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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI SANDEEP GOSAIN & SHRI ARUN KHODPIA
IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER
ITA no.609/Nag./2016 ITA no.610/Nag./2016 (Assessment Year : 2007–08) (Assessment Year : 2008–09)
Dy. Commissioner of Income Tax …………… Appellant Central Circle–1(3), Nagpur v/s Shri Kirit Sharad Joshi ..…….………. Respondent 23, Trimbakeshwar, New Verma Layout Nagpur 440 033 PAN – AAOPJ9006D Assessee by : Shri S.C. Thakar, Advocate Revenue by : Shri Vitthal M. Bhosale, Jt. CIT–DR
Date of Hearing – 20.04.2022 Date of Order – 25/04/2022
ITA no.611/Nag./2016 ITA no.612/Nag./2016 (Assessment Year : 2006–07) (Assessment Year : 2007–08) ITA no.613/Nag./2016 (Assessment Year : 2008–09)
Dy. Commissioner of Income Tax …………… Appellant Central Circle–1(3), Nagpur v/s Shri Vivek Moreshwar Deshpande ..…….………. Respondent 67–A, Madhav, Shivaji Nagar Nagpur – 440 010 PAN – AARPD4769N Assessee by : Shri S.C. Thakar, Advocate Revenue by : Shri Piyush Kolhe, CIT–DR
Date of Hearing – 21.04.2022 Date of Order – 25/04/2022
2 Shri Kirit Sharad Joshi O R D E R PER ARUN KHODPIA , A.M.
The present appeals have been preferred by the same Revenue challenging the impugned separate but common order of even date 27th October 2016, passed by the learned Commissioner of Income Tax (Appeals)–3, Nagpur, for the assessment year 2007–08 and 2008–09 in respect of Shri Kirit Sharad Joshi, and for the assessment year 2006–07, 2007–08 and 2008–09 in respect of Shri Vivek Moreshwar Deshpande.
In all the above appeals, the common grounds raised by the Revenue are reproduced below:–
―On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the maturity value of the Keyman Insurance Policy assigned to the employee is exempt under section 10(10D) of the Act relying on the decision of Delhi High Cuort in the case of CIT v/s Rajan Nanda, 349 ITR 8, without appreciating the fact that the above said decision has not been accepted by the Department and SLP has been filed which is pending. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the maturity value of the Keyman Policy assigned to the employee is exempt under section 10(10D) of the Act without appreciating the fact that exemption under section 10(10D) is not allowable on any sum received under the Keyman Insurance Policy and it has been further clarified in Explanation–1 of Section 10(10D) that it also includes any such policy which is assigned to a person.‖
Since all the appeals involve common grounds of appeal, except variation in figures, which are based on identical facts and
3 Shri Kirit Sharad Joshi circumstances, therefore, these appeals were clubbed and heard together and are being disposed off by way of this consolidated order.
The only issue raised by the Revenue which needs to be adjudicated by us in all these appeals is, whether or not the learned CIT(A) was justified in holding that the amount received by the assessee on account of Keyman Ordinary Life Insurance Policy on his life is exempt under section 10(10D) of the Act.
We hereby note the facts as they appear in assessee’s case Shri Kirit Sharad Joshi for the assessment year 2007–08.
Brief facts of the case are, the assessee is one of the 6. directors of M/s. Spacewood Furnishers Pvt. Ltd., and his main source of income is from salary which he receives from the said company. The assessee also derives income from other sources like interest, dividends from shares, mutual funds, etc. For the year under consideration, the assessee filed its return of income on 30th July 2007, declaring total income of ` 1,26,65,380. During the assessment year 2007–08, the assessee has also received maturity amount of ` 3,40,75,000 for the LIC Policy No.97140840. The maturity value received by the assessee was claimed exempt under section 10(10D) of the Act. M/s. Spacewood Furnishers Pvt. Ltd. had taken Keyman Insurance
4 Shri Kirit Sharad Joshi Policy bearing no.97140840, on 28th January 2002, on the life of its Keyman viz. Shri Kirit Sharad Joshi (the assessee herein), the director of the company on the sum assured at ` 2,35,00,000. The said M/s.Spacewood Furnishers Pvt. Ltd. assigned the said policy in favour of Shri Kirit Joshi on 23rd January 2006. The surrender value of the said policy on 23rd January 2006, was ` 87,71,328. Accordingly, the assessee declared an amount of ` 87,71,321, as profit in lieu of salary in his return of income for the assessment year 2006–07 and paid tax on the said sum of ` 87,71,321. After assignment of the said policy by the company in favour of Shri Kirit Sharad Joshi on 23rd January 2006, the said policy became an ordinary life Insurance policy in the hands of Shri Kirit Sharad Joshi. The assessee paid the remaining premiums of the said life insurance policy as the assessee became the sole and exclusive owner of the said life insurance policy matured on 28th January 2007. The assessee also received maturity amount of the said policy including bonus at ` 3,40,75,000 on 28th January 2007. Thus, the assessee claimed exemption on the maturity value of the said policy under section 10(10D) of the Act amounting to ` 3,40,75,000, as ordinary life insurance policy on his life. The Assessing Officer, however, for
