TaxTMI 
TaxTMI 
2014 (6) TMI 39
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....nce Plan of premium of Rs.20,00,000/- on the life of Mr. Rajeev Anurag Sondhi. (c) Jeevan Shree-I of Life Insurance Corporation of premium of Rs.19,96,355/- on the life of Mr. Rajeev Anurag Sondhi. The policy is with Guaranteed Additions for 5 years and with profits thereafter. 2.1 The AO further observed that that on perusal of the terms and conditions of the policies taken by the assessee, it is found that the assessee company has taken the investment, plans floated by the Insurance Company. In the case of the two policies of ICICI Prudential, the assessee company was even given the option of choosing the investment plan out of the four investment plans tailored made by the Insurance Company. In the case of the policy taken from LIC of India, the policy Jeevan Shree-I is policy with Guaranteed Additions for 5 years and with profits thereafter. Thus, all the policies taken by the assessee company are Investment Plan & Guaranteed Return/Addition Plan and the premium paid by the assessee company after deducting for mortality cover & other administrative charges are to be put into investment Plan as selected by the assessee company in the case of ICICI - Prudential Insurance Co....
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.... Plan: Life time is a regular premium unit linked insurance plan. The premiums net of all the charges are invested in a fund of the assessee's choice. b) Being a unit linked life insurance policy, the Policy holder has the option to allocate the Premiums and any Top-up Single Premium paid by him among one or more of the Plan(s) for purchase of units thereof. c) The Policy enables the policyholder to participate only in the investment performance of the Plan, to the extent of allocated units. d) Mortality charges; these charges are calculated on a yearly basis, but deducted every month from the units allocated. Mortality charges are put for the risk calculated (for Life Cover) depending upon the age and the mortality rating, as applicable. e) The assessee has option to increase/decrease in the premium and thus can invest in Units accordingly. Any increase or decrease in the premium shall not lead to any increase or decrease in the Death. f) There are four plans and the investment objectives of all the tour plans alongwith indicate portfolio Allocation are given in the policy document. g) The policy document states that investment in the units is subject to market r....
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.... with profits thereafter. b) The premium of main plan is 19,91,265/- and sum assured for main plan is Rs.56 lacs. c) The accident benefit premium is of Rs.4,250/- separately calculated for accident benefit sum assured of Rs. 25 lacs and charges. d) As per the guaranteed additions undertaken by the Insurance Company, it is mentioned that a guaranteed addition of Rs.50 per thousand. Sum assured will be made to the sum assured at the end of the each policy year for each year's premium paid for first five years. e) After the completion of five years the policy shall participate in profits of "with profits assurance policy". f) Policy is not the term assurance policy and not on the life of another person. It is a investment plan with guaranteed additions and with profits. g) Thus, the LIC will invest the premium amount for guaranteed additions/guaranteed returns. h) There is no mention of "Keyman Insurance Policy" in the policy document. This is not a term assurance plan and as such does not fit into the definition of Keyman Insurance Plan as per explanation to the clause (c) of section 10(10D) of the Income Tax Act." 2.3. In the light of the above facts, the AO was....
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....d insurance plans, these are not keyman insurance policies in view of the circular of IRDA. In view of the above, it has been stated that the policy taken is unit linked insurance and consequently the premium paid is proposed to be disallowed. (b) It is further submitted that as far as the keyman insurance policies are concerned, these are on the life of a person and this is clearly mentioned on the face of the policies which have already been filed earlier. (c) The mode in which the amount is to be invested by the insurance company. The insurance companies even otherwise invest the funds available with them in debt/stock etc. and this cannot be the deciding factor in determining the allowability of the premium paid. (d) We have paid premium for the life cover as per the policies issued by the insurance companies and the purpose of the policy is to cover life risk. (e) Even if the policies are unit linked, these are on the life of the person referred to by you and this will not affect the real nature of the policy as being a keyman insurance policy. The premium thus paid by us is fully allowable as revenue expenditure. (f) Since the policies are not exactly in the na....
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....Insurance Company does not claim of any such benefit except tax benefit u/s 80C of the I.T.Act. The Circular issued by the IRDA warning insurers confirm that the fact that "Term Assurance Plan under Keyman Insurance Policy and not Unit Linked Endowment Assurance Plan would be eligible for deduction." The assessee further admits that policies are not exactly in the nature of life insurance policies [10(f) above]. Once the assessee itself admits this, it is evident that the policy does not fulfill the condition of "Keyman Insurance Policy" as per explanation to clause (c) to section 10(10D0 of the I.T.Act and it is not Keyman Policy as per Income Tax Act. Only Term Insurance Plan under Keyman Insurance Cover i.e. Policy of life not beyond it is eligible for deduction as per provisions of the I.T.Act provided the assessee firm proves that necessity and expediency of the person being Keyman and the policy taken for the benefit of the assessee so that premium paid could be justified as expenditure has been laid out on expended wholly and exclusively for the purposes of the business as per provisions of section 37 of the I.T.Act. Since, the assessee has taken the Unit Linked Insurance Pl....
