TMI Blog2017 (4) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... but the taxability will only be fastened on the appellant when he actually receives the surrender value. 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 hands of the appellant. This is the way the Legislature in its wisdom has worded these charging provisions and we have to read it accordingly. Referring to Circular No.792 dated 18.02.1998 issued by the CBDT in the context of Finance Act (No 2), 1996 explaining the tax treatment of Keymjan Insurance Policy have to be read in the context of the express provisions in the statute as provided by the legislature and doesn’t support the case of the Revenue. Thus it cannot be held that the arrangement has been entered into between the firm and the appellant with a view to avoid payment of taxes. As we have held above, the taxable event is the year of actual receipt of the surrender value and the Revenue will be well within its rights to bring to tax such receipt on surrender of the Keyman Insurance policy as per law prevailing for the said year. In fact, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec 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 ₹ 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 again in the hands of the firm as well as its partner in absence of actual receipt of sum of money at the time of assignment. 2. The facts of the case are that the appellant is the main working partner in the firm M/s. Cheer Sagar, Jaipur and was getting remuneration from the said firm of ₹ 17,35,000 and Interest of ₹ 10,00,000 and share of profit of ₹ 11,97,933 besides other income. The said firm M/s. Cheer Sagar had taken out Keyman Insurance Policy in the name of the appellant from ICICI Prudenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e/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 ₹ 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 Cheer Sagar and M/s Cheer Sagar assigned a Keyman Insurance Policy on 25.03.3008 in favour of Sh. Ravi Poddar, partner. Sh. Ravi Plddar surrendered this policy in September, 2008 and received payment. The Insurance Company determined the surrender value of the policy at ₹ 44.78 lacs as per Clause-5 of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces 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 justified in making addition of ₹ 44.78 Lac on account of assignment of Keyman Insurance Policy to the appellant during the year under consideration. 4. We now refer to the contentions advanced by the ld AR. The ld AR of the assessee has submitted that assessee has challenged the action of Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute 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 ₹ 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 policy, with or without any consideration w.e.f. 01.04.2014 and therefore this amendment is prospective in nature and cannot be applied retrospectively. 4.4 The legislative intention behind such amendment is clear from Memorandum explaining the provisions in Finance Bill, 2013, relevant extracts of which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined 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 to be received have been used in the Act and they must be given their plain meaning in the absence of any particular definition. (d) Seth Pushalal Mansinghkla (P) Ltd. vs. CIT (1967) 66 ITR 159 (SC): ............................... The word accrue and arise do not mean actual receipt of the profits or gains. Both these words are used in contradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 permissible, no further scrutiny is required and this would not amount to tax evasion. It was submitted that only after realizing this loop hole in the Act vide Finance Act, 2013 amendment was brought into the statute by amending the definition of Keymen Insurance Policy given in explanation 1 to section 10(10D) of the Income Tax Act, 1961. 4.11 It was further submitted that as per the principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance 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 such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Section 28(vi) provides that any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Section 56(2)(iv) provides for taxability of income referred to in section 2(24)(xi) if it is not taxed under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licy 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 hands of the appellant. This is the way the Legislature in its wisdom has worded these charging provisions and we have to read it accordingly. 6.6 We now refer to Circular No.792 dated 18.02.1998 issued by the CBDT in the context of Finance Act (No 2), 1996 explaining the tax treatment of Keymjan Insurance Policy and in particular, para 14.4 of the said Circular which has been invoked by the ld C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 would not amount to tax evasion. Benefit inured owing to the combined effect of a prudent investment and statutory exemption provided under section 10(10D) of the Act, the section does not envisage of any bifurcation in the amount received on maturity on any basis whatsoever. Nothing can be read in section 10(10D) of the Act, which is not specifically provided because any attempt in that behalf as contended by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. In fact, it is noted that the Revenue has brought to tax the actual surrender value in the year of surrender in subsequent AY 2009-10 which however has not found favour with the ld CIT(A) and the same has been held eligible for exemption by the ld CIT(A) under section 10(10D) of the Act. The fact that the amount has been held eligible for exemption in the year of happening of the taxable event cannot be basis to hold that the taxable event can be shifted to another year or to hold that the arrangement has been entered into between the firm and the appellant with a view to avoid payment of taxes. 6.11 In light of above discussions and in the entirety of the facts and circumstances of the case, we are of the view that even though the assignment has happened during the year, surrender value as computed as on the date of assignment cannot be brought to tax in absence of actual receipt of the surrender value during the year under consideration. In the result, ground no. 2 of the assessee s appeal is allowed. 6.12 Having decided the issue on merit, we don t think it would be necessary to examine the alternate ground no. 3 relating to the non-taxability of surrender value in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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