1976 (10) TMI 15 - HC - Income Tax

Court Rules Endowment Policy Maturing in Assured's Lifetime Not Subject to Estate Duty

The court held that Section 14 of the Estate Duty Act, 1953, does not apply to money received under an endowment policy that matured during the lifetime ... Life Insurance Issues Involved:1. Applicability of Section 14 of the Estate Duty Act, 1953, to money received under an insurance policy assigned to the deceased's wife.2. Interpretation of 'policy of insurance effected by any person on his life' under Section 14.3. Impact of the policy maturing during the lifetime of the assured on the applicability of Section 14.4. Relevance of the timing of the gift and receipt of money concerning the dutiable estate.Detailed Analysis:1. Applicability of Section 14 of the Estate Duty Act, 1953:The primary issue was whether the money received under an insurance policy assigned to the deceased's wife is chargeable to estate duty under Section 14 of the Estate Duty Act, 1953. The Tribunal held that Section 14 could not be applied because the deceased had no benefit in the life insurance policy assigned to his wife absolutely. The Tribunal concluded that the money received under the insurance policy was not chargeable to estate duty, and the correctness of this conclusion was challenged.2. Interpretation of 'Policy of Insurance Effected by Any Person on His Life':Section 14(1) states: 'Money received under a policy of insurance effected by any person on his life, where the policy is wholly kept up by him for the benefit of a donee... shall be deemed to pass on the death of the assured.' The court noted that this provision is a verbatim reproduction of Section 2(1)(c) of the United Kingdom Finance Act, 1894. The court emphasized that the significant expressions in this section are 'money received by the donee' and 'policy of insurance effected by any person on his life.' It was clarified that the term 'donee' must be understood as a person beneficially entitled to the money payable under the policy, and the section contemplates a donation or gift of the benefit under the policy.3. Impact of Policy Maturing During the Lifetime of the Assured:The court addressed whether Section 14 applies to a case where money becomes payable during the lifetime of the assured upon the maturity of the policy. The court concluded that once the policy matured during the lifetime of the assured, it could not be termed a 'policy of insurance effected on the life of the assured.' The court stated: 'On the moment of maturity, the life policy ceased and became an endowment immediately payable.' Therefore, Section 14 does not apply to money received under a policy that matured during the lifetime of the assured, as it is not dependent on the duration of the life of the assured.4. Relevance of Timing of Gift and Receipt of Money:The court highlighted that if Section 14 were to apply to money received on the maturity of a policy during the lifetime of the assured, it would lead to unintended consequences. For instance, if an endowment policy matured 15 years before the death of the assured, the money received would still be deemed to pass on the death of the assured and form part of the dutiable estate. The court noted that Section 9 of the Act, which deals with gifts, prescribes a period of two years from the date of the death of the deceased for including the property taken under such gifts in the dutiable estate, whereas Section 14 has no such provision.Conclusion:The court concluded that Section 14 of the Estate Duty Act, 1953, does not apply to the money received under an endowment policy that matured during the lifetime of the assured. The Tribunal's conclusion that Section 14 has no application to the present case was upheld. The question referred was answered in the affirmative and in favor of the accountable person, with costs fixed at Rs. 500.