TaxTMI 
TaxTMI 
2020 (9) TMI 323
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....l for clarification so that learned counsels appearing for parties would get a fair chance to make further submissions, if any, for enabling the Bench to decide the appeal. Accordingly, appeal was heard again on 07.08.2020 and in course of hearing learned counsels appearing for the parties reiterated the submissions made by them earlier. 2. In the present appeal, we have been called upon to decide firstly, whether the amount received by the assessee on maturity of the Keyman Insurance Policy is exempt under section 10(10D) of the Income Tax Act, 1961 (for short "the Act"); and secondly, if it is held as taxable, the proper head of income under which it can be taxed. 3. Brief facts are, the assessee was a partner in M/s. Sheetal Mfg. Co., a partnership firm (since dissolved). The firm had taken a Keyman Insurance Policy on the assessee on 28th April 2005 from Life Insurance Corporation of India (LIC) and had paid premium in the years 2005-06, 2006-07 and 2007-08, aggregating to Rs. 47,56,680. On 20th December 2007, the Keyman Insurance Policy was assigned to the assessee and thereafter the assessee continued paying premium in the year 2008-09, aggregating to Rs. 79,51,....
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....ed under Keyman Insurance Policy. Thus, ultimately, the Assessing Officer concluded that the amount received on maturity of the Keyman Insurance Policy is taxable as income from other sources as provided under section 56(2)(iv) r/w section 2(24)(xi) of the Act. Further, after allowing premium paid by the assessee amounting to Rs. 1,59,42,560, towards expenditure incurred for earning the income, the Assessing Officer added back the amount of Rs. 4,08,99,332, to the income of the assessee. Though, the assessee challenged the aforesaid addition before the first appellate authority, however, he was unsuccessful. 6. The learned Authorised Representative submitted, the erstwhile firm had taken the Keyman Insurance Policy from LIC in the name of the assessee and after payment of initial premiums, the Policy was ultimately assigned to the assessee on 20th December 2007, with the approval of the LIC. He submitted, once the Policy was assigned to the assessee, it no longer remained a Keyman Insurance Policy and has to be treated as regular Insurance Policy of the assessee as the LIC had converted it into an ordinary Policy. He submitted, as per section 10(10D) of the Act the mat....
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....tted, the capital asset under section 2(14) of the Act must be capable of being transferred. Whereas, the Life Insurance Policy cannot be transferred by the insured in favour of anyone. It can only be repudiated on maturity of the Policy. Thus, he submitted, any income derived on maturity of the Policy has to be assessed under the head income from other sources. 9. We have considered rival submissions in the light of the decisions relied upon and perused the material on record. There is no dispute that the erstwhile partnership firm, wherein, the assessee was a partner had taken a Keyman Insurance Policy from LIC in the name of the assessee. It is further evident, the partnership firm paid premium on the Policy in the initial years till the assignment of the Policy in assessee's name on 20th December 2009. After the assignment of the Policy, the assessee continued paying the premium and the Policy got matured on 20th November 2014, with the assessee receiving maturity amount of Rs. 5,68,41,892. It is a fact on record that the assessee himself in the return of income filed for the impugned assessment year has offered an amount of Rs. 2,10,61,320, as long term capital ga....
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....lanation 1.-For the purposes of this clause, "Keyman insurance policy" means 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 and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration; 13. A reading of the aforesaid Explanation would make it clear that a Keyman Insurance Policy, even if, is assigned to a person at any time during the term of the Policy, would not change its nature and character, but would still remain a Keyman Insurance Policy. Thus, after the amendment to Explanation-1, a Keyman Insurance Policy even on assignment would remain such, hence, would come within the exception provided under section 10(10D)(b) of the Act, therefore, would not be eligible for exemption under section 10(10D) of the Act. The object of the aforesaid amendment has been further clarified by CBDT in Circular no.3 of 2014, dated 21st January 2014, by stating that by taking advantage of the legal loophole in the provision of section 10(10D) o....
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....re is no retrospective application of the provision. In this view of the matter, in our considered opinion, the assessee is not eligible to claim exemption under section 10(10D) of the Act on the maturity value of the Keyman Insurance Policy. 14. Having held so, now it is necessary to deal with another aspect of the issue raised by the assessee relating to proper head of income under which the maturity value received on the Keyman Insurance Policy can be brought to tax. It is the case of the assessee that Keyman Insurance Policy being in the nature of a capital asset, as defined under section 2(14) of the Act, gain derived there from is taxable under the head capital gain. At this stage, we propose to deal with the definition of capital asset as provided under section 2(14) of the Act. A reading of the aforesaid provision shows that a property of any kind held by the assessee whether or not connected with his business or profession comes within the purview of capital asset. However, the provision itself excludes certain types of properties from being treated as capital asset. The provision also makes it clear that the definition of capital asset does not include certain types of b....