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TMI Blog1998 (7) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of each of these three life insurance policies in favour of his grandchildren. The deeds of assignment have been registered on September 27, 1954. A notice of the assignment was given to the insurance company in accordance with the provisions of section 38 of the Insurance Act, 1938, and the assignments were registered with the insurance companies. The deceased made a will dated February 4, 1959, in respect of all his properties. In his will, in the list of properties he mentioned, at item No. 30, as follows : "There are three policies of life insurance, as detailed below of Rs. 50,000 each, which are already assigned in favour of my six grandsons and a granddaughter (i.e., the sons and daughter of my two sons). 1. The Standard Life Insurance Co., fifty thousand. 2. The Phoenix Assurance Co., two policies of fifty thousand each." In the will, he also mentioned in the list of dues, payment of dues to insurance companies amounting to Rs. 71,250. Under his will, he provided that after his death the amount of his three life insurance policies, that is to say, Rs. 1,50,000 plus bonuses that will be received thereon, should be distributed equally among his surviving six grandsons a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin its jurisdiction in allowing the Department's appeal and reversing its earlier order passed on October 27, 1977? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified' in holding that the amount of Rs. 1,39,284 in respect of Standard Life Assurance Co. policy was to be included in the main estate of the deceased under section 34(3) of the Estate Duty Act? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that section 34(3) of the Act was not applicable? Set No. 3 : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the Assistant Controller could reopen the assessment under section 59(b) of the Estate Duty Act? 2. If the answer to the first question No. 1 is in the affirmative, whether the two insurance policies could be assessed as separate estates under section 34(3) of the Act?" The High Court by its impugned judgment (reported in P. Indrasena Reddy v. CED [1985] 156 ITR 45 (AP)) has upheld the ultimate finding of the Tribunal that the three insurance policies have to be considered, as a part of the general estate of the dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assignments of the life insurance policies by the deceased during his lifetime to his grandchildren, it cannot be said that the deceased had any interest in the life insurance policies which could pass on his death. Hence, under section 34 of the Estate Duty Act, 1953, the life insurance policies cannot be treated as property passing on the death of the deceased. He drew our attention to section 38 of the Insurance Act, 1938. Section 38(1) provides that a transfer or assignment of a policy of life insurance can be made only by an endorsement upon the policy or by a separate instrument in the manner provided therein. In sub-section (2) it is provided that the transfer and assignment shall be complete and effectual upon the execution of such endorsement or instrument in the manner provided but shall not be operative as against an insurer and shall not confer upon the transferee or assignee, or his legal representative, any right to sue for the amount of such policy until a notice in writing of the transfer or assignment and either the said endorsement or instrument itself or a certified copy thereof have been delivered to the insurer. Under sub-section (5), subject to the terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance policies. From the tenor of the will it is apparent that it was the deceased who had retained possession of the policies and had kept them up during his lifetime even after the assignment. The provisions of section 14 are, therefore, directly attracted in the present case. The contention of the appellants that the deceased did not have any interest in the insurance policies passing on his death must, therefore, be rejected in the light of section 14. Learned counsel for the appellants drew our attention to a decision of the Madras High Court in D. Mohanavelu Mudaliar v. Indian Insurance and Banking Corporation Ltd. [1957] 27 Comp Cas (Ins) 47; AIR 1957 Mad 115. The Madras High Court, however, was not concerned with the question whether on assignment of a life insurance policy by the insurer during his lifetime, the insurer had any interest left in the life insurance policy which could pass on his death under the provisions of the Estate Duty Act, 1953. The court was concerned with the effect of assignment and whether a creditor of the insurer could attach the policy which was already assigned. The provisions of the Estate Duty Act are not considered in the judgment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be considered to have an interest in these policies passing on his death for purposes of estate duty. In the case of CED v. Bomansha Framji Cama [1988] 170 ITR 600, the Bombay High Court held that the provisions of section 14(1) were attracted in a case where the deceased had settled on trust five policies of insurance on his life, when the premiums on the said policies after their assignment under the settlement, were paid by the deceased. The policies became fully paid up during the lifetime of the deceased. On his death, the moneys received by his assignees were held to be property passing on the death of the deceased by virtue of section 14(1). The court said that the words "kept up" mean that the policy has been and is kept valid by payment of premiums by the donee and is not allowed to lapse. In the case of a paid up policy, no further payment of premium is required to prevent it from lapsing. The past payments of premium kept the policy valid and such a policy must be considered as having been kept up by the assured for the purpose of section 14. Therefore, the contention of learned counsel for the appellants that the policies do not form part of the estate of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e thereof to his wife during her lifetime and after the decease of the settlor and his wife, in trust for the children of the marriage as therein mentioned and if there is no child of the marriage, for the settlor absolutely. The court, inter alia, considered whether the money under the policy should be aggregated with the other estate of the deceased under section 4 for determining the rate of estate duty. The court asked "Had the deceased ever an 'interest' within the meaning of the Act in the moneys which were to become payable under the policy"? The court answered one could not hold that the deceased never had an interest in this property. "On the contrary... he had an interest in it. He had an interest in the policies before he settled them. Moreover after he settled them he had an interest in the benefit which was going to accrue or arise from them on his death, though it may have been a remote interest which he never could enjoy in possession. He had an interest during all his married life contingently upon the failure of the trusts in favour of his wife and children. If his wife and his children had predeceased him the legal position would have altered, but his interest wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for payment of death duties. The House of Lords said that for the purpose of determining the rate of estate duty, the sum realised under the policy had to be aggregated with the other estate of the deceased. Lord Russell of Killowen in his judgment observed : "I feel no doubt that the deceased had, from the commencement of the policy's existence, an interest, and for many years the sole interest, in the proceeds thereof. He could, before the assignation, have assigned or charged the entirety of those proceeds, and even after the assignation he had a contingent interest therein by way of resulting trust, of which he could have disposed inter vivos or by will. The word "interest" is a word capable of wide meaning, and I see no valid reasoning for limiting its scope in section 4 as was suggested in the course of the argument. The case is really covered by the decision of Rowlatt J., in Attorney-General v. Pearson [1924] 2 KB 375..." In Westminster Bank Ltd. v. Attorney-General [1939] 1 Ch D 610, the Court of Appeal in England considered a case where a settlor assigned to the bank as trustee a life policy and investments on trust to accumulate the income of the investment for 21 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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