TaxTMI 
TaxTMI 
2017 (4) TMI 103
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....so erred in confirming the event of the assignment of Keyman Insurance Policy in favour of the appellant by the Firm resulting into income liable to tax u/s 2 (24) (xi) read with sec 28 (vi) of IT Act, 1961. Further, while sustaining the action of the AO of making addition of Rs. 44,78,000 to the total income of the Assessee Appellant as above, the learned CIT (A) has overlooked/has not dealt with the submissions of the assessee appellant that for the year under Appeal, there is no scope for invoking extended meaning of sec 10 (10D) of IT Act, 1961 since the Explanation 1 to Sec 10 (10D) is not applicable for the year under consideration. 3. The learned C.I.T. (A) has further erred in fact as well as in law in sustaining the addition to the total income of the assessee, the amount of surrender value of Rs. 44.78 lacs ignoring the fact that the Firm had paid all due taxes in the form of Fringe Benefit Tax under sec 115 WB (2) read with Sec 115 WC (1) of Income tax Act at the time of Assignment of the Keyman Insurance Policy in favour of the Appellant Assessee during the Financial Year relevant to Assessment Year 2008-09. Thus the said surrender value amount cannot be taxed ....
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....1 during AY 2008-09, as the firm had regularly been claiming deduction on payment of the premiums of this policy u/s 37(1). The assigned amount of Rs. 44.78 lacs was income u/s 2(24)(xi) in AY 2008- 09 and would not be exempt in section 10(10D) in the said A.Y. However, during this AY the nature/status of the Insurance Policy is not that of a Keyman Insurance Policy since it was assigned by the firm in favour of the appellant in AY 2008-09. Therefore, the sum of Rs. 75,45,613/- received by the appellant on surrender of the Life Insurance Policy is exempt u/s 10(10D) as it was no longer a Keyman Insurance Policy but had acquired the status of an individual Insurance Policy after 25.03.2008." 2.3 For the year relevant to appeal i.e, AY 2008-09, assessee filed its return of income on 10.12.2008 and the revised return on 31.03.2009 which was processed under section 143(1) of the Act. Subsequently, the case of assessee was reopened and notice u/s 148 was issued to the assessee. On request by the assessee, reasons recorded for reopening was provided to the assessee which reads as under: "As per records of this office Shri Ravi Poddar, is a partner in firm M/s C....
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....loyee (Keyman), or the sum received by him at the time of retirement be taken as "Profits in lieu of salary" for tax purpose; and in the case of other persons having no employer- employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly." (v) Here, it may be mentioned that no premium was paid by the appellant after assignment of the Keyman policy by the firm to him. The whole arrangement in nothing but to avoid payment of due taxes on the surrender value. The firm can itself surrender the policy but instead it was assigned to the appellant to avoid payment of taxes. This objective becomes very obvious looking to the fact that the policy was assigned to the appellant on 25.03.2008 and the due date for payment of premium was 30.03.2008, but no premium was paid by the appellant after assignment of the policy to him. The issue under consideration is squarely covered by the decision of Hon'ble ITAT, Chandigarh Bench in the case of DCIT Vs Manjit Kumar (2014) 40 CCH 0711 Asr Trib / (2014) 65 SOT 0117 (Amritsar). (vi) In view of the above discussion, it is held that the AO was....
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.... stretch of imagination. Thus, remedial action, if any, could be taken in the hands of firm which has not been done. In other words, Ld. AO as well as CIT(A) accepted the fact that as soon as policy is assigned in favour of assessee the same no longer remains "Keyman Insurance Policy" and thus there was no dispute regarding exemption claimed in A.Y. 2009-10. 4.2 It was further submitted that so far as the impunged assessment year 2008-09 is concerned, there is no question of denial of exemption as no exemption was claimed rather amount was receivable at Rs. 44.78 lacs (being the surrender value at the time of assignment), which does not fulfil the condition of being characterized as "Income" itself and it is a notional figure which may be received only when the policy was surrendered by the firm and not by assessee. 4.3 It was submitted that this was possibly a loophole in the law which was noticed by the Government and accordingly plugged by making amendment in Sec 10(10D) of Income Tax Act, 1961 by Finance Act, 2013 in terms of amendment of Explanation 1 by adding the words "and includes such policy which has been assigned to a person at any time during the term of the poli....
