in law which needs to be removed. These observations cannotes that before this amendment various assessees were claiming exemption of the maturity proceeds of Keyman Insurance Policy which were assigned to other person. Same is the situation in the case of the assessee in the instant appeal wherein the policy was assigned in her favour on 30.01.2013 from her husband which was originally taken as a keyman insurance policy by Bhatia International Company. Since the assignment in favour of assessee duly recorded by LIC happened before the effective date of amendment in explanation 1 to section 10(10D) of the Act the same will have no adverse effect on the assessee and the alleged amount received on prematurity of insurance policy will be exempted. Though Ld. Pr. CIT has questioned about the source of premium paid by the assessee for the insurance policy, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessments years." 46. We, can thus, safely concluded that the amendment brought in by Finance Act 2013 in explanation 1 to section 10(10D) of the Act is prospective in nature and by no stretch can be termed as retrospective or clarificatory in nature and shall only apply on the keyman insurance policy assigned after 01.04.2014. Even otherwise it has been submitted before us that has the policy been not assigned by the company to its Keyman and maturity proceeds offered to tax by the company , their would have been no loss to revenue as the company had huge losses much above the maturity proceeds during the Assessment Year 2015-16. 47. Though Ld. Pr. CIT in the impugned order has referred to various judgments on merits as well as legality of the case but in our considered view they are not squarely applicable on the facts of the instant case and thus have no applicability on the issues raised before us. 48. Action of the Ld. Pr. CIT invoking the provision of section 263 can be tested on twin conditions having been satisfied or not an order sought to be revised should be erroneous and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Life insurance policy and no expenditure has been claimed post its assignment and also in our view as the Amendment brought in by Finance Act 2013 explanation 1 to section 10(10D) of the Act w.e.f. 01.04.2014 is prospective in nature , same is not applicable on the assessee since assignment of policy in favour of the keyman Mr. A.S. Bhatia was in October 2010 and thereafter assignment recorded by the LIC in favour of the assessee on 30.01.2013 were much before the amendment brought in the Explanation 1 to section 10(10D) of the Act effective from 01.04.2014 and thus Ld. Assessing officer was justified in accepting the claim of the alleged receipts as exempted income u/s 10(10D) of the Act. 50. Therefore, since twin conditions which are mandatorily required to be fulfilled by Ld. Pr. CIT before passing the order u/s 263 of the Act remains unfulfilled as the order of the Ld. AO is neither erroneous nor prejudicial to the interest of Revenue. We, therefore, are of the view that Ld. Pr. CIT was not correct in law in exercising the jurisdiction u/s 263 of the Act and cancelling the assessment. We, accordingly quash the impugned order passed u/s 263 of the Act dated 21.12.2018 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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