Receipt from Keyman Insurance Policy taxable on Receipt Basis Only: ITAT [Read Order]

Keyman Insurance Policy - ITAT - Taxscan

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the receipt from the Keyman Insurance Policy is taxable on receipt basis only.

The assessee company is a buying Agent in respect of abroad based clients and engaged in the business of Consultancy and Commission Income. The Assessing Officer made an addition in respect of receipt from Keyman Insurance Policy on accrual basis.

On appeal, the first appellate authority deleted the addition and granted relief to the assessee.

The Tribunal noted that the provisions of section 28(vi) of the Act read with section 2(24)(xi) relating to bonus on Keyman Insurance Policy includes: “Any some received under a Keyman Insurance Policy including the sum allocated by way of bonus in such policy.”

It was noted that the proceeds from LIC are Exempt under section 10(10D) except in the following 3 cases: (i) If amount is received on a keyman insurance policy. (ii) If amount is received from a pension policy, and (iii) If premium paid is more than 20% of sum assured in any year.

Sustaining the order of the first appellate authority, the Tribunal observed that “In view of above, the proceeds from Insurance company in respect of Keyman Policy will be taxable only on receipt basis. The provisions of section 2(24)(xi) read with section 28(vi), it is evident that the amount of bonus on Keyman Insurance Policy is to be taxed on receipt basis only. Hence the addition made by the Assessing Officer taxing the income on accrual basis cannot be held to be valid in the eyes of the law. Hence we decline to interfere in the order of the Ld. CIT(A).”

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