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.... on the life of another person as per definition of Keyman in the I.T. Act, i.e. pure life insurance as also admitted by the assessee in its submission. The IRDA was aware of manipulation by the Insurance Agencies of selling "Unit Linked Insurance Plan" under Keyman Insurance Policy instead of Term Assurance Plan under Keyman as per Income Tax Act and the assesses thereby wrongly depriving the revenue of its rightful taxes by naming the policy as Keyman and claiming huge amount of premium as deduction. v) The assessee claims that the Insurance company has said that it has issued under 'Keyman Policy'. The policy may be termed as "Keyman" by the Insurance Company for its own purpose and guidelines might have been issued by IRDA subsequently, these guidelines and term as "Keyman" by Insurance Company cannot override the provision of "Keyman Insurance Policy" as per I.T. Act which are applicable and in place at the time of policy being taken by the assessee. Even the brochure of the Insurance Company says regarding tax benefits under section 80C only and section 10(10D) of the I.T.Act for receipts to be exempted if conditions fulfilled. Thus, the claim of deduction of such expendit....
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....ver with the business of the first-mentioned person [and includes such policy which has been assigned to a person," 2.6. Amounts received under the Keyman Insurance Policy have been included in the definition of income in section 2(24) of the I.T. Act, as under: "2. Definitions. In this Act, unless the context otherwise requires; 24) "Income" includes- (xi) any sum received under a keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation- For the purposes of this clause, the expression "Keyman insurance policy" shall have the meaning assigned to it in the Explanation to clause (10D) of section 10; 2.6.1. The Act further provides for taxing of the receipts from a Keyman Insurance Policy as salary income, business income or under the head "income from other sources" in section 17(3)(ii), section 28(vi) and section 56(2)(iv) respectively. The scope of the taxability of receipt on Keyman Insurance Policy and deduction of premium paid for Keyman Insurance Policy were explained in CBDT Circular No.762 dated 18.2.1998 as under: "Taxation of a sum received under the Keyman Insurance Policy 14.1 Keyman Insurance Policy of the Li....
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.... AO has held that the Life Insurance Policy for the purpose of Keyman Insurance can only be a "Term Assurance Policy". A term insurance policy is normally one in which there is no accumulation of income, as has been contended by the appellant. A term policy is given by the insurance company for a specified period of time and assures payment of the sum assured on the death of the person insured before the expiry of the term or period of the policy. The AO has derived support for his proposition from the two Circulars issued by the Insurance Regulatory and Development Authority (IRDA) in respect of Keyman Policies. On 27.4.2005 the IRDA issued a Circular stating that certain aberrataions had taken placed in the matter of sale of Keyman Insurance. It was further stated that detailed guidelines would be issued in this regard, and, in the meanwhile, only Term Insurance Policies should henceforth be issued as Keyman Insurance Cover. On 30.1.2006 the IRDA issued another Circular in it was noted that despite the Circular dated 27.4.2005, certain insurers were still selling partnership insurances through endowment or Unit Linked Plans disregarding the spirit behind the earlier Circular. It ....
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....hat was the essence of a keyman insurance policy. 2.9.2. It is the contention of the appellant that based on the principle of literal interpretation, a Keyman Insurance Policy was a policy taken by a person on the life of another person and nothing more can be read into the provision of I.T.Act. In the case of United Airlines vs. CIT (supra) relied upon the appellant, the Hon'ble High Court have held that in a taxing statute the principle of literal interpretation was very strictly applied and while interpreting a taxing statute one could not go by the notion as to what was just and expedient.. It was held that there was no equity in a tax and considerations of equity were wholly out of place in the taxing statute. In this case, the Hon'ble High Court held that any payment for use of the land of airport, whether it was on landing or parking of the aircraft in the airport, would amount to payment of "rent". The Hon'ble High Court based their decision on the definition of the word "rent" in section 194I of the Act where any payment for use of land etc., by whatever name called, is included in the definition of "rent". The issue in the present case is somewhat different. Though the....
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....r, the AO has examined the nature and terms of the policies and pointed out various factors to show that the policies purchased were not an insurance cover on life per se' rather they were investment plans with accompanying insurance benefits. As per the terms of the policies issued by ICICI Prudential, the investment risk in the investment portfolio was to be borne by the "Policy Holder". These are unit linked plans that combine the benefits of insurance and capital market returns into one. They give a guarantee maturity value of with varying degrees of equity exposure depending upon the risk appetite of the policy holder. It is apparent from the terms of the policies purchased that the policies are basically investment vehicles in which money can be paid at regular intervals by the policy holder and the policy holder can ask the insurance company to invest the money in different Funds depending upon the risk appetite of the policy holder. This is like the insurance company acting as Mutual Fund which invests money in the stock markets and gives units to the investor to represent his investment. The company is levying charges (which are deducted from the premium) which are similar....
