Once Insurance Policy Is Assigned By Employer To Employee, Value Received By Employee Can't Be Taxed In View Of Sec 10(10D): Delhi ITAT

The New Delhi ITAT recently reiterated that once insurance policy is assigned by the employer to employee, the insurance policy gets converted into an ordinary policy, and in that case, the value received by employee would not be subjected to tax in view of section 10(10D) of the Act. Referring to the decision of Delhi High Court in the case of CIT vs Rajan Nanda [2012] 18 taxmann.com 98 (Delhi), the Bench of N.K. Billaiya (Accountant Member) and Kul Bharat (Judicial Member) reiterated that “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”. (Para 10.53) As per the brief facts of the case, the assessee filed his return declaring total income of INR 64,76,000/- and its case was selected for scrutiny. During assessment proceedings, the AO noticed that the assessee had claimed a sum of INR 1,46,00,000/- as exempt income being the maturity proceeds from Life Insurance Corporation of India (LIC). The AO treated the sum as taxable u/s 28(vi) of the Act, treating the proceeds under Keyman Insurance policy. The Bench referred to the submission of the assessee that insurance policy was under Keyman Insurance policy taken by M/s. Pratap Parikh Associates, a proprietorship concern in which the assessee was a Keyman. The Bench also noted that the proprietorship concern was dissolved and the assessee purchased the Keyman Insurance policy from M/s. Pratap Parikh Associates on 22.11.2008 after paying a surrender value amounting to INR 45,54,344/-. Thus, the Bench accepted the fact that the assessee had rightly claimed the amount as exempt u/s 10(10D) of the Act as a character of policy had changed way back in the year 2008. The Bench went on to explain that every assessee has right to plan its affairs in such a manner which may result in payment of least tax possible, albeit, in conformity with the provisions of Act, which permits the assessee to take advantage of the gaping holes in the provisions of the Act. “Benefit inured owing to the combined effect of a prudent investment and statutory exemption provided under Section 10(10D) of the Act, the section does not envisage of any bifurcation in the amount received on maturity on any basis whatsoever”, reiterated the Bench. Hence, the ITAT allowed the appeal of assessee and concluded that the I-T authorities were not justified in denying the benefit of exemption to the assessee. Counsel for Appellant/ Assessee: Gautam Jain Counsel for Respondent/ Revenue: Maninder Kaur Biswas Case Title: Mihir Parikh verses ACIT Case Number: ITA No.2982/Del/2023 Click here to read/ downloadthe Order

Once Insurance Policy Is Assigned By Employer To Employee, Value Received By Employee Can't Be Taxed In View Of Sec 10(10D): Delhi ITAT

Pankaj Bajpai

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