Sum Received on Maturity of Keyman Insurance Policy Purchased by Employee From Employer is Exempt u/s 10(10D) | ITAT

Case Details: Mihir Parikh vs. ACIT - [2024] 160 taxmann.com 141 (Delhi-Trib.)

Judiciary and Counsel Details

• • Kul Bharat, Judicial Member & N. K. Billaiya, Accountant Member
  • Gautam Jain, Adv. for the Appellant.
  • Dr Maninder Kaur Biswas, Sr.DR for the Respondent.

Facts of the Case

A Keyman Insurance policy was taken by a proprietorship concern in which the assessee was a Keyman. Subsequently, the proprietorship concern was dissolved, and the assessee purchased the Keyman Insurance policy after paying a surrender value. During the year under consideration, the assessee received maturity proceeds from such insurance policy.

While furnishing the return of income, the assessee claimed exemption of such maturity proceeds under section 10(10D). During the assessment proceedings, the Assessing Officer (AO) contended that the maturity proceeds were received from the Keyman Insurance policy and denied exemption under section 10(10D).

On appeal, CIT(A) confirmed the additions made by AO. Aggrieved by the order, the assessee filed an appeal before the Delhi Tribunal.

ITAT Held

The Tribunal held that there was merit in the assessee’s contention that if the policy was transferred before its maturity, it would lose its character. There was no prohibition on the assignment or conversion under the Income-tax Act.

Once there is an assignment, it leads to conversion, and the character of the policy changes. The insurance company has also clarified that on assignment, the policy does not remain a keyman policy but is converted into an ordinary one.

In these circumstances, it is not open to the AO to still allege that the policy in question is a keyman policy, and when it matures, the advantage drawn from it is taxable. One has to keep in mind that at maturity, it is not the company but the individual who is getting the matured value of the insurance.

Accordingly, the AO was directed to delete the additions.

List of Cases Reviewed

• • CIT v. Rajan Nanda [2012] 18 taxmann.com 98 (Delhi) (para 11) – followed