The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has allowed the deduction under Section 57 of the Income Tax Act 1961 as the director being not beneficiary could not be the assignee under keyman insurance policy.
The assessment in the hands of the assessee for AY 2018-19 was completed by the AO under Section 143(3) of the Income Tax Act on 04-11-2020. It was pertinent to note that the return of income filed by the assessee was taken up for scrutiny to verify the “large deduction claimed under Section 57 of the Income Tax Act.” In the assessment order, the AO did not make any addition in respect of large deductions claimed by the assessee.
The PCIT, upon examination of the assessment record, took the view that the assessment order was erroneous and prejudicial to the interests of revenue, since the AO did not disallow the large deduction claimed by the assessee. Accordingly, the PCIT initiated revision proceedings under Section 263 of the Income Tax Act.
The assessee, Drupad Menda was a director in a company named “JMD Auto India P Ltd”. The said company had taken a Keyman Insurance Policy in the name of the assessee. During the year under consideration, the said policy was surrendered and a sum was received by the assessee from the insurance company. The Insurance company also deducted TDS on the above said payment and the same was reflected in Form 26AS relating to the assessee.
Since the TDS was deducted in the name of the assessee, the above said amount was declared as his income under the head “Income from Other sources” and the assessee claimed the very same amount as deduction. According to the assessee, the above said money belongs to JMD Auto India P Ltd only and hence he had transferred the same to the above said company. Hence the amount so transferred was claimed as deduction by the assessee in his return of income.
Vipul Joshi, on behalf of the assessee submitted that the assessee was constrained to declare these receipts and payments, since TDS was deducted by the insurance company from the said payment. It was pertinent to note that the above said company JMD Auto P Ltd had treated the insurance premium payments as its “Investments” and the difference between the maturity proceeds and accumulated payment of insurance premium, was offered to tax as its income.
The AO, during the course of assessment proceedings, raised a specific query on the deductions claimed under the Income from Other sources. The assessee furnished the reply stating the facts discussed in the preceding paragraph.
Accordingly, the AO accepted the submissions made by the assessee and did not make any disallowance of the deduction so claimed. Accordingly, the PCIT set aside the assessment order and directed the AO to reframe the assessment after conducting necessary enquiries and verifications as warranted on the facts of the case.
Vipul Joshi, appeared on behalf of the assessee and Sanyogita Nagpal, appeared on behalf of the revenue.
The two-member Bench of B.R. Baskaran (Accountant Member) and Narender Kumar Choudhry (Judicial Member) observed that the company JMD had shown the premium payments as its investments. Further, the difference between the accumulated value of investments and the maturity amount has been declared by the above said company as its gains, meaning thereby, the assessee has only acted as conduit in collecting the maturity proceeds and remitting it to the company.
Since the TDS was deducted from the above said maturity proceeds, the assessee was constrained to declare the maturity proceeds in the return of income and correspondingly claim deduction of the equal amount.
The Bench observed that, the only apprehension of PCIT was that the assessee could not have claimed deduction under Section 57 of the Income Tax Act, if the assessee was the assignee. The Bench allowed the appeal filed by the assessee and held that PCIT was not justified in initiating revision proceedings as JMD Auto India P Ltd was the beneficiary and not the assessee, meaning thereby, the assessee herein was not the assignee of the policy, as apprehended by PCIT.
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