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TMI Blog1976 (10) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 65. The deceased wrote a letter to the Life Insurance Corporation of India, Colombo Office, requesting it to send a cheque amounting to Rs. 23,495.20 due under the policy. The Life Insurance Corporation of India sent a reply stating that the cheque could not be sent as the policy had been assigned by the deceased in favour of his wife and that if the deceased wanted payment a note of authority on the back of the discharge form and in his favour should be executed by his wife. In the meantime, the deceased died. The wife of the deceased by a letter dated December 14, 1966, sent a note of authority in favour of one S. A. Samu after completing the discharge form and the Life Insurance Corporation of India sent a cheque for the amount due to the said S.A. Samu. The Assistant Controller of Estate Duty included the said sum of Rs. 23,495 in respect of the above-said policy in the dutiable estate of the deceased. According to the Assistant Controller, the assigned policy would tantamount to gift and the bona fide possession and enjoyment of the policy was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the deceased, or of any benefit to him, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the premiums paid by him, where the policy is partially kept up by him for such benefit shall be deemed to pass on the death of the assured." It is not in dispute that the above provision is a verbatim reproduction of section 2(1)(c) of the United Kingdom Finance Act, 1894. It is equally not in dispute that there is no decision of either the courts in the United Kingdom or the courts in the country on the specific issue with which we are concerned. From what we have stated already, it is clear that the insurance policy in question is what is generally called an endowment policy and the said policy matured on the expiry of the period of endowment during the lifetime of the assured himself. In that context, the question that arises for consideration is, if the other conditions of the section are satisfied, whether the amount received on the maturity of the policy on the expiry of the period of endowment will fall within the scope of section 14 or not. From the facts stated by us, it is clear that the deceased took out the policy in 1953 and that lie assigned the same in favour of his wife on March 16, 1956. It is not in controversy that even after the assignment of the poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son shall be subject to all liabilities and equities to which the transferor or assignor was subject at the date of the transfer or assignment and may institute any proceedings in relation to the policy without obtaining the consent of the transferor or assignor or making him a party to such proceedings." Since this sub-section opens with the expression, "Subject to the terms and conditions of the transfer or assignment", it is certainly open to the parties to agree that, notwithstanding the transfer or assignment, the beneficial interest in the policy will continue to remain with the transferor or assignor. Similarly, nomination of a person by a policy-holder is dealt with under section 39 of the Insurance Act, 1938. The effect of nomination is not to clothe the nominee with beneficial interest in the policy or the money payable thereunder, but to clothe him or her only with the power to receive the money under the policy from the insurer without prejudice to the question of title to the money. Consequently, it confers on the nominee a bare right to collect the policy money when the money becomes payable and by such nomination and the collection of the money, the nominee does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, even accident policies may fall within this category. A policy of insurance provided for the payment of certain specified sums by the underwriters on death or disablement of the assured caused by accident. The assured died as a result of an accident within the policy. It was held in In re Gladitz : Guaranty Executor and Trustee Company Ltd. v. Gladitz [1937] 1 Ch 588 ; [1938] 8 Comp Cas (Ins) 36 (Ch D) that the policy was one effected by the assured on his own life within the meaning of the Married Women's Property Act, 1882. The following passage occurring in Halsbury's Laws of England, third edition, volume 22, may be apposite in this context : "538. Nature of contract in strict sense.--A contract of life insurarnce in its strict form may be defined as a contract under which the insurers undertake, in consideration of specified premiums being continuously paid throughout the life of a particular person, to pay a specified sum of money upon the death of that person. The particular person whose life forms the subject-matter of the insurance need not be the person who pays the premiums ; it may be a third party. 