5 Shri Kirit Sharad Joshi the reason for the reasons stated in Para–12(2), 13 and 14 disallowed the exemption claimed under section 10(10D) of the Act. From the maturity value of ` 3,40,75,000, the Assessing Officer deducted the surrendered value of ` 87,71,328, on which the assessee had paid taxes on the above amount and brought the balance amount of ` 2,53,03,672 [i.e., ` 3,40,75,000 (–) ` 87,71,328] to tax treating it as a Keyman Insurance Policy and not eligible to exemption under section 10(10D) of the Act. The Assessing Officer also referred to the provisions of section 17(3)(ii) of the Act which provides for taxing the sums received under Keyman Insurance Policy as "profit in lieu of salary", then to section 28(vi) to say that the sum received under Keyman Insurance Policy is taxable as business income in the hands of the company who took the policy and section 56(2)(iv) of the Act to say that the income referred to in sub-clause (xi) of clause (24) of section 2, if not chargeable under the head profits and gains of business or under the head salaries the same shall be chargeable as income from other sources. Thus according to A.O. this shows that the legislature intended to tax sums received under Keyman Insurance Policy. Further submission of A.O. was that the definition of "Keyman Insurance Policy" as given in Explanation 1 to section 10(10D) was amended by Finance Act, 2013, whereby the following words were added :-
6 Shri Kirit Sharad Joshi
".....and includes such policy which has been assigned to a person, at any time during the term of policy, with or without consideration." 7. According to Assessing Officer this was a clarificatory amendment and it will have retrospective effect. Hence, the Assessing Officer was of the view that the maturity value received by the Assessee on the said Keyman Insurance Policy will not be exempted under section 10(10D) of the Act. The assessee not being satisfied with the order so passed by the Assessing Officer went in appeal before the first appellate authority.
The learned CIT(A) has quoted the written submission filed in detail by the Assessee and in sub–para 8.1, 8.2 and 8.3 and has discussed the issue in details and has allowed the claim of the Assessee under section 10(10D) of the Act. The CIT(A) relying on the decision of the Hon’ble Delhi High Court in CIT v/s Rajan Nanda, 205 Taxman 139 (Del.) has held that the maturity value of the Keyman Insurance Policy no.971247846 assigned by the employer in favour of Keyman Kirit Joshi (assessee herein) on 14th March 2002, is exempt under section 10(10D) of the Act and that the explanation under section 10(10D) of the Act defining Keyman Insurance Policy brought by the Finance Act, 2012, effective from 1st April 2013, is prospective in nature and not retrospective in nature and has no effect on the maturity value of Keyman Insurance
7 Shri Kirit Sharad Joshi Policy received before 1st April 2013. For better appreciation of facts, the conclusion so drawn by the learned CIT(A) are reproduced below:– ―8.1 The assessment order made by the A.O. and the assessee’s submission are considered. It has been held by the Hon’ble Delhi High Court in the case of CIT v/s Rajan Nanda that after the assign of Keyman Insurance Policy in favour of the employee / director, the character of the policy changed to that of an ordinary life insurance policy and the amount on maturity of the policy received by the employee was exempt u/s. 10(10D). The argument of the AO that the amendment in the definition of Keyman Insurance Policy given in Explanation 1 to section 10(10D) inserted by Finance Act, 2013 will have retrospective effect is not correct. Where-ever a certain Explanation is intended to. be effective retrospectively, it is specifically mentioned in such Explanation. For example Explanation to section 801A was introduced by Finance Act, 2009 in relation to clarifying subsection (4) of section 80IA. It was specifically mentioned that the Explanation was w.r.e.f. 01.04.2000. 8.2 In fact, there is no dispute on the fact that the amendment in the Finance Act, 2013 in Explanation 1 to section 10(10D) is effective from 01.04.2014 and has no retrospective effect. Reference is made to the Explanatory Notes to the amendment in the Finance Act in which the following has been stated: "This amendment takes effect from Mf April, 2014 and will accordingly, apply in relation to assessment year 2014–15 and subsequent assessment years." 8.3 The decision of Delhi High Court in the case of Commissioner of Incometax Vs. Rajan Nanda reported in (2012) 349 I.T.R. P.8 is a direct decision on the issue and is entire y applicable to the facfs of the case. The decision of the Hon'ble High Court has also been followed by Hon'ble ITAT, Delhi in the case of Dr. Naresh Trehan Vs. Dy. C.I.T. (2014) 48 taxman.com 21 (Delhi Trib.). 8.4 Considering the merit in the assessee's submission, the fact that the amendment takes effect from A. Y. 2014-15 and following the judgments of Hon'ble Delhi High Court, it is held that after the assignment of Keyman Insurance Policy No.971247846 by Employer in favour of the assessee on 14.03.2002, the character of the policy changed to that of an ordinary life Insurance policy of the assessee and hence the amount of Rs.57,00,000/- received by the assessee on above referred policy on his life is exempt U/s.10(10D).
