2019 (12) TMI 1037 - AT - Income Tax

Tribunal restores assessment orders, exempts insurance policy maturity proceeds from tax

Smt. Harleen Kaur Bhatia Versus Pr. CIT-2 Indore And Smt. Gurvinder Kaur Bhatia Versus Pr. CIT-2 Indore

Smt. Harleen Kaur Bhatia Versus Pr. CIT-2 Indore And Smt. Gurvinder Kaur Bhatia Versus Pr. CIT-2 Indore - TMI Issues Involved:1. Invocation of Section 263 of the Income Tax Act, 1961.2. Taxability of maturity proceeds of Keyman Insurance Policy.3. Validity of the assessment order passed by the Assessing Officer.4. Nature of the amendment brought by Finance Act 2013 in Explanation 1 to Section 10(10D).Issue-Wise Detailed Analysis:1. Invocation of Section 263 of the Income Tax Act, 1961:The primary issue was whether the Pr. Commissioner of Income Tax (Pr. CIT) was justified in invoking the provisions of Section 263 of the Income Tax Act, 1961. The Tribunal noted that for invoking Section 263, the order passed by the Assessing Officer (AO) must be both erroneous and prejudicial to the interests of the revenue. The Tribunal emphasized that the Pr. CIT must provide an opportunity for the assessee to be heard and conduct necessary inquiries before passing an order. The Tribunal referred to various judgments, including Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd., to establish that both conditions must be satisfied for Section 263 to be invoked.2. Taxability of Maturity Proceeds of Keyman Insurance Policy:The Tribunal examined whether the maturity proceeds of the Keyman Insurance Policy received by the assessees were taxable. The Pr. CIT contended that the amendment brought by Finance Act 2013 in Explanation 1 to Section 10(10D) was clarificatory and retrospective, thus making the maturity proceeds taxable. The assessees argued that the policy, after being assigned, changed its nature from Keyman Insurance Policy to a normal Life Insurance Policy, and therefore, the proceeds were exempt under Section 10(10D). The Tribunal agreed with the assessees, citing judgments like CIT vs. Rajan Nanda and CIT vs. Prashant J. Agarwal, which held that once a Keyman Insurance Policy is assigned, it becomes an ordinary policy, and the proceeds are exempt.3. Validity of the Assessment Order Passed by the Assessing Officer:The Tribunal scrutinized whether the AO had conducted adequate inquiries before accepting the assessee's claim of exemption on the maturity proceeds of the insurance policy. It was found that the AO had issued multiple notices and received detailed submissions from the assessee, which included documentary evidence and legal precedents supporting their claim. The Tribunal concluded that the AO had conducted sufficient and adequate inquiries, and thus, the assessment order was neither erroneous nor prejudicial to the interests of the revenue.4. Nature of the Amendment Brought by Finance Act 2013 in Explanation 1 to Section 10(10D):The Tribunal analyzed whether the amendment introduced by Finance Act 2013 in Explanation 1 to Section 10(10D) was prospective or retrospective. The Tribunal referred to several judicial pronouncements, including CIT vs. Essar Teleholding Ltd., which established that unless explicitly stated, amendments are presumed to be prospective. The Tribunal concluded that the amendment was prospective and applicable only to policies assigned after 01.04.2014. Since the policies in question were assigned before this date, the amendment did not apply, and the proceeds were exempt.Conclusion:The Tribunal quashed the orders passed by the Pr. CIT under Section 263, restoring the assessment orders passed by the AO. It held that the AO had conducted adequate inquiries, and the assessment orders were neither erroneous nor prejudicial to the interests of the revenue. The Tribunal also concluded that the amendment brought by Finance Act 2013 in Explanation 1 to Section 10(10D) was prospective and did not apply to the assessees' cases. Therefore, the maturity proceeds of the insurance policies were exempt from tax.