TaxTMI 
TaxTMI 
2019 (12) TMI 1037
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.... Order passed by the learned Assessing Officer was neither erroneous nor prejudicial to the interest of the Revenue. l(b) That, the learned Pro CIT grossly erred, both on facts and in law, in assuming the jurisdiction u/s. 263 of the Income-Tax Act, 1961 without considering the material fact that during the course of the assessment proceedings, the appellant had brought on record all the materials and evidences relating to the concerning issue and the same were duly verified by the AO after proper application of his mind. 2.That, without prejudice to the above, the learned Pr.CIT has grossly erred in giving a direction to the AO to assess the income in the hands of the assessee on account of maturity receipts of the Keyman Insurance Policy amounting to Rs. 6,49,45,7101- and as also, to examine the treatment of the insurance premiums paid by Shri Amandeep Singh Bhatia, on behalf of the appellant, after the assignment of the policy to the appellant. 3.That, the learned Pr. CIT grossly erred in assuming the jurisdiction under s.263 of the Act without considering and appreciating the material fact that during the course of the assessment proceedings, the appe....
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....lant. 4. That, Ld. Pr. CIT grossly erred in invoking provisions of section 263 based merely on 'Change in Opinion' 5. That, the appellant further craves leave to add, alter and/or amend any of the foregoing grounds of appeal as and when considered necessary 3. As the issues raised in both these appeals are common, they were heard together and are being disposed off by this common order for the sake of convenience and brevity. For adjudication purpose we will take up the facts of the assessee namely Harleen Kaur Bhatia and our decision in the case of Harleen Kaur Bhatia ITA No.150/Ind/2019 shall apply mutatis mutandis in the case of Gurvinder Kaur Bhaita in ITANo.151/Ind/2019. 4. Brief facts as culled out from the records are that the assessee is an individual. She filed e-return of income on 31.03.2016 declaring total income of Rs. 78,390/-. Case was selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. The assessee duly replied to the questionnaire issued by the Ld. AO. On requisite compliance, written submissions filed by the assessee and after perusal of records, books of accounts and other documen....
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....ion u/s.263 of the Act and legality of the order passed u/s 263 of the Act. 6. Ld. Counsel for the assessee reiterated the submissions and various replies given before the Pr. CIT but the crux of the argument were that the Keyman insurance policy issued to the company namely BIC was assigned to the assessee's Husband and thereafter to the assessee. As a result the nature of Policy changed from Keyman Insurance Policy to Life Insurance Policy. Surrender value on the date of assignment was duly offered to tax by the company namely "BIL". Since the policy post assignment got converted to Life Insurance Policy, deduction u/s 80C of the Act was claimed by the assessee. He submitted that the proceeds on the prematurity of the Policy are exempt in view of various judgments wherein it is held that Keyman Insurance Policies subsequent to their assignment in favor of Keyman or other person is converted into a simple Life insurance policy and the proceeds on it maturity or pre-maturity are exempted u/s.10(10D) of the Act. Referring to other judgements it was submitted that since the amendment brought in by Finance Act 2013 in explanation 1 to section 10(10D) of the Act increases the scope ....
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.... 5. CIT vs. Sarkar Builders (2015) 7 SCC 579 9. Per contra Ld. Departmental Representative(DR) vehemently argued strongly supporting the detailed finding of Ld. Pr. CIT. 10. We have heard rival contentions and perused the records placed before us and carefully gone through the judgments referred and relied by the Ld. Counsel for the assessee as well as the judgments referred in the impugned order passed by the Ld. Pr. CIT. Before deciding the issue whether the order passed by the Ld. Pr. CIT is valid and in accordance with law laid down u/s 263 of the Act, it is necessary for us to discuss the provisions of section 263 of the Act which empowers the Pr. CIT/CIT to revise the assessment order: 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, in....
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....Court in the case of the assessee or any other person. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. 11. From perusal of the aforesaid section, it is apparent that there are mainly four features of the power for revision to be exercised u/s 263 of the Act by the Pr. CIT. i. The Pr. CIT may call for and examine the records of any proceedings under the Act and for this purp....
