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TMI Blog2020 (12) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... paid any premium on the said Keyman Insurance Policy from his own resources. Therefore, even if the assignment is endorsed by the Insurance Company as on 31.03.2006, the character of the Policy does not convert into an ordinary Life Insurance Policy in the hands of the Assessee. The Keyman Insurance Policy is a Life Insurance Policy taken by the employer company in favour of its employee Managing Director. Its character continues to be the same. In RAJAN NANDA AND NARESH KUMAR TREHAN [ 2011 (12) TMI 392 - DELHI HIGH COURT ] clearly expresses that the character of the Insurance Policy gets converted into an ordinary policy. Because Section 10(10D) of the Act does not make any such distinction, it cannot be said to be a case of tax evasion, but rather a case of tax planning, even if huge benefit of these provisions are taken by both company as well as individual. It is this caveat, along with the pronouncement of Delhi High Court, led to the insertion of aforesaid Explanation 1 to Section 10(10D) of the Act and therefore, after such amendment, which in our opinion applies retrospectively to all the previous years, including the Assessment Year 2007-08 in the present case - the relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee are quoted below: 14. The facts of the case are that the assessee is the Managing Director of Allu Entertainment Private Ltd. (AEPL). During the F.Y 2004-05, AEPL has taken two Key Man Insurance Policies each amounting to ₹ 100 lakh on the life of the assessee. Of which, one policy was assigned in favour of the assessee on 31.03.2006 . The surrendered value of the policy amonting to ₹ 58,74,752/- was offered as income taxable as perquisite u/s. 173(3) of the Act in that year itself i.e. assessment year 2006-07 . Subsequently, the assessee en-cashed the policy at ₹ 97,03,083/- on 29.06.2006. The AO has added the sum of ₹ 38,28,331 (₹ 97,03,083-₹ 58,74,752). Against this, assessee carried the appeal before the CIT(A) . 15. On appeal, the Ld. CIT(A) observed that Section 10 is the first section in chapter III entitled 'Incomes which do not form part of total income. In section 10, various kinds of incomes are stipulated, which are not to be included in total income. This section excludes those sums from income, which are received under a life insurance policy, including the sum allocated by way of bonus of such policy . however, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payment which is received by employee under Key Man Insurance Policy, can be taxed in the hands of employee u/s. 17(3)(ii) of the Act. However, where no such amount was received at time of assignment of policy by employer company, as employee, nothing could be taxed in assessee's hands u/s. 17(3)(ii) of the Act. Further, once there is an assignment of Key Man Insurance Policy by employer company to employee, insurance policy gets converted into an ordinary policy and hence, in that case, maturity value received by employee would not be subject to tax in view of section 10(10D) of the Act. In our opinion, the argument of assessee's counsel is totally misplaced that the two insurance policies were taken in the name of Managing Directorof the assessee company ie. present assessee for amounting to ₹ 100 lakhs each. The said policy was assigned to the assessee on 31.03.2006, and the surrender the value of that policy amounting to ₹ 58,74,752/- was offered as income as perquisite u/s. 17(3) of the Act for assessment year 2006-07. Subsequently, within a short time, the said policy was encashed at ₹ 97,03,083/- on 29.06.2006. In our opinion, the device a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Policy prior to Assessment year 2014-15. He, therefore, submitted that the appeal of the Assessee deserves to be allowed. 7. Per contra, Mr.M.Swaminathan, learned Senior Standing Counsel appearing for the Revenue vehemently opposed these submissions and drawing the attention of this Court to the provision of Section 10(10D) of the Act, submitted that only the sum received under Life Insurance Policy is exempt from taxation under Section 10(10D) of the Act. But, clause (b) thereafter makes an exception with regard to Keyman Insurance Policy and therefore, the sum received by the Assessee under the Keyman Insurance Policy after the assignment in his favour on 31.03.2006 was also clearly taxable as perquisite in the hands of the Assessee. 8. The learned Senior Standing Counsel further submitted that the present Assessee individually never paid any premium on the said Keyman Insurance Policy after its assignment in its favour on 31.03.2006 and soon after three months of assignment, he got it surrendered, encashed and received the additional sum of ₹ 97,03,083/- and therefore, the balance sum was rightly taxed as perquisite in the hands of the Assessee. 9. Drawing our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; 87 [or] 88 [(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:] Provided that the provisions of 89 [sub-clauses (c) and (d)] shall not apply to any sum received on the death of a person: Provided further that for the purpose of calculating the actual capital sum assured under 90 [sub-clause (c)], effect shall be given to the 91 [Explanation to sub-section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be] : 92 [Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is- (i) a person with disability or a person with severe disability as referred to in section 80U; or (ii) suffering from disease or ailment as specified in the rules made under section 80DDB, the provisions of this sub-clause shall have effect as if for the words ten per cent , the words fifteen per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is excluded from the ambit of exemption under Section 10(10D) by specifically mentioning the same in Clause (b) of the said exception of the provision quoted above. Therefore, any amount received under Keyman Insurance Policy is a taxable receipt in the hands of the employee concerned as perquisite. 15. In the present facts, the Keyman Insurance Policy was taken out by the Company and was assigned in favour of the Managing Director on 31.03.2006 . To the extent of surrender value accrued as on 31.03.2006 , namely ₹ 58,74,752 /-, was offered for taxation as perquisite in the hands of the Assessee. The character of Insurance Policies does not change after assignment. The Assessee himself has never paid any premium on the said Keyman Insurance Policy from his own resources. Therefore, even if the assignment is endorsed by the Insurance Company as on 31.03.2006 , the character of the Policy does not convert into an ordinary Life Insurance Policy in the hands of the Assessee. The Keyman Insurance Policy is a Life Insurance Policy taken by the employer company in favour of its employee Managing Director. Its character continues to be the same. 16. The view expressed by the Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 therefrom 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. 54. No doubt, the parties here, viz., the company as well as the individual taken huge benefit of these provisions, but it cannot be treated as the case of tax evasion . It is a case of arranging the affairs in such a manner as to avail the state exemption as provided in Section 10(10D) of the Act. Law is clear. Every assessee has right to plan its affairs in such a manner which may result in payment of least tax possible, albeit, in conformity with the provisions of Act. It is also permissible to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been assigned to any other person only effective from 1st April, 2014. The amended Explanation I to Section 10(10D) of the Act now reads as under: [Explanation 1] - For the purposes of this clause, Keyman insurance Policy means 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 [and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration]. 6. However, as we are concerned with the period prior to 1st April, 2014, the above amendment would not apply in the subject assessment year. 7. Ms.Bharucha, learned counsel for the Revenue very fairly states that the issue arising stands concluded against the Revenue for the reasons mentioned by the Delhi High Court in Rajan Nanda (supra). It is also accepted by the Revenue that the amendment in Explanation I to Section 10(10D) of the Act has specifically come into force only from 1st April, 2014 and it would not govern / apply to amounts received under the assigned Keyman Insurance Policy p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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