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TMI Blog2012 (6) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the appellant inspite of the fact that the said surrender value has been paid by the appellant to the respective companies at the time of assignment in favour of the appellant. 3. That the appellant craves leave to reserve to itself the right to add, alter, amend substitute withdraw any ground (s) of appeal at or before the time of hearing. 2. The Brief facts of the case are that the assessee is an individual and is Director in few companies. Two companies namely M/s Escotel Mobile Communication Ltd. and M/s Escorts Ltd. had taken keyman insurance policy with Shri Ranjan Nanda the assessee as keyman. These companies paid premium for first two years and in the third year the company assigned the policies in favour of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit in lieu of salary u/s 17 (clause 3) or as income from other sources u/s 56(2iv) of the Income Tax Act, 1961. It is further provided that in the event of director being the assignee under the keyman policy, it will be treated as income from other sources and taxed accordingly u/s 56 of the Income Tax Act, 1961. In view of the clear contradiction in the two letters issued by the LIC, one hand written directly to the assessee and one to the Department, in the interest of justice and fair play we restore the appeal to the file of the Assessing Officer for getting clarification form the higher authorities of LIC with regard to correct status of keyman policy on the occasion of assignment and consequential treatment of taxability in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id amount having been received in this year is therefore rightly to be taxed presently." 4. Following the Tribunal order, the Assessing Officer proceeded to complete the assessment and accordingly treated the maturity amount of insurance policy as exempt. However, added back an amount of Rs.63,43,357/- being the difference between premium paid by the company and the surrender value prevalent at the time of assignment. 5. Aggrieved by the order, the assessee preferred an appeal before the Ld CIT(A). The Ld CIT(A) vide his order dated 28.1.2011 reiterated the stand taken by the Assessing Officer and dismissed the appeal fled by the assessee. The relevant portion of CIT(A)'s order is reproduced below as under:- "I have considered the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t's judgment, it is observed that the appeal has been decided in favour of the assessee. The relevant portion of High Court's judgment at paras 47 to 49 is reproduced below:- "Para 47. The scheme of the Act by introducing Keyman insurance policy, clearly provides that such an amount can be taxed either as business profits or surrender value of the policy endorsed in favour of the employee (keyman) or the sum received by him at the time of retirement and in all these cases, it would be profits in lieu of salary for tax purpose. In case there is no employee-employer relationship, then the surrender value of the policy or the business profits are to be taken from other sources. We are also supported our conclusion by CBDT's Circular No.762 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary for tax purposes, and in case other persons having no employee-employer relationship the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly. The premium paid on the keyman insurance policy is allowed as business expenditure. 14.5. The amendments take effect from the Ist day of October, 1996. 48. It also follows from the aforesaid that it was only the surrender value of the policy at the time of assignment or the sum received by an individual at the time of retirement, which is taxable. 49. Insofar as assignment is concerned, at that time surrender value was paid by the Director and therefore, nothing could be taxed. Therefore, from any angle matter is to be loo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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