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....ejudice to the interests of the revenue is shown, the jurisdiction under section 263(1) cannot be exercised by the Commissioner, even though the order is erroneous. The argument that such an order may possibly be challenged in appeal by the assessee, and for this reason it is prejudicial to the interests of the revenue, has no merit. Section 263(1) clearly contemplates that the order of assessment itself should be prejudicial to the interests of the revenue and this prejudice has to be proved by reference to the assessment order only. It cannot be argued that there is some possibility of the assessment order being challenged or revised in appeal and, therefore, on account of this contingency, the order becomes prejudicial to the interests of the revenue." [emphasis supplied] 14. Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. - [2000] 243 ITR 83 - order pronounced on 10.02.2000 - HEAD NOTE - "Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1983-84 - Whether in order to invoke section 263 Assessing Officer's order must be erroneous and also prejudicial to revenue and if one of them is absent, i....
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.... powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter-linked and the authority exercising powers under section 263 is under an obligation to consider the entire material about the existence of income and the tax which is realizable in accordance with law and further what tax has in fact been realised under the alleged assessment orders.[emphasis supplied] 16. Hon'ble Karnataka High Court in the case of V. G. Krishnamurthy - [1985] 20 Taxman 65 - order pronounced on 19.03.1984 - Para 10 - "Section 263 can be invoked by the Commissioner only when he prima facie finds that the order made by the ITO was erroneous and was prejudicial to the interests of the revenue. Both these factors must simultaneously exist. An order that is erroneous must also have resulted in loss of revenue or prejudicial to the interests of the revenue. Unless both these factors co-exist or exist ....
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....our husband sub-sequent to the payment of surrender value already paid to the company Bhatia International Ltd. for Rs. 1,72,32,045/- dated 31.03.2012 by the husband, as this was a Keyman Policy in his name being the director of M/s Bhatia International Ltd. the source of premium & surrender value paid in your hand have been show as gift received from the husband, the assignment is completed in your favour on 31.03.2013 i.e. before the amendment of section 10(10D) of the I.T. Act LIC has deducted TDS @ 2% under section 194DA on maturity value and you have received premature maturity value in Feb, 2015 whereas the actual date of maturity is 28.04.2015. In view of amendment provisions of explanation (1) of section 10(10D) of the Act, the receipt are taxable in the hands of assignee i.e. assessee even if they are assigned before the date of said amendment. Although the assignment has been completed before the amendment date i.e. 31.03.2013, but the same does not change the nature and character of the receipt, which have been received after the amendment. It appears that even amended Section. 10(10D) does not make the aforesaid policy exempt from taxation on its maturity/prematurity re....
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....L Account). Assesse has got the ordinary life insurance policy through assignment from her husband on the payment of surrender value paid to the company Bhatia International ltd. for Rs. 1,72,32,045/- dated 31.03.2012 as this is a Keyman Policy in the name of Bhatia International Ltd. (Keymanassessee's husband) and 07 years premium paid by the company(ie from April 2005 to March 2012). Company had assigned this policy to the Keyman on surrender value & for remaining tenure premium is paid by the assessee. The source of premium & surrender value paid in the hand of assessee is gift received from the husband, the assignment is completed in favour of assessee on 30.01.2013 before the amendment w.e.f 01.04.2014 u/s 10(10D). these amendment is prospective not retrospective therefore maturity value is fully exempt in the hand of assessee because these is an ordinary policy. Only due to these amendment assessee has paid self assessmentchallan, in fact amendment is prospective and no tax is payable therefore refund is generated. Hence sum of Rs. 6,49,45,710/- received from LIC is claimed as exempt. LIC has deducted TDS @ 2% under section 194DA on maturity value a....
