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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI SANJAY ARORA, AM & MS. KAVITHA RAJAGOPAL, JM & Stay Application No. 87/Coch/2022
O R D E R Per Kavitha Rajagopal, J M:
This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2008-09. The assessee has also filed a Stay Application in this matter for stay of the demand.
The assessee has challenged the addition made by the ld. Assessing Officer ('A.O.' for short) and confirmed by the ld. CIT(A) amounting to Rs.3,13,375/- on the ground that the assessee was entitled to only 1/6th of the share received from LIC as hereditary
SA No.87/Coch/2022 (A.Y.2008-09) M/s. Rangayyan Manikandan vs. ITO commission on the demise of the father of the assessee, as the remaining share belongs to the other legal heir of his deceased father.
The brief facts are that the assessee is an individual working as agent of LIC and had filed his return of income for the year under consideration dated 24.06.2008, declaring total income at Rs.1,36,240/- out of the house property loss of Rs.42,466/-, income from insurance agency as LIC agent of Rs.1,36,152/-, income from oriental insurance agency of Rs.32,773/- and 1/6th of share of income from hereditary commission amounting to Rs.3,76,050/- and the same was processed u/s. 143(1) of the Act. The assessee’s case was reopened u/s. 147 of the Act vide notice u/s. 148 of the Act dated 10.03.2014 for the reason that the assessee has failed to declare the entire receipt received by him from LIC during the year under consideration amounting to Rs.3,76,050/- except the 1/6th share of the same. After duly considering the submission of the assessee, the ld. A.O. vide order dated 27.02.2015 u/s. 143(3) r.w.s. 147 of the Act passed the assessment order determining the total income at Rs.4,85,550/- after making an addition/disallowance.
Aggrieved the assessee was in appeal before the first appellate authority who vide order dated 18.10.2022 upheld the addition made by the ld. A.O.
Further aggrieved the assessee is in appeal before us, challenging the order of the ld. CIT(A).
The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the total amount received as hereditary commission after the demise of the father of the assessee was Rs.3,76,050/- which was received subsequent to the demise of SA No.87/Coch/2022 (A.Y.2008-09) M/s. Rangayyan Manikandan vs. ITO the mother of the assessee Smt. Dhanalaxmi, the assessee was entitled to only 1/6th share of the impugned amount. The ld. AR further stated that the assessee has received the said amount only as nominee in which he was entitled to only 1/6th share and that the lower authorities have failed to consider the confirmation letter of two of the legal heirs produced before the lower authorities. The ld. AR relied on the decision of the Hon'ble Apex Court in the case of Smt. Sarbati Devi vs. Smt. Usha Devi [1984] AIR 346 (SC), wherein it was held that in case of any person dying intestate the beneficial interest of the sum assured does not devolve upon the nominee merely on the fact that he was appointed as the nominee but to the legal heirs. The ld. AR stated that the said proposition would be applicable in the assessee’s case also and prayed that the impugned addition be deleted.
The learned Departmental Representative ('ld.DR' for short), on other hand, controverted the said fact and stated that the entire hereditary commission was disbursed to the assessee in his account by LIC and that the assessee has failed to prove that the other legal heirs have received their share of the said amount. The ld. DR further stated that as the total commission has been received by the assessee, the lower authorities have rightly taxed the said income in the hands of the assessee. The ld. DR also distinguished the facts of the decision in the case of Smt. Sarbati Devi (supra) stating that it was a case were the assessee has received the sum assured by the policy holder where as in the present case it is the hereditary commission that has been received by the assessee which are both not identical. The ld. DR relied on the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee’s father late Shri Rangayyan was also an LIC
SA No.87/Coch/2022 (A.Y.2008-09) M/s. Rangayyan Manikandan vs. ITO Agent who died intestate on 27.07.2002 leaving behind his wife, daughters and son namely the assessee. The assessee’s father was entitled to the hereditary commission from LIC, which was paid after a lapse of time where the mother of the assessee had also demised leaving behind the other legal heirs. The assessee in his return of income had declared 1/6th of the commission amounting to Rs.62,675/- out of Rs.3,76,050/- as being one of the legal heir for the receipt of the said commission. The lower authorities have failed to consider the submission of the assessee that the assessee was entitled to only 1/6th share as the assessee had failed to prove by way of documentary evidences that the remaining amount towards hereditary commission was disbursed to the other legal heirs.
As the assessee had failed to discharge the onus casted upon him, the ld. A.O. made an addition of the impugned amount which was subsequently upheld by the first appellate authority. In the factual matrix of this case, it is pertinent to decide the following issues: 1. Whether the assessee is the sole beneficiary of the hereditary commission received from LIC or that the assessee is entitled to be taxed only on the 1/6th share of amount as alleged by the assessee; 2. Whether or not the decision of the Hon'ble Apex Court would support the contention of the assessee.
