TMI Blog2016 (8) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to establish that the debt, in fact, has become irrecoverable : it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Addition made in respect of surrender value of Key Man Insurance Policy as income of assessee - Held that:- once there is an assignment of Key Man Insurance Policy by employer company to employee, insurance policy gets converted into an ordinary policy and hence, in that case, maturity value received by employee would not be subject o tax in view of section 10(10D) of the Act. In our opinion, the argument of assessee’s counsel is totally misplaced that the two insurance policies were taken in the name of Managing Director of the assessee company i.e. present assessee for amounting to ₹ 100 lakhs each. The said policy was assigned to the assessee on 31.03.2006, and the surrender the value of that policy amounting to ₹ 58,74,752/- was offered as income as perquisite u/s. 17(3) of the Act for assessment year 2006-07. Subsequently, within a short time, the said policy was encashed at ₹ 97,03,083/- on 29.06.2006. In our opinion, the device adopted by the assessee by assigning the policy and encahsing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. This ground is partly allowed. 6. The next ground in this appeal is with regard to confirming the disallowance of compensation. 7. The facts of the issue are that the assessee is the proprietor of Nest Foundations which is engaged in development of properties. The assessee has entered into a development agreement with Mr. C Sriramulu, landlord to develop a building at Erramanjali, Hyderabad vide development agreement dated 02.11.1998. As per the terms of agreement, the assessee had paid a sum of ₹ 30,00,000 towards security deposit, which shall be refunded by the landlord on satisfaction of the terms of the contract. As per terms of the contract, the assessee is under obligation to construct a pent house but due to non- approval of the permission from local authorities, the assessee could not construct the pent house. Hence, it is claimed that the landlord did not return the deposit as the assessee failed to satisfy the terms of the agreement. Relevant portions of the agreement are as follows: 10. The second party has paid an amount of ₹ 30,00,000/- (Rupees Thirty lakhs only) by way of cheques as security deposit interest free for due performance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f in the books of accounts of assessee. Being so, it cannot be treated as bad debt in the assessment year under consideration. Accordingly, placing reliance on the judgement of Supreme Court in the case of M/s.T.R.F. Ltd., reported in [2010] 323 ITR 397(SC) wherein held that:- After the amendment of section 36(1)(vii) of the Income-tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable : it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Accordingly, this ground is dismissed. 10. The last ground in this appeal is with regard to disallowance of land lease charges of ₹ 2,40,000/- though the provisions of the section 194I of the Act is not applicable. At the time of hearing, the ld.A.R has not pressed this ground. Accordingly this ground is dismissed as not pressed. 11. In the result, ITA No.1253/Mds./15 stands dismissed. Now we take up ITA No.1254/Mds./15 (A.Y. 2007-08). 12. The first ground in this appeal is with regard to reopening of assessment. At the time of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed this case on the lines that no premium was paid by the assessee to continue the policy after assignment and only encashed the surrender value. in the above mentioned case there are two situations after assignment. (1) employee does not continue the policy and does not pay further premiums, then he would get only surrender value; or (ii) employee continues the policy and pays subsequent premiums, then he would get full amount on maturity. in the case of Rajan Nanda supra, second situation has occurred as on assignment, the director assessee did not surrender the same to the LIC and chose to continue with the policy by making payment for remaining period of the policy. In that case the court held that the character of the insurance policy changes and it gets converted into an ordinary policy. The CIT(A) observed that in the present case before CIT(A) no premiums was paid by the assessee to continue the policy after assignment and only en-cashed the policy at ₹ 97,03,083/-. Hence, CIT(A) observed that in the light of above the differences of the amount that is not brought to tax in the quantum of surrender encashment should be taxed. Hence, addition made by the AO is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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