Taxability of amount received from LIC on maturity of key man insurance policies – DCIT, Circle 37(1), New Delhi. Versus Naresh Kumar Trehan – ITAT New Delhi

DCIT, Circle 37(1), New Delhi. Versus Naresh Kumar Trehan

 

Taxability of amount received from LIC on maturity of key man insurance policies – Held that:- The surrender value is taxable in the hands of the Key Man but in the case of present assessee he had paid the surrender value to the organizations which took out the said policies, and such surrender value has been taxed in the hands of Institute. Both the parties agree that this issue is covered by the decision of Hon’ble Delhi High Court in assessee’s own case [2011 (12) TMI 392 – DELHI HIGH COURT ] wherein held that 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 now between the insurance company and the individual and not the 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. Once has to keep inmind on maturity, it does not the company but who is an individual getting the matured value of the insurance. – Decided in favour of assesse.

Source – TMI

 

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