Before deciding the above issues, it is pertinent to explain what and when a hereditary commission is received. The insurance company in this case Life Insurance Corporation of India (LIC for short) pays commission to its agents which is for a period till the death of the agent and also after the death which was due, for which purpose a nominee is appointed by the insurance agent to receive the said commission called as ‘hereditary commission’. The nominee in such case can be any person which is not restricted merely to be the legal heirs as per Regulation 19(2) of the Life Insurance
SA No.87/Coch/2022 (A.Y.2008-09) M/s. Rangayyan Manikandan vs. ITO Corporation of India (Agents) Regulation, 1972. The same is reproduced below for the sake of ready reference:
Payment of commission on discontinuance of agency (1) In the event of termination of the appointment of an agent, except for fraud, the commission on the premiums received in respect of the business secured by him shall be paid to him if such agent: (a) has continually worked for at cast 5 years since his appointment and policies assuring a total sum of not less than Rs.2 lakhs effected through him were in full force on a date one year before his ceasing to act as such agent or (b) has continually worked as an agent for atleast 10 years since his appointment or (c) being an agent whose appointment has been terminated under clause (e) of sub- regulation (1) of regulation l6 has continually worked as an agent for at least two years from the date of his appointment and policies assuring a total sum of not less than Rs.1 lakh effected through him were in fun force on the date immediately prior to such termination: Provided that in respect of an absorbed agent the provisions of clause (a) shall apply as if for the letters, figures and word "Rs.2 lakhs, the letters and figures “Rs.50,000” had been substituted. 2) Any commission payable to an agent under sub-regulation (l) shall, notwithstanding his death, be payable to his nominee or nominees or no nomination is made or is subsisting to his heirs, so long as such commission would have been payable had the agent been alive. 3) In the event of the death of the agent while his agency subsists, any commission payable to him had he been alive shall be paid to his nominee, or, if no nomination is made or if subsisting, to his heirs, so long such commission would have been payable had the agent been alive, provided he had continually worked as an agent for not less than 2 years from the date of his appointment and polices assuring a total sum of not less than Rs.1 lakh effected through him were in full force on the date immediately prior to his death. 10. Though it is observed that section 44(2) of The Insurance Act, 1938 states that only the legal heirs are entitled to receive any commission payable to an insurance agent, which provision does not facilitate for appointment of nominee, we are inclined to consider the Regulation 19(2) of the Life Insurance Corporation of India (Agents)
Regulation, 1972 which specifically governs the Regulation for all the Insurance Agents appointed in India by the corporation in respect of Life Insurance business. The Life Insurance Corporation of India (Agents) Regulation, 2017 which is prevailing now along with Insurance Regulatory and Development Authority of India (Payment of Commission
SA No.87/Coch/2022 (A.Y.2008-09) M/s. Rangayyan Manikandan vs. ITO or Remuneration or Reward to Insurance Agents and Insurance Intermediaries)
Regulations, 2016 are regulations governing the payment of commission/remuneration/reward to insurance agent. The Board Policy on Agency Matters (2021-22) in clause 5(c) has specified the criteria for payment of hereditary commission as below:
5(c) Criteria for payment of hereditary commission, if any, to the heirs of the agent in the event of unfortunate death of Agent: As per LIC of India (Agents) Regulations, 2017 as amended from time to time.
From the above, it is evident that in case of hereditary commission, it is the Regulation which governs the criteria and not as per section 44(2) of The Insurance Act, 1938 which restricts only the legal heir to be entitled to receive the commission. Section 44(2) is reproduced hereunder for the sake of ready reference:
Section 44(2) of The Insurance Act, 1938 (2) Any commission payable to an insurance agent under the provisions of clauses (b) and (c) of the proviso to sub-section (1) shall, notwithstanding the death of the agent, continue to be payable to hi s heirs for so long as such commission would have been payable had such insurance agent been alive.
Having said that, we are of the considered opinion that the assessee in the present case has received the entire hereditary commission only in the capacity of a nominee, in which case he is also entitled to the same as a legal heir only to the extent of 1/6th of the share.
We would like to place our reliance on the decision of the Hon'ble Apex Court relied upon by the assessee in the case of Sarbati Devi (supra) which has held that in the case of a policy holder dying intestate, the nominee is not entitled to the beneficial interest and is merely authorized to receive the assured amount as per section 39 of the Insurance Act, 1983 which provision is also akin to the commission received as an agent.
SA No.87/Coch/2022 (A.Y.2008-09) M/s. Rangayyan Manikandan vs. ITO Hence, the proposition laid down in the said decision would squarely be covered in this assessee’s case also which is not the case of an insured but commission received as an agent.
It is evident in the present case that the assessee’s father has not executed a will thereby dying intestate, leaving behind his wife, the assessee and daughters who by law are equally entitled to inherit the movable or immovable property of the father of the assessee by law of succession. Though the Revenue’s contention that the entire commission receipt was in the name of the assessee, the assessee cannot be the sole beneficiary of this in the absence of any will executed by the demised father. Even assuming that the other legal heirs have relinquished their right to the said commission, it would merely be categorized as a gift from the other legal heirs to the assessee. We find strength in the assessee’s contention.
We, therefore, deem it fit to hold that the assessee is entitled to only 1/6th share of 15. the said commission which he has already declared it in the return of income and we hold that the assessee is also entitled to equal share of his mother who also died intestate prior to the receipt of the sum as his other siblings would be, which was duly acceded by the ld. AR during the appellate proceeding. We, therefore direct the ld. A.O. to compute the tax accordingly and to allow credit for the tax deducted at source only to the extent of his income and not for the entire receipt of Rs.3,76,050/-.
The assessee has also filed a Stay Application in this matter which stands dismissed as infructuous.
SA No.87/Coch/2022 (A.Y.2008-09) M/s. Rangayyan Manikandan vs. ITO 17. In the result, the appeal filed by the assessee is partly allowed and the stay application filed by the assessee is dismissed as infructuous.
Order pronounced on 10th May, 2024 under rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963.