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TMI Blog2019 (12) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... ither 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 appellant had duly furnished the necessary particulars and explanation in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n' 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 documents returned income was accepted as assessed income. Subsequently, Ld. Pr. CIT within the powers conferred to him u/s 263 of the Act, observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of taxability for the assessee, they are to be treated as prospective in nature and by no cannon can be treated as retrospective or clarificatory in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 purpose he/she need not to show any reason or record any reason to belief as it is required u/s 147 or 148(2) of the Act. ii. He/She may consider any order passed by the Assessing Officer as erroneous as well as prejudicial to the interest of the Revenue. This is exercised by calling for and examining the record available at this stage. iii. If after calling for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment 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.e., if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes - Whether if due to an erroneous order of ITO, revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue - Held, yes - Assessee-company entered into agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 simultaneously, the Commissioner cannot invoke or resort to section 263. It cannot be exercised to correct every conceivable error committed by an ITO. Before the suomoto power of revision can be exercised, the Commissioner must at least prima facie find both the requirements of section 263, namely, that the order sought to be revised is prima facieerroneous and prejudicial to the interests of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 receipts. The receipts have taken place subsequent to such amendment, therefore, the same should have been taxed either in the hands of keyman (the assesseee's husband) or in the hands of the assessee (the keyman's assigned) but in the present case both have escaped taxation on the said amount creating detriment to the revenue. Hence this fact should have been examined. The AO has not examined this factor and no enquiry/investigation has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 and assessee has received pre mature maturity value in Feb. 2015 where actual date of maturity value is 28.04.2015. 21. We further observe that Ld. Pr. CIT after considering the submissions, documents and other relevant details filed by the assessee as well as the correspondence between the assessee and the Ld. Assessing Officer was not convinced and went ahead to hold that the maturity receipts of the Keyman Insurance Policy are taxable in the hands of assessee and directed the Ld. Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a gift on 30.01.2012. The policy was finally terminated prematurely in Feb, 2015. These dates clearly show that the date of maturity is after 01.04.2014, the date from which the amendment in section 10(10D) came into effect. The Assessing Officer should have examined the whole sequence of event and must have enquired about the motive of the assessee for showing a gift of the policy the receipt of which was taxable. The Assessing Officer therefore committed an error by not pursuing the enquiries regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 annual premium was still being paid by Mr. Bhatia (keyman of Bhatia International Ltd. ), the assessee took to loan which was again invested in the business of the Bhatia Group and the life assured or insured remained the same i.e. Mr. Bhatia. Therefore, the whole pretention of assigning of the policy is merely to avoid the taxability of the maturity proceeds. It would not be out of place to reproduce the Explanation 1 to section 10(10D) of the Income Tax Act which read as under: "Explanation 1. For the purpose of this clause, Keyman insurance policy" means a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance 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 of the policy as per the provisions of Income Tax Act. 22. Thereafter, in the impugned order Ld. Pr. CIT rebutted the assessee's submissions which were running from page 16 to para 19 of the impugned order . Thereafter, the Ld. Pr. CIT treated the amendment in Explanation (1) section 10(10D) of the Act as curative and merely declaratory in nature, placing reliance on following judgment: 1. Gold Coin Health Food (P). Ltd. 304 ITR 308 (SC) 2. Reliance Jute & Industries ltd. (1979) 120 ITR 931 (SC) 3. Poddar Cement P. Ltd. (1997) 5 SCC 482 4. AnujJayendra Shah, vs. PCIT-35, Mumbai (67 Taxman.com 38) 23. Ld. Pr. CIT also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference. 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 with assignment clause as required by you. Encl. No.28 to 31 2.2 We are also enclosing here with assignment letter issued by the Life Insurance Corporation of India in favour of assessee. Encl. NO.32 to 32 Letter dated 23.10.2017( Annexure A/8 of PAPER BOOK filed on 07.05.2019) 01] This is in continuation to our exemption claim in the return file for the above relevant year. As the return is not comprised of all the relevant evidentry documents at the time of filing of regular return therefore for facilitate scrutiny proceedings. We are enclosing here with copy of computation of total income , acknowledgement along with all necessary evidentry document in support of our exemption claim u/s 10(1OD). Encl. No. 33 to 35. 02] You honour is asked to submit the compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)) . Later dated 17.11.2017 (Annexure A/10 of PAPER BOOK filed on 07.05.2019) 01] Your honour is asked to submit the details of share purchase during the year along with source of investments. 1.1] Statement giving details of the shares purchase along with source of Investment is enclosed. Encl No.61 1.2] Copy of relevant pages of bank statement of assessee duly highlighting the payment of shares purchase is enclosed. Encl No.62 to 63. 1.3] Copy of share certificate is enclosed. Encl. No.64. 25. The various replies submitted by the assessee during the course of assessment proceedings u/s 143(3) of the Act mentioned above duly supported by documentary evidences were intended to convince the Ld. Assessing Officer that the Keyman Insurance Policy taken by the Company namely "BIC" were assigned to the Mr.A.S. Bhatia thereby the company offered surrender value of the policy as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.10.2017 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 that the proceeds from prematurity of alleged life insurance policy are exempt from tax and thus the assessment order passed u/s. 143(3) of the Act, by no stretch can be held to be erroneous in nature. 27. Now we move on to examine as to whether the assessment order is prejudicial to the interest of revenue. Issue relates to taxability of proceeds of a LIC policy which before assignment was originally a keyman Insurance Policy. 