8 Shri Kirit Sharad Joshi 8.5 The disallowance by the A.O. of the claim of the exemption made by the assessee u/s 10(10D) is held to be unjustified.‖
The Revenue being aggrieved by the order passed by the learned CIT(A) has filed appeals for the assessment year 2007–08 and 2008– 09 respectively.
Before us, Shri Vitthal M. Bhosale, Jt. CIT, the learned Departmental Representative vehemently relied on the order passed by the Assessing Officer and submitted that the learned CIT(A) was not correct in treating the disallowance made by the Assessing Officer as unjustified for the detailed reasons stated by the Assessing Officer in his assessment order vide Para–11, 12, 13 and 14 and consequent upon this, the learned CIT(A) ought to have upheld the order passed by the Assessing Officer.
On the other hand, Shri Sanjay C. Thakar, learned Counsel appearing on behalf of the assessee filed a detailed written submissions. He submitted that he is fully and squarely relying upon the contents of the written submissions filed by him and prayed that the issue be decided in favour fo the assessee by upholding the order passed by the learned CIT(A). The submissions made by the learned Counsel are reproduced below:–
―Department in ground No.1 of it's Appeal says that they have not accepted the decision of Delhi H.C. in the case of CIT Vs. Rajan Nanda (349 ITR P.8} and have filed SLP before Hon'ble Supreme
9 Shri Kirit Sharad Joshi Court and the same is pending. It is submitted with respect that even till today the Hon'ble Supreme Court has not decided the said Appeal and the decision of Hon'ble Delhi High Court in {349 ITR P.8) referred to above holds the field and there is no contrary decision of any other High Court. Relevant portion of Delhi H.C. judgment para 53 of (2012} 349 ITR P.8 CIT Vs. Rajan Nanda which squarely decides the issue in favour of the Assessee is quoted below :- "Once fhere is an assignment by company/employer in favour of the individual, the character of the insurance policy changes and gets converted into an ordinary policy. Contracting parties a/so change in as much as after assignment which is accepted by the Insurance Corp., the contract now is between Insurance company and the individual and not the company/employer which initially look the policy. Such company/employer no more remains the contracting parties. We have to bear in mind that that law permits such an assignment, even the L/C accepted the assignment and the same is permissible. There is no prohibition as to the assignment on 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 Keyman Policy and gets converted into ordinary policy. In these circumstances it is not open to the Revenue to still allege that the policy in question is a Keyman Policy......" Department in ground No.2 says as per Explanation 1 of sec.10(10D) which is amended by Finance Act, 2013 says that Keyman Insurance Policy also includes any such policy assigned to a person. Further according to Dept. the said amendment is clarificatory and hence it is applicable retrospectively. Said argument of learned D.R. is erroneous. The amendment to the definition of Keyman Insurance Policy was brought on the statute book by Finance Act of 2013 with effect from 01.04.2014. Explanatory notes to the Finance Bill 2013 also clarifies that the amendment will be effective from 01.04.2014. It is further pointed out that there was already a definition of Keyman existing even prior to 01.04.2014 and as per the said definition it meant a life insurance policy taken by a person on the life of another person. Who is connected with the first mentioned person. It did not include, in the definition, the policy which stood assigned to the person on whose life the same was taken. It was only subsequently the legislature wanted to include in the definition of Keyman Insurance Policy even the person in whose favour the policy is assigned during the term of the policy. It was remedial piece of legislation by artificially enlarging the scope of Keyman Insurance Policy, brought on the statute book after the decision of Delhi H.C. in the case of CIT v/s Rajan Nanda. By this definition
10 Shri Kirit Sharad Joshi the right of the assignee who became the owner of life insurance policy after assignment and was entitled to exemption u/s 10(10D) on maturity value of policy was restricted or severly curtailed. Such legislation which restricts the right of the Assessee is always prospective. See AIR 1960 Supreme Court P.12 Central Board of India Vs. The Workman etc. Further the Indore Bench of ITAT in the case of Smt. Harleen Kaur Bhatia Vs. Principal CIT reported in 181 ITD P.294 (Indore) has held that the amendment brought about by Finance Act, 2013 to Explanation 1 to section 10(10D) is prospective in nature and shall apply to Keyman Policy assigned after 01.04.2014. In view of the above referred submission that the ground no.2, of the Department’s Appeal is erroneous and without substance and the same deserves to be dismissed. In view of the above it is submitted and prayed that the Dept’s Appeal be dismissed and the order of learned CIT(A) be kindly confirmed allowing exemption u/s 10(10D) of I.T. Act, 1961, on maturity value of the life insurance policy in the hands of the Assessee.‖
The learned Counsel for the assessee relied on the following judicial precedents in support of his argument:–
i) CIT & Ors. v/s Rajan Nanda & Ors., 205 Taxman 139 (Del. HC); and ii) Smt. Harleen Kaur Bhatia v/s PCIT, [2020 181 ITD 294 (Indore Trib.).