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....ng the receipts of maturity amount from LIC. The officer has recorded some kind of finding on the order sheet towards the end of the proceedings in which he has reproduced the sequence of events narrated by the assessee in the submissions related to the receipt of maturity amount of insurance policy. He has accepted the version given by the assessee without any enquiry regarding the sources of payment of insurance premium, the utilization of the policy maturity receipts etc. The case laws which has been relied by the assessee before the Assessing Officer such as Rajan Nanda 18 taxman.com 98 and Prashan J. Agarwal 243 Taxman 119 is no more applicable as the provision of section 10(10D) of the Income Tax Act has been amended w.e.f. 01.04.2014 in which the loophole regarding assignment of keyman insurance policy has been plugged. The Assessing Officer did not make any attempt to make any enquiry on the issue. The sequence of event as narrated by the assessee before the Assessing Officer clearly show that the policy was assigned to Mr. Bhatia by Bhatia International Ltd. on the surrendered value of 1.72 crores on 23.02.2012. Subsequently, mr. Bhatia assigned this policy to his wife as ....
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....rect position of the reasons of the purported assignment. The most important point here is that Mr. Bhatia, who had purchased the keyman insurance policy from the company Bhatia International Ltd. by paying the residuary/surrender value of the policy, was still the person assured and he had assigned only the receipts of the policy to his wife i.e. the assessee. The gift is of the maturity proceeds of the policy and not that of the policy itself. There is the difference between assignment of the Keyman insurance policy by the company to its keymanMr. Bhatia and subsequent assignment by Mr. Bhatia to his wife. In the first assignment ie. By the company to thekeyman was for a consideration which was equal to the residual value of the policy at that time. The character of the policy also changed at that time and it became an assigned keyman insurance policy the receipts of which were taxable on maturity after 01.04.2014. The second assignment i.e from Mr. Bhatia (keyman of Bhatia International Ltd.) to his wife i.e. the assessee is an assignment just to create a camouflage to avoid the taxability of the maturity proceeds. There is no real purpose of assigning the policy as the....
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.... avoid payment of taxes, the provisions of clause (10D) of section 10 of the Income Tax Act, 1961 have been amended to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy and consequently would not be eligible for any exemption under section 10(10D) of the Income Tax Act." The wording of the explanation also clearly say that if the keyman insurance policy is assigned to "a person" anytime during the term of the policy with or without consideration the policy would be considered as keyman insurance policy. The legislature has not use the work 'the' which would have signified a limited meaning to the assignee. The term used is a "a person" which signify or means any person which may be other than the keyman person. Therefore, the policy receipts are clearly taxable as the assignment has not changed the character of receipt. It remains the receipt from a keyman insurance policy as per the definition given in Explanation 1 to section 10(10D) of the Income Tax Act. The assignment of the policy for the second time does not change the basic character ....
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....eration are enclosed. Enel.No. 01 to 06. 02] Assessee accounts are not audited U/s 44AB because assesse is not having any business income and she is not fall in any category of section 44AB. 03] Assessee is an individual, copy of Statement of Affairs &Capital account for last 3 years i.e.AY. 2015-16, 2014-15 &2013-14 are enclosed herewith. Encl. No.07 to 13. 04] Your honour is asked to submit the ,evidence of payment of taxes. 04.1] In this regard we are enclosing here with copy of Form No. 26AS showing payment of taxes is enclosed herewith. Encl. No.14 to17. 05] Assessee has claimed deduction under chapter VIA for payment of PPF of Rs. 150000/- Copy of the Pass Book is enclosed herewith for your ready reference. Elcl. No.18 to 19 Letter dated 09.10.2017 (Annexure A/7of PAPER BOOK filed on 07.05.2019) 1. Copy of all bank statements maintained by the assessee along with reconciliation statements where ever applicable are enclosed herewith for your ready reference. Encl. No.20 to 27 2. Your honour is asked to submit the policy copy duly shows assignment clause. 2.1. Where are enclosing here with policy copy along....