28. Key man insurance policies are life insurance policies taken by a company on the life of some of its keyperson. As per Paragraph 14 of Explanatory Notes to the Finance (No. 2) Act, 1996 issued by Central Board of Direct Taxes (Circular No. 762, dated February 18, 1998 ([1998] 230 ITR (St.) 12)) akeyman insurance policy of the LIC of India means an insurance policy taken by a business organisation on the life of an employee, in order to protect the business against the financial los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 amount of premium paid by the organisation, then the surrender value received from the individual (keyman) will be taxable in the hands of the organization as held in the case of ( Dr. NareshTrehan v. DCIT [2014] 48 taxmann.com 21 (Delhi - Trib.)) 31. In case of other persons to whom policies are assigned, which is actually the case we are dealing in the instant appeal, the organisation will be taxed on the surrender value received from that assignee (even though it may be less than the premium paid by the organisation) which in this case has been done by "BIL" offering the surrender value of policies on the date of assignment to tax . 32. In the instant case at the time when the policies were taken, the nature of the policies were "keyman insurance policies" as defined in section 10(10D). The persons on whose life policy was taken was director and was keyman as explained in Boards circular no. 762, dated February 18, 1998 (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 clarifying that on assignment, the policy no longer remains a Keyman Policy and gets converted into an ordinary policy; that as such, it is not open to the Department to still allege that the policy is a Keyman Policy and when it matures, the advantage drawn there from is taxable; that on maturity of the policy, it is not the employer, but the individual, who is getting the maturity value of the insurance; that no doubt, the employer as well as the individual take huge benefit by such assignment, but it cannot be treated as a case of tax evasion, rather it is a case of arranging the affairs in such a manner as to avail the state exemption as provided in Section 10 (10D) of the Act; that benefit inured owing to the combined effect of a prudent investment and the statutory exemption provided u/s 10 (10D) of the Act does not call for any bifurcation in the amount received on maturity on any basis whatsoever; and that nothing can be read into Section 10 (10D) of the Act, if it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 exempt on the ground that the policy is no longer a keyman insurance policy. 5.3 The exemption under section 10(10D) is claimed for policies which were originally keyman insurance policies but during the term these were assigned to some other person. The Courts have also noticed this loophole in law. 5.4 With a view to plug the loophole and check such practices to 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, 1961." 35. Accordingly existing Explanation to section 10(10D) renumbered as Explanation 1, was amended as under: [Explanation 1].-For the purposes of this clause, "Keyman insurance policy" means a life insurance policy taken by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability which had become barred. Assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either is either expressly or by necessary implication retrospective. A provision which in terms is retrospective and has the effect of opening up liability which had become barred by lapse of time, will be subject to the rule of strict construction. In the absence of a clear implication such a legislation will not be given a greater retrospectivity than is expressly mentioned; nor will it be construed to authorize the Income tax Authorities to commence proceedings which, before the new Act came into force, had by the expiry of the period then provided become barred. But unambiguous language must be given effect to, even if it results in reopening of assessments which had become final after expiry of the period earlier provided for reopening them. There is no fixed formula for the expression of legislative intent to give retrospectively to a taxation enactment......" "11. Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression "such" in the added portion "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 "is significant. This word indicates those policies which were keyman insurance policies at the time of assignment. Any policy which was assigned prior to 01-04-2014 will no longer remain keyman insurance policies as it has become an ordinary policy after the assignment in view of Rajan Nanda's case (supra). The amendment will alter the character of only those ordinary policies into keyman policies if they were Keyman policies before assignment. The amendment will not alter the character of any and every policy into keyman insurance policy. In other words if an ordinary policy is assigned to someone then its character will not become keyman policy by the force of amendment. It must be a keyman insurance policy at the time of assignment only then the amendment will maintain a continuity in its character of keyman insurance policy. 43. Thus the effect of amendment on the facts of the present case would be that when the first assignment was done in October 2010, the amendment by Finance Act 2013 in Section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for the insurance policy, in our view there is hardly any effect on the fate of the case if the premium is paid by assessee's husband as a gift or it is paid by assessee herself. Even otherwise Hon'ble Delhi High Court in the case of CIT vs. Rajan Nanda (Supra)has already adjudicated this issue in detail and the same is squarely applicable on the facts of the assessee so much so that the policy assigned in favor of assesee was an ordinary life insurance policy and not a Keyman Insurance policy which lost it characteristic at the time when surrender value was offered to tax by the company "BIL". Coordinate Bench Jaipur in the case of Ravi Poddar V/s. CIT, ITA 130/JP/2016 dated 24.3.2017 has held that :- 6.9 Further, it is noted that the legislature has taken note of the said gaping holes in the taxing provisions and has brought in suitable amendment by way of the Finance Act, 2013. In this regard, useful reference can be drwan to the memorandum explaining the Finance Bill 2013 which reads as under: "The existing provisions of clause (10D) of section 10, inter alia, exempt any sum received under a life insurance policy other than a keyman insurance policy. Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revised should be erroneous and prejudicial to the interest of Revenue. In the present case as per the Pr. CIT the assessment order is erroneous and prejudicial to the interest of revenue on the ground that by virtue of the amendment introduced in the Explanation 1 to section 10(10D) inserted w.e.f. 01.04.2014 would also be applicable in the present case as well on the basis that such explanation is clarificatory in nature. The issue related to taxability of such Keyman Insurance policies assigned in favor of Keyman or other individual has been examined has been examined by Hon'ble Delhi High Court in the case of CIT vs. Rajan Nanda (2012) (supra) holding them to be exempted u/s.10(10D) of the Act . In view of this binding precedence we do not find any fault with the assessment order as the assessing officer has taken a view expressed by the Hon'ble Delhi High Court which was law of the land. Pertaining to the assessment year under appeal no view was expressed by any of the authority or the court that the clarification was introduced by the amending Act would be retrospective in nature. Therefore, it cannot be inferred that the assessment order is erroneous. Even no such cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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