We have carefully considered the rival contentions, perused the orders of the authorities below and the material placed on record. We find that the the Hon’ble Delhi High Court in Rajan Nanda & Ors. (supra) vide Para–53 of the judgment has observed as under:–
―53. Once there is no 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
11 Shri Kirit Sharad Joshi 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.‖
It is also pertinent to note that on assignment of Keyman Insurance Policy to the Assessee has paid the tax on assignment value i.e., surrenderd value on the date of assignment as certified by LIC. Thus, the assessee has paid income tax as profit from salary and thereafter for the remaining period of said policy on his life, he has paid premiums himself from his own sources. Thus, the policy after assignment clearly became the Life Insurance Policy in the hands of the assessee and he has kept the policy alive by paying annual premiums from his own sources and on maturity, he has received the maturity value. It is also pertinent to note that the assignment of policy, maturity of policy and receipt of maturity amount occurred before 1st April 2014. The amendment to the definition of Keyman Insurance Policy was brought by the Finance Act, 2013 with effect from 1st April 2014, by inserting following to Explanation 1 to section 10(10D) of the Act which is reproduced below:–
―Explanation 1.—For the purposes of this clause, "Keyman insurance policy" means a life insurance policy taken by a
12 Shri Kirit Sharad Joshi 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;
We further find that the Co–ordinate Bench of the Tribunal, Indore Bench, in Smt. Harleen Kaur Bhatia (supra) has held that the amendment brought in by Finance Act 2013, in Explanation 1 to section 10(10D) of the Act is prospective in nature and not retrospective in nature and, hence, the keyman insurance policy taken by a company in assessee's husband’s name was assigned to assessee in the year 2013, and it would continue to be an ordinary policy. Consequently, the sum received by her on maturity of said policy would not be taxable by virtue of amended section 10(10D) of the Act. In this view of the matter, in the present case, the Keyman policy taken by the assessee was assigned in favour of the assessee on 23rd January 2006, and the policy became an ordinary life insurance policy in the hands of the assessee. Subsequently, on maturity, the assessee has received maturity value on 28th January 2007. Now from the facts of the case, it is clear that all the events i.e., assignment of policy, maturity value occurred before 1st April 2014, and hence the amendment brought in Explanation 1 to section 10(10D) of the Act by Finance Act, 2013, would not apply on the assessment year 2007–08 or an assessment year prior to A.Y. 2014–15. Accordingly, following
13 Shri Kirit Sharad Joshi the respective judicial precedences relied upon by the learned Counsel for the assessee, we, therefore, see no legal infirmity or error in the impugned decision of the learned CIT(A) warranting interference at the instance of the Revenue. Accordingly, upholding the order of the learned CIT(A), we dismiss the grounds raised by the Revenue.
In the result, Revenue’s appeal for A.Y. 2007–08 is dismissed.
Insofar as Revenue’s appeal in assessee’s case Shri Kirit Sharad Joshi for the assessment year 2008–09, and in assessee’s case Shri Vivek Moreshwar Deshpande for the assessment year 2006–07, 2007– 08 and 2008–09 are concerned, we find that the grounds raised by the Revenue is in toto and mutatis mutandis identical to the grounds raised by the Revenue in its appeal being ITA no.609/Nag./2016, for the assessment year 2007–08, wherein we have decided this issue in Para–11, 12 and 13 of this order. Since the present issue raised by the Revenue and the facts and circumstances being identical to the issue raised in the year 2007–08, for the reasons stated therein, we uphold the order passed by the learned CIT(A) by dismissing the grounds raised by the Revenue.
In the result, Revenue’s appeal for A.Y. 2008–09 in assessee’s case Shri Kirit Sharad Josh and for A.Y. 2006–07, 2007–08 and 2008–
14 Shri Kirit Sharad Joshi 09 in assessee’s case Shri Vivek Moreshwar Deshpande are also dismissed. 19. To sum up, all the appeals of the Revenue are dismissed. Order pronounced in the open court on 25/04/2022
Sd/- Sd/- SANDEEP GOSAIN ARUN KHODPIA ACCOUNTANT MEMBER JUDICIAL MEMBER
NAGPUR, DATED: 25/04/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai