Pure endowment policy premium qualifies for life insurance rebate under income-tax law

Premium paid under a pure endowment assurance policy without profits qualified for rebate because the payment was made to effect or keep in force insurance on the assessee's own life. A policy under which the assured sum is payable on survival to maturity, with premiums refunded if death occurs earlier, was treated as a contract of life insurance since the liability depends on a contingency linked to human life. The broader statutory meaning of life insurance business also covered such a contingency-based contract. The referred question was answered in the affirmative, in favour of the assessee.

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Issues: Whether premium paid under a pure endowment assurance policy, without profits, qualifies for rebate as a payment made to effect or keep in force insurance on the life of the assessee under the Income-tax Act, 1961.

Analysis: Rebate under section 87(1)(a)(i) is available where the assessee pays sums out of income chargeable to tax to effect or keep in force insurance on his own life. A policy that provides for payment of the assured sum only if the insured survives to maturity, and for refund of premiums if death occurs earlier, is a contract of life insurance because the liability depends on a contingency linked to human life. The statutory definition of life insurance business in the Insurance Act, 1938 covers contracts where payment of money is assured on death or on the happening of a contingency dependent on human life. A pure endowment policy of this kind therefore falls within life insurance in its broader sense and satisfies the statutory requirement.

Conclusion: The premium paid under the policy was eligible for rebate, and the answer to the referred question was in the affirmative, in favour of the assessee.

Ratio Decidendi: A pure endowment policy under which the assured sum becomes payable only on survival to maturity is an insurance on the life of the assessee for the purpose of rebate provisions applicable to life insurance premia.

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