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.... &thereafter above plan assign to Mr. Amandeep S. Bhatia on surrendered value of Rs. 1.72 crores as per certificate dated 23.02.2012. Copy of certificate issued by the LIC of India for surrender value is enclosed here with. Encl. No . 3. That above surrender value is duly offered by the Company " Bhatia International Ltd." in books of accounts as income . Copy of the ledger account, profit &loss account along with order passed by the ITSC are enclosed. Enel.No. 4. Further Mr. A.S.Bhatia has assign policy to his wife Smt. Harleen K. Bhatia on 30.01.2013. Your honour please note that at the time when the policies were taken, the nature of the policies were "keyman insurance policies" as defined in section .JO(lOD). The persons on whose life policies were taken were directors. They were keyman as explained in Boards circular no. 762, dated February 18, 1998 (supra). When the policies were assigned to them in April 2012, by BIL , they got converted into ordinary policy as assignment was accepted by LIC. For this proposition we may derive support from the decision of Hon'ble Delhi High Court in CIT vs. Rajan Nanda [2012] 18 taxmann.com 98 (Delhi)) . ....
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.... Rs. 58.76 lacs. Bhatia International Ltd. had regularly paid premium on above plan and claimed in profit & loss account & thereafter above plan was assigned to Mr. A.S. Bhatia on surrendered value of Rs. 1.72 crores which has been offered to tax by the Company Bhatia International Ltd. in the profit and loss account (PB. 184 of the Paper Book dated 07.05.2019).Mr. A.S. Bhatia had then assigned policy to his wife Smt. H.K. Bhatia on 30.01.2013.Assignee Smt. H.K. Bhatia had taken surrender value during the month of February 2015 just before the 2 month of maturity date as maturity date of the policy was April 2015. Surrender Value received in the hands of Smt. H.K. Bhatia was Rs. 6.49 crores after deducting TDS @ 2% u/s 194DA of Income Tax Act. After verifying the claim of the assessee through various documentary evidences produced by the assesse and computation of income, replies dated 15.06.2017, 09.10.2017, 23.10.2017 and 17.11.2017 and various judicial pronouncements Ld. AO formed the opinion that the said claim of the assessee is bonafide. Thus, looking to the facts of the case we are of the view that sufficient and adequate enquiry was conducted by the Ld. AO before accepting ....
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....n its hands.[Re: CIT v. B.N. Exports [2010] 190 Taxman 325 (Bom.)]. In CIT v. Rajan Nanda [2012] 18 taxmann.com 98 (Delhi)] regarding sum received on maturity of keyman insurance policies, it was held that the Act lays down that such will be taxed u/s 28 as business profits in its hands or where payment of premium is not part of business expenditure then sum received on maturity will be taxed u/s 56. Thus when there is "no assignment", Section 37 and Section 28 or Section 56 of the Act operate in the case of employer. Now in case there is assignment of the Keyman Insurance Policy 30. A policy initially taken on the life of the keyman of the organisation may be assigned to that person or to some other person. The premium thereafter has to be paid by that person. No deduction is allowed as business expenditure in the hands of the organisation in respect of premium paid after assignment. When the policies is assigned to the employee then surrender value received from the assignee i.e. employee will be taxed in the hands of the employer u/s 10(10D)(b) of the Act. Therefore, at the time of assignment if the surrender value of the policy is much less as compared to the total amo....
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.... such an assignment even LIC accepted the assignment and the same is permissible. There is no prohibition as to the assignment or conversion under the Act. Once there is an assignment, it leads to conversion and the character of policy changes. The insurance company has itself clarified that on assignment, it does not remain a keyman policy and gets converted into an ordinary policy. In these circumstances, it is not open to the Revenue to still allege that the policy in question is keyman policy and when it matures, the advantage drawn there from is taxable. One has to keep in mind on maturity, it does not the company but who is an individual getting the matured value of the insurance." 33. Following this decision the ITAT in DCIT v. Rajan Nanda [2013] 37 taxmann.com 335 (Delhi - Trib.)held as under: "9. Thus, the Hon'ble High Court has effectively held in favour of the assessee to the effect that once there is assignment of the employer in favour of the individual, the character of the insurance policy changes and it gets converted into an ordinary policy; that such assignment is duly permitted by law; that even the LIC accepted the assignment, itself cla....