539. Life Policies for specified Periods : endowment Polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract for a deferred annuity on the life of the assessee or on the life of a wife or husband of the assessee, or as a contribution to any provident fund to which the Provident Funds Act, 1925 (XIX of 1925), applies." In the case the Supreme Court was considering, on June 23, 1959, a policy called "Children's Deferred Endowment Assurance" for a sum of Rs. 50,000 was issued by the Life Insurance Corporation of India. The proposer was Harjiwandas Kotecha, the father of the assessee, and the life assured was that of the assessee. The contract of insurance entered into by the father of the assessee with the Life Insurance Corporation provided that the contract was to become the assessee's contract only by his adopting it on attaining majority. Clause 5 of the policy stated that all moneys payable in terms of the policy shall, if the policy had been adopted by the life assured, be payable to the life assured, or his assigns or nominees under section 39 of the Insurance Act or proving executors or administrators or other legal representatives and that in the event of the life assured not having adopted the policy, the moneys payable in terms of the policy shall become payable to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch adoption. In our opinion, the requirements of section 15(1) of the Act are satisfied in this case because all that section 15(1) requires is that in order to get exemption from payment of tax in respect of any sum two conditions must be satisfied, viz., (1) such sum must have been paid by the assessee himself, and (2) that such payment must have been made to effect an insurance on the life of the assessee himself. In the present case, the subject-matter of the contract is the insurance on the life of the assessee and it is not disputed that the payment of the premium was made by the assessee out of his taxable income. On behalf of the respondent, Mr. Desai contended that the assessee was not entitled to the rebate under section 15(1) of the Act on the premium paid. It was pointed out that the contract of insurance provided that the assessee was not entitled to the benefit of the policy till he adopted the contract on the date of his attaining majority. The argument was stressed that the contract was made between the Life Insurance Corporation and the father of the assessee and under the terms thereof it could become the assessee's contract only on his adopting it on his attaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at used in section 14(1) of the Act is similar, section 15(1) of the Indian Income-tax Act, 1922, using the expression "to effect an insurance on the life of the assessee etc.", and section 14(1) of the Act using the expression "a policy of insurance effected by any person on his life". In cases where the money becomes payable on the death of the assured, there can be no difficulty in applying the provisions of section 14 of the Act. On the hypothesis that the benefit under a policy had already been made a gift of, the section creates a fiction that the said money must be deemed to pass on the death of the assured, in view of the fact that the deceased had kept up the policy for the benefit of the donee. However, the question for consideration in the present case is as to the applicability of section 14 of the Act to a case where money becomes payable even during the life-time of the assured on the happening of a particular contingency, as contemplated by the contract between the assured and the insurer, and in the present case when the money became payable on the expiry of the period of endowment. As we have pointed out already, the policy in the present case matured on November ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the lifetime of the assured, it will lead to very strange and unintended consequences. Take for instance, a case where a person effects an insurance on his life under an endowment policy at the age of 30, the period of endowment being 20 years. In other words under the policy if he continues to pay the premium regularly, the sum assured will be payable on the expiry of 20 years or in the event of his death if he dies before the expiry of the said 20 years. Assume that the other condition of the section, namely, the assured keeping up the policy for the benefit of a donee is satisfied. Assume again that the assured lives up to the age of 65. Under the terms of the policy, the policy would have matured when he was 50. The donee would have received the money. If the section is said to apply to such a situation the consequence will be that even when a third party had received the money 15 years earlier, still that money would be deemed to pass on the death of the assured and would form part of his dutiable estate. We can examine this illustration with reference to yet another specific situation. The Act came into force on October 15, 1953. Section 5(1) of the Act states : "In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made. The relevancy of this point is obvious because section 14 itself proceeds on the basis of a gift alone. If so, section 9 which also deals with gifts, prescribes a period of two years from the date of the death of the deceased for including the property disposed of by a gift in the dutiable estate, while section 14 has no such provision. Consequently, in the illustration we, have given already, assuming that the deceased died in 1954, at the age of 65, still the money received by the donee 15 years earlier, namely, 1939, would be held to be liable to be included in the dutiable estate. Though, for the purpose of illustrating the point, we have taken the interval between the date of maturity of the policy on the expiry of the period of endowment and the date of the death of the assured as 15 years, the period can be much longer. Certainly it could not have been the intention of the legislature to include all those moneys irrespective of the interval between the receipt of the money and the date of the death of the deceased in the dutiable estate of the deceased. There is yet another aspect to be taken note of in this context. We have referred only to the interval between t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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