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TMI Blog2020 (12) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... aw in sustaining the addition of the surrender value of the assigned keyman insurance policy as income of the appellant and was not exempt under the provisions of Section 10(10D) as it then stood before the amendment by the Finance Act, 2013? (ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is correct in law in not taking notice of the amendment introduced by the Finance Act, 2013, to include the assigned policies also within the ambit of keyman insurance policy for the purpose of taxation with effect from 01.04.2014 which clearly go to prove that the surrender value of the assigned keyman insurance policy was not taxable up to 31.03.2014? 3. By consent of both sides, the matter was heard finally at this stage and is being disposed of. 4. The relevant finding of the Tribunal with regard to the questions raised in the present appeal 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 Rs. 100 lakh on the life of the assessee. Of which, one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director assessee did not surrender the same to the LIC and chose to continue with the policy by making pament 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 Rs. 97,03,083/-. Hence, CIT(A) observed that in the light of above the differences of the amount that is not brough to tax in the quantum of surrender encashment should be taxed. Hence, addition made by the AO is sustained. Aggrieved, the assessee is in appeal before us. 16. We have heard both the parties and perused the material on record. Ld.A.R. relied on the judgment 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Year 2007-08, such encashment of surrender of one of the two such Insurance Polices taken in favour of the Assessee by the Company was not taxable in the hands of the Assessee and the Assessing Authority has erred in again bringing to tax the difference sum of Rs. 38,28,331/- (Rs. 97,03,083 - Rs. 58,74,752 taxed in the previous year) in the present Assessment Year 2007-08. 6. The learned counsel for the Assessee also relied upon a later Bombay High Court decision, in which, following the decision of the Delhi High Court, the Bombay High Court on a concession made on behalf of the Revenue Department in the case of CIT v. Prashant J Agarwal [(2016) 243 taxmann 119], held that Explanation 1 to Section 10(10D) of the Act had come 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he surrender encashment value received by the Assessee was liable to be taxed in his hands upon surrendering the Keyman Insurance Policy during the Assessment Year 2007-08 also. 11. We have heard both the counsel at length. 12. Section 10(10D) of the Act, which gives exemptions to various types of income under the Act, relating to sum received under Life Insurance Policy, is quoted below for ready reference: (10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than- (a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or (b) any sum received under a Keyman insurance policy; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Finance Act, 2012, w.e.f. 1.4.2013. 88. Inserted, ibid 89. Substituted for "this sub-clause" by the Finance Act, 2012, w.e.f. 1.4.2013. 90. Substituted, ibid 91. Substituted for "Explanation to sub-section (2A) of section 88" by the Finance Act, 2005, w.e.f. 1.4.2006. 92. Inserted by the Finance Act, 2013, w.e.f. 1.4.2014. 93. Explanation renumbered as Explanation 1 by the Finance Act, 2012, w.e.f. 1.4.2013. 94. Inserted by the Finance Act, 2013, w.e.f. 1.4.2014. 95. Inserted by the Finance Act, 2012, w.e.f. 1.4.2013. 13. We find considerable force in the submission made by 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character from Keyman insurance also to an ordinary policy. It is because of the reason that if it remains Keyman insurance policy, then the maturity value received is subjected to tax as per Section 10(10D) of the Act. On the other hand, if it had become ordinary policy, the premium received under this policy, in view of the aforesaid Section 10(10D) itself, the same would not be subjected to tax. 53. Once there is an assignment of company/employer in favour of the individual, the character of the insurance policy changes and it gets converted 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 clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot enure to the benefit of the Assessee. 19. We are also a bit surprised by the concession given on behalf of the Department before the Bombay High Court in the case of Prashant J Agarwal. The relevant portion of the short judment of the Bombay High Court in this regard is quoted below for ready reference: "5. The Revenue's appeal before the Tribunal was dismissed 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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