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....A. However, Ld. Pr. CIT while setting aside the assessment order in question took a view that the amendment brought in by Finance Act 2013 Explanation 1 is retrospective and clarificatory in nature and thus the alleged maturity proceeds are taxable as they were received subsequent to the amendment. In order to adjudicate this issue ,we find that in the notes on clauses to amendment by Finance Act 2013 it was observed that: "5.1 The provisions of clause (10D) of section 10 of the Income Tax Act, 1961 before amendment by Act, inter alia, exempt any sum received under a life insurance policy other than a keyman insurance policy. Explanation 1 to the said clause (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. 5.2 It has been noticed that the policies taken as keyman insurance policy are being assigned to the keyman before its maturity. The keyman pays the remaining premium on the policy and claims the entire sum received under such policy as exem....
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....", i.e. 'a new law ought to regulate what is to follow, not the past', contain a principle of presumption of prospectively of a statute. 24. Justice G.P. Singh in "Principles of Statutory Interpretation" (14th Edition, in Chapter 6) while dealing with operation of fiscal statute elaborates the principles of statutory interpretation in the following words: "Fiscal legislation imposing liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. The above rule applies to the charging section and other substantive provisions such as a provision imposing penalty and does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings. But a procedural provision, as far as possible, will not be so construed as to affect finality of tax assessment or to open up liability which had become barred. Assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that e....
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....A.) (1989) 177 ITR 490 (SC) :Hon'ble Court held that subsequent legislation should not to affect vested rights, unless legislation is made retrospective expressly or by necessary implication. There is a well-settled principle against interference with vested rights by subsequent legislation unless the legislation has been made retrospective expressly or by necessary implication. 40. In the case of Ritz Ltd. Vs. Union of India (1990) 184 ITR 104 (Bomb.) :Irrespective of the language in which amending provisions are couched, an amendment cannot be retrospective with effect from a date earlier to the date on which the provision sought to be amended itself was brought on the statute book. 41. In the case of Saurastra Agencies Pvt. Ltd. Vs. Union of India (1990) 186 ITR 634 (Cal) :Rule is against retrospectively. Unless provided in the statute, the law is always presumed to be prospective in nature. There cannot be any implicit inference of any retrospective operation of law. The retrospective operation must be clear and unambiguous. 42. The expression "such" in the added portion "and includes such policy which has been assigned to a person, at any time during the term of t....
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.... para 5.2 takes note of the fact that various policies taken as Keyman Insurance Policy are being assigned to the Keyman before its maturity and thereafter, maturity amount is claimed as exempt. In para 5.3 of the notes also notice that this is loophole in law which needs to be removed. These observations cannotes that before this amendment various assessees were claiming exemption of the maturity proceeds of Keyman Insurance Policy which were assigned to other person. Same is the situation in the case of the assessee in the instant appeal wherein the policy was assigned in her favour on 30.01.2013 from her husband which was originally taken as a keyman insurance policy by Bhatia International Company. Since the assignment in favour of assessee duly recorded by LIC happened before the effective date of amendment in explanation 1 to section 10(10D) of the Act the same will have no adverse effect on the assessee and the alleged amount received on prematurity of insurance policy will be exempted. Though Ld. Pr. CIT has questioned about the source of premium paid by the assessee for the insurance policy, in our view there is hardly any effect on the fate of the case if the premium i....
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....o assessment year 2014-15 and subsequent assessments years." 46. We, can thus, safely concluded that the amendment brought in by Finance Act 2013 in explanation 1 to section 10(10D) of the Act is prospective in nature and by no stretch can be termed as retrospective or clarificatory in nature and shall only apply on the keyman insurance policy assigned after 01.04.2014. Even otherwise it has been submitted before us that has the policy been not assigned by the company to its Keyman and maturity proceeds offered to tax by the company , their would have been no loss to revenue as the company had huge losses much above the maturity proceeds during the Assessment Year 2015-16. 47. Though Ld. Pr. CIT in the impugned order has referred to various judgments on merits as well as legality of the case but in our considered view they are not squarely applicable on the facts of the instant case and thus have no applicability on the issues raised before us. 48. Action of the Ld. Pr. CIT invoking the provision of section 263 can be tested on twin conditions having been satisfied or not an order sought to be revised should be erroneous and prejudicial to the interest of Revenue. In the p....