TMI Blog2020 (12) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... ignment is endorsed by the Insurance Company as on 31.03.2006, the character of the Policy does not convert into an ordinary Life Insurance Policy in the hands of the Assessee. The Keyman Insurance Policy is a Life Insurance Policy taken by the employer company in favour of its employee Managing Director. Its character continues to be the same. In RAJAN NANDA AND NARESH KUMAR TREHAN [ 2011 (12) TMI 392 - DELHI HIGH COURT ] clearly expresses that the character of the Insurance Policy gets converted into an ordinary policy. Because Section 10(10D) of the Act does not make any such distinction, it cannot be said to be a case of tax evasion, but rather a case of tax planning, even if huge benefit of these provisions are taken by both company as well as individual. It is this caveat, along with the pronouncement of Delhi High Court, led to the insertion of aforesaid Explanation 1 to Section 10(10D) of the Act and therefore, after such amendment, which in our opinion applies retrospectively to all the previous years, including the Assessment Year 2007-08 in the present case - the reliance placed by the learned counsel for the Assessee of Delhi High Court decision is misplaced and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal filed by the Assessee are quoted below: 14. The facts of the case are that the assessee is the Managing Director of Allu Entertainment Private Ltd. (AEPL). During the F.Y 2004-05, AEPL has taken two Key Man Insurance Policies each amounting to ₹ 100 lakh on the life of the assessee. Of which, one policy was assigned in favour of the assessee on 31.03.2006 . The surrendered value of the policy amonting to ₹ 58,74,752/- was offered as income taxable as perquisite u/s. 173(3) of the Act in that year itself i.e. assessment year 2006-07 . Subsequently, the assessee en-cashed the policy at ₹ 97,03,083/- on 29.06.2006. The AO has added the sum of ₹ 38,28,331 (₹ 97,03,083-₹ 58,74,752). Against this, assessee carried the appeal before the CIT(A) . 15. On appeal, the Ld. CIT(A) observed that Section 10 is the first section in chapter III entitled 'Incomes which do not form part of total income. In section 10, various kinds of incomes are stipulated, which are not to be included in total income. This section excludes those sums from income, which are received under a life insurance policy, including the sum allocated by way of bonus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of CIT v. Rajan Nanda Ors. reported in (2012) 349 ITR 008 wherein held that the payment which is received by employee under Key Man Insurance Policy, can be taxed in the hands of employee u/s. 17(3)(ii) of the Act. However, where no such amount was received at time of assignment of policy by employer company, as employee, nothing could be taxed in assessee's hands u/s. 17(3)(ii) of the Act. Further, 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 to 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 Directorof the assessee company ie. 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into force only from 1st April 2014 and therefore, it would not govern/apply to amounts received under assigned Keyman Insurance Policy prior to Assessment year 2014-15. He, therefore, submitted that the appeal of the Assessee deserves to be allowed. 7. Per contra, Mr.M.Swaminathan, learned Senior Standing Counsel appearing for the Revenue vehemently opposed these submissions and drawing the attention of this Court to the provision of Section 10(10D) of the Act, submitted that only the sum received under Life Insurance Policy is exempt from taxation under Section 10(10D) of the Act. But, clause (b) thereafter makes an exception with regard to Keyman Insurance Policy and therefore, the sum received by the Assessee under the Keyman Insurance Policy after the assignment in his favour on 31.03.2006 was also clearly taxable as perquisite in the hands of the Assessee. 8. The learned Senior Standing Counsel further submitted that the present Assessee individually never paid any premium on the said Keyman Insurance Policy after its assignment in its favour on 31.03.2006 and soon after three months of assignment, he got it surrendered, encashed and received the additional sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 87 [but on or before the 31st day of March, 2012] in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; 87 [or] 88 [(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured:] Provided that the provisions of 89 [sub-clauses (c) and (d)] shall not apply to any sum received on the death of a person: Provided further that for the purpose of calculating the actual capital sum assured under 90 [sub-clause (c)], effect shall be given to the 91 [Explanation to sub-section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be] : 92 [Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is- (i) a person with disability or a person with severe disability as refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel for the Revenue and we are unable to accept the submissions made by the learned counsel for the Assessee. 14. The Key Insurance Policy taken by a limited company in favour of its key employee, the Managing Director of the Company in the present case, even though it is Life Insurance Policy, is excluded from the ambit of exemption under Section 10(10D) by specifically mentioning the same in Clause (b) of the said exception of the provision quoted above. Therefore, any amount received under Keyman Insurance Policy is a taxable receipt in the hands of the employee concerned as perquisite. 15. In the present facts, the Keyman Insurance Policy was taken out by the Company and was assigned in favour of the Managing Director on 31.03.2006 . To the extent of surrender value accrued as on 31.03.2006 , namely ₹ 58,74,752 /-, was offered for taxation as perquisite in the hands of the Assessee. The character of Insurance Policies does not change after assignment. The Assessee himself has never paid any premium on the said Keyman Insurance Policy from his own resources. Therefore, even if the assignment is endorsed by the Insurance Company as on 31.03.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into an ordinary policy . Contracting parties also change inasmuch as after the assignment which is accepted by the insurance , the contract is now between the insurance company and the individual and not the company/employer which initially took the policy. Such company/employer no more remains the contracting parties. We have to bear in mind that law permits such an assignment even LIC accepted the assignment and the same is permissible. There is no prohibition as to the assignment or conversion under the Act. Once there is an assignment, it leads to conversion and the character of policy changes. The insurance company has itself clarified that on assignment, it does not remain a keyman policy and gets converted into an ordinary policy . In these circumstances, it is not open to the Revenue to still allege that the policy in question is keyman policy and when it matures, the advantage drawn therefrom is taxable. One has to keep in mind on maturity, it does not the company but who is an individual getting the matured value of the insurance. 54. No doubt, the parties here, viz., the company as well as the individual taken huge benefit of these provisions, but it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the impugned order dated 6th September, 2013. It held that the assessment year being A.Y. 2010-11, the issue stand concluded against the Revenue by the decision of Delhi High Court in Rajan Nanda (supra) on identical facts. This it held is particularly so as Explanation -I to Sectionn 10(10D) of the Act was amended by clarifying the meaning of Keyman Insurance Policy to include a Keyman Policy which has been assigned to any other person only effective from 1st April, 2014. The amended Explanation I to Section 10(10D) of the Act now reads as under: [Explanation 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]. 6. However, as we are concerned with the period prior to 1st April, 2014, the above amendment would not apply in the subject assessment year. 7. Ms.Bharucha, learned counse ..... 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