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....ir meaning must receive colour from the context in which they are used. In the context of section 5(1)(a), these words only refer to the first receipt. (b) CIT. Vs. Govind Prasad Prasbhu Nath (1988) 35 Taxman 513/171 ITR 417 (All): Neither, the word "income" nor the words 'is received', 'accrues' and 'arises' have been defined in the Act. Income can be said not to have resulted at all if there is neither accrual nor receipt of income. For the purposes of the Act, income can be said to be received when it reaches the assessee but it can be said to have accrued or arisen only when the right to receive the said income becomes vested in the assessee. .................. The words accrue and arise do not mean actual receipt of profits or gains. Both these words are used in contradistinction to the word 'receive' and indicate a right to receive.................... (c) CIT vs. Shinwa Kaium Kaisha Ltd. (1986) 26 Taxman 277 (Cal.): The expression 'receipt has not been defined in the Act but the meaning of the expression 'receipt' has been made clear in sections 5 and 9, it appears that the expressions 'accrued' or 'arisen' or 'received' or 'deemed....
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....ce few days prior to due date of premium and no premium was paid by assessee and policy was surrendered thereafter, proceeds of which were claimed exempt, thus it was a colourable method to evade tax in view of Supreme Court decision in the case of McDowell & Co. 154 ITR 148. In this regard, attention of the Hon'ble Bench is invited to the decision of the Hon'ble Delhi High Court delivered in the case of CIT Vs. Rajan Nanda reported in 349 ITR Page 8 wherein this issues has been elaborately discussed by the Hon'ble High Court and it has been held that "No income could be charged to tax in the hands of the employee on the assignment of the policy as no amount was received. The Hon'ble Court further held that law is very clear. Every assessee has right to plan its affairs in such a manner which may result in payment of leased tax possible, albeit, inconformity with the provisions of Act. It is also permissible to the assessee to take advantage of gaping holes in the provisions of the Act. The job of the court is to simply look at the provision of the Act and to seek whether these provisions allow the assessee to arrange their affairs to ensure lessor payment of tax. If that is permis....
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....ment through the Finance Act, 1996 in section 2(24)(xi), section 10(10D), Section 17(3)(ii), Section 28(vi) and Section 56(2)(iv) of the Act in respect of Keyman Insurance Policy. 6.2 Section 2(24)(xi) provides that "any sum received under the keyman insurance policy including the sum allocated by way of bonus on such policy." Section 10(10D) exempts any sum received under a life insurance policy other than a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation 1 to clause 10(10D) defines a Keyman insurance policy to mean a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person. Section 17(3)(ii) provides that any payment other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12) , clause (13) or clause (13A) of section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on ....
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....e of assignment of the policy by the company as employer to the director assessee, as employee. It is trite that income can be charged only if it comes under the heads of section 14." 6.5 In light of above discussions, in the instant case, the taxable event will occur when the amount was actually received by the appellant on actual surrender of the Keyman Insurance policy. The surrender of the policy and the actual receipt of money by the appellant under the Keyman Insurance Policy has admittedly not happened during the year under consideration but has happened only in the subsequent financial year. Hence, no amount can be brought to tax in the year under consideration. In our view, the pendulum of taxability will start titling from the firm towards the appellant as soon as the policy has been assigned by the firm in favour of the appellant but the taxability will only be fastened on the appellant when he actually receives the surrender value. In other words, the assignment alone cannot be a basis for bringing to tax the surrender value but the act of assignment along with actual receipt of money under the policy would be the correct basis for bringing to tax such amount in the ....
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....nt of due taxes on the surrender value as the firm can itself surrender the policy but it was assigned to the appellant to avoid payment of taxes. In this regard, it is noted that similar contention was raised before the Hon'ble Delhi High Court in case of Rajan Nanda (Supra) and the Hon'ble High Court has negated the said contentions by holding as under: "54. No doubt, the parties here, viz., the company as well as the individual taken huge benefit of these provisions, but it cannot be treated as the case of tax evasion. It is a case of arranging the affairs in such a manner as to avail of the state exemption as provided in section 10(10D) of the Act. Law is clear. Every assessee has right to plan its affairs in such a manner which may result in payment of least tax possible, albeit, in conformity with the provisions of Act. It is also permissible to the assessee to take advantage of the gaping holes in the provisions of the Act. The job of the court is to simply look at the provisions of the Act and to see whether these provisions allow the assessee to arrange their affairs to ensure lesser payment of tax. If that is permissible, no further scrutiny is required and this ....