The Income Tax Appellate Tribunal (ITAT), Mumbai bench held that the assessee is not eligible to claim an exemption under section 10(10D) of the Act on the maturity value of the Keyman Insurance Policy and is taxable under income from other sources.
The assessee, Ravjibhai L. Kakadia was a partner in M/s. Sheetal Mfg. Co., a partnership firm. The firm had taken a Keyman Insurance Policy on the assessee from Life Insurance Corporation of India (LIC) and had paid premium aggregating to ` Rs. 47,56,680.
The Keyman Insurance Policy was assigned to the assessee and thereafter the assessee continued paying premium aggregating to Rs.79,51,280. The Policy matured and the assessee received an amount of Rs.5,68,41,892, towards the maturity value of the policy.
In the return of income filed, the assessee offered long term capital gain, on the maturity value received from the Policy after availing indexation benefit on premium paid of Rs.79,71,280, by treating it as cost of acquisition.
After examining the return of income as well as the computation of total income furnished by the assessee in the course assessment proceedings, the Assessing Officer issued a show-cause notice to the assessee requiring him to explain as to why the maturity value received on the Keyman Insurance Policy should not be assessed under the head salary as against the long term capital gain claimed by the assessee.
The issues before the tribunal was whether the amount received by the assessee on maturity of the Keyman Insurance Policy is exempt under section 10(10D) of the Income Tax Act, 1961; and if it is held as taxable, the proper head of income under which it can be taxed.
The two-member bench of G. Manjunathan and Saktijit Dey noted that after the amendment to Explanation 1 by Finance Act, 2012, a Keyman Insurance Policy even on assignment would remain such, hence, would come within the exception provided under section 10(10D)(b) of the Act, therefore, would not be eligible for exemption under section 10(10D) of the Act.
“The object of the aforesaid amendment has been further clarified by CBDT in Circular no.3 of 2014, dated 21st January 2014, by stating that by taking advantage of the legal loophole in the provision of section 10(10D) of the Act, exemption is claimed in cases wherein though originally Policies were Keyman Insurance Policy, but during its term it is assigned to some other person,” the tribunal said.
The tribunal, while addressing the other, said that in the facts of the present case, undisputedly, the sum received on maturity of Keyman Insurance Policy cannot be assessed either under the head salary or income from business and profession. Thus, the only other head under which it can be assessed is income from other sources as per section 56(2)(iv) of the Act and the Assessing Officer has assessed such income in accordance with the statutory provisions.
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