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....red of Rs. 25 lacs with the premium of Rs.4,250/-. This shows that the premium amount for the sum assured is not only for the mortality cover, but is for the return on the investment made also. The policy provides for a payment of Rs.50/- per thousand of sum assured for which indicates return of Rs.2,80,000/- every year in addition to the sum assured. The terms of the policy show that this policy did not have any term insurance benefits but was mainly an investment policy with death benefits built into the policy and accident benefit added to the policy. Hence, this policy also does not fall within the definition of Keyman Insurance Policy as explained by the IRDA. The appellant's reliance on the certificate issued by LIC to the effect that the policy issued was Keyman Insurance Policy does not take away the affect of the IRDA Circulars. Hence, even though the documents sought to be admitted - since the AO did not provide sufficient opportunity to the assessee during asstt. Proceedings. They do not help the case of the appellant. Merely, terming a policy as "Keyman" Insurance Policy will not make the policy a keyman policy as explained by the IRDA. 2.12. The appellant has conten....
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.... be a non-term insurance policy also. He argued that the said Circular is basically in the context of partnership of Insurance Policies. He argued that the circular does not state that the policies are not in compliance and will be illegal and will not be treated as keyman insurance policies. The Ld. CIT(A) has not appreciated the decision of Hon'ble Delhi High Court in the case of United Airlines vs. CIT reported at 287 ITR 281 wherein it has been referred that in taxing statute the principal of literal interpretation is very strictly applied while interpreting taxing statute one cannot go by the notion as to what is just and expedient. Similar view has been expressed by the Hon'ble Madras High Court in the case of CIT vs. Mircormax Systems P. Ltd. reported at 277 ITR 409. The Ld. counsel further went ahead to explain the functioning of IRDA which was explained with certain objectives to regulate, promote and ensure orderly growth of the insurance business and the IRDA has no relevance as far as the allowability or premium under the Income Tax Act or taxation of policy proceeds is concerned. The Income Tax Act specifically mentions where another Acts have to be referred for our in....
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....e of Keyman Insurance Policies envisaged in the I.T. Act and clarified by IRDA cannot be lost sight of the CIT(A) has also referred to circular No.762 dated 18/02/1998 wherein Keyman Insurance Policy has been defined and reiterated that this is for the benefit of business on the death of the person concerned. The Ld. CIT(A) has also referred to the circular No.762 which contemplates money being received in circumstances other than death also and this is in contrast to the definition of term insurance which according to the CIT(A) is the essence of Keyman Insurance Policy. The view thus taken by CIT(A) is not correct. The CIT(A) as also observed that policies which carry inherent risk of return cannot provide such benefit to business. In the policies of the assessee, it is an undisputed fact that money i.e. assured value is receivable on death and as such the view of CIT(A) is not correct. Also the insurance companies do not sit cover money. Even where no option is given to the policy holder, the amount of premium (after expenses including commission) is invested so that some return is given to policy holder on maturity. The observation regarding money being invested as per the dire....
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.... benefit the employer and the manner of investment therefore does determine whether the Keyman Insurance Policy is a proper Life Insurance Policy. The Ld. CIT(A) is confusing the life insurance policy with the possible return on the maturity of the policy. The two are entirely different concepts and should not be confused. Even without the direction of the client, the insurance companies invest in debt and equity. Money is recoverable on the death of the Keyman and thus is a sufficient test. The Ld. CIT(A) has thus formed a wrong view and the addition in respect of Keyman Insurance Policies deserves to be deleted in view of the above submissions. It may also be submitted that an assessee is permitted to plan his affairs and if the transaction is genuine, merely because it results in saving of tax cannot be a reason for any disqualification . Also where two views possible one favouring the assessee is to prevail. CED vs. R. Kanakasabai reported at 89 ITR 251 (SC). 5. The Ld. DCIT(DR), Mr. Tarsem Lal, on the other hand, strongly relied upon the orders of both the authorities below, which are well reasoned and perfect orders. The Ld. DR argued that if a company floats some policies....
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....xplanation before any of the authorities below or even before us that mortality charges in the case of ICICI Prudential policies are being recovered on the date of commencement of the policy and on each monthly due date while the policy remains in force and is to be recovered by cancellation of Units, as per the policy document of the Insurance Company. The accident benefit premium is Rs.4,250/- for accident benefit or sum assured of Rs. 25 lacs. Show cause notice was given to the assessee to explain whether the said polices are Unit Linked Investment Plan or not and to justify the claim of deduction in the Profit & Loss Account, the reply of the assessee was that the Insurance Companies even otherwise invest the funds available with them in debt/stock etc. and this cannot be the deciding factor in determining the allowability of the premium paid. This explanation of the assessee cannot convert investment plan into Pure Life Insurance Plan. 6.1. There is no dispute as argued by the Ld. counsel for the assessee that meaning to Keyman Insurance Policy is taken from the Explanation to the clause (c) of section 10(10D) of the Act, which has been reproduced hereinabove. As per defini....