Shri Allu Arvind Babu v. The Assistant Commissioner Of Income Taxnon Corporate Circle-20(1)Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS RESERVED ON: 24.11.2020DELIVERED ON: 04.12.2020 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE M.S.RAMESH Shri Allu Arvind Babu..Appellant Vs. The Assistant Commissioner of Income TaxNon Corporate Circle-20(1)Chennai..Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax Appellate Tribunal'C' Bench, Chennai dated 15.07.2016 passed in ITANo.1254/Mds/2015 for the Assessment Year 2007-08 against theorder dated 20/03/2015 and made in (ITCA) No.146/13-14 (ITCA)-14on the file of the Commissioner of Income Tax (Appeals) – 14,Chennai against the order dated 30/11/13 and the order dated30/11/13 and made in PANo./GIR No.ADADPA9507B on the file ofAssistant Commissioner of Income Tax, Media Circle I, Chennai. For Appellant : Mr.R.Vijayaraghavan For Subbaraya Iyer PadmanabhanFor Respondent : Mr.M.Swaminathan Sr. Standing Counsel Assisted by Ms.V.Pushpa Jr. Standing Counsel The present appeal for the Assessment Year 2007-08, thougharises out of a common order passed against the appellant by theIncome Tax Appellate Tribunal, "C" Bench, dated 15.07.2016, forthe Assessment Years 2006-07 and 2007-08, the issues involvedin both the appeals are entirely different and therefore, boththe writ appeals are being disposed of by separate orders. https://hcservices.ecourts.gov.in/hcservices/ 2. The substantial questions of law arising in the presentappeal filed by the Assessee, as framed by the Assessee, are asunder: (i)Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is correct in law insustaining the addition of the surrender value ofthe assigned keyman insurance policy as income ofthe appellant and was not exempt under theprovisions of Section 10(10D) as it then stoodbefore the amendment by the Finance Act, 2013? (ii) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is correct in law in nottaking notice of the amendment introduced by theFinance Act, 2013, to include the assignedpolicies also within the ambit of keymaninsurance policy for the purpose of taxation witheffect from 01.04.2014 which clearly go to provethat the surrender value of the assigned keymaninsurance policy was not taxable up to 31.03.2014? 3. By consent of both sides, the matter was heard finally atthis stage and is being disposed of. 4. The relevant finding of the Tribunal with regard to thequestions raised in the present appeal filed by the Assessee arequoted below: "14. The facts of the case are that theassessee is the Managing Director of AlluEntertainment Private Ltd. (AEPL). During the F.Y2004-05, AEPL has taken two Key Man InsurancePolicies each amounting to Rs.100 lakh on thelife of the assessee. Of which, one policy wasassigned in favour of the assessee on 31.03.2006.The surrendered value of the policy amonting toRs.58,74,752/- was offered as income taxable asperquisite u/s. 173(3) of the Act in that yearitselfi.e.assessmentyear2006-07.Subsequently, the assessee en-cashed the policyat Rs.97,03,083/- on 29.06.2006. The AO has addedthesumofRs.38,28,331(Rs.97,03,083-Rs.58,74,752). Against this, assessee carried theappeal before the CIT(A). "14. The facts of the case are that theassessee is the Managing Director of AlluEntertainment Private Ltd. (AEPL). During the F.Y2004-05, AEPL has taken two Key Man InsurancePolicies each amounting to Rs.100 lakh on thelife of the assessee. Of which, one policy wasassigned in favour of the assessee on 31.03.2006.The surrendered value of the policy amonting toRs.58,74,752/- was offered as income taxable asperquisite u/s. 173(3) of the Act in that yearitselfi.e.assessmentyear2006-07.Subsequently, the assessee en-cashed the policyat Rs.97,03,083/- on 29.06.2006. The AO has addedthesumofRs.38,28,331(Rs.97,03,083-Rs.58,74,752). Against this, assessee carried theappeal before the CIT(A). 15. On appeal, the Ld. CIT(A) observed thatSection 10 is the first section in chapter IIIentitled 'Incomes which do not form part of totalincome. In section 10, various kinds of incomesare stipulated, which are not to be included intotal income. This section excludes those sumsfrom income, which are received under a lifeinsurance policy, including the sum allocated byway of bonus of such policy. however, there arecertain sums, which are specifically excludedmeaning thereby those sums are not excluded fromincome. Sub-clause (b) of clause (10D) mentionsany sum received under a Keyman insurance policy.It would follow that sum received under a Keymaninsurance policy is not to be excluded from totalincome and it would be treated as income. That isprovided by clause (xi) of section 2(24).Explanation to clause (xi) states that Keymaninsurance policy shall have the same meaning asassigned to it in Explanation to clause (10D) ofsection 10. This Explanation gives the meaning to'Keyman insurance policy' and that sum receivedunder this policy would be treated as income. Butto circumvent this provision colourable devicewas adopted to evade tax. The AO had extensivelydealt with this scheme in his order in page.During the course of appellate proceedings, theld.A.R. relied on the case of Rajan Nanda [2012]18 Taxmann.com 98 (Delhi). But the AOdistinguished this case on the lines that nopremium was paid by the assessee to continue thepolicy after assignment and only encahsed thesurrender value. In the above mentioned casethere are two situations after assignment. (i) employee does not continue the policy anddoes not pay further premiums, then he would getonly surrender value: or (ii) employee continues the policy and payssubsequent premiums, then he would get fullamount on maturity.In the case of Rajan Nanda supra, secondsituation has occurred as on assignment, thedirector assessee did not surrender the same tothe LIC and chose to continue with the policy bymaking pament for remaining period of the policy.In that case the court held that the character ofthe insurance policy changes and it getsconverted into an ordinary policy. The CIT(A)observed that in the present case before CIT(A) no premiums was paid by the assessee to continuethe policy after assignment and only en-cashedthe policy at Rs.97,03,083/-. Hence, CIT(A)observed that in the light of above thedifferences of the amount that is not brough totax in the quantum of surrender encashment shouldbe taxed. Hence, addition made by the AO issustained. Aggrieved, the assessee is in appealbefore us. no premiums was paid by the assessee to continuethe policy after assignment and only en-cashedthe policy at Rs.97,03,083/-. Hence, CIT(A)observed that in the light of above thedifferences of the amount that is not brough totax in the quantum of surrender encashment shouldbe taxed. Hence, addition made by the AO issustained. Aggrieved, the assessee is in appealbefore us. 16. We have heard both the parties andperused the material on record. Ld.A.R. relied onthe judgment of CIT v. Rajan Nanda & Ors.reported in (2012) 349 ITR 008 wherein held thatthe payment which is received by employee underKey Man Insurance Policy, can be taxed in thehands of employee u/s. 17(3)(ii) of the Act.However, where no such amount was received attime of assignment of policy by employer company,as employee, nothing could be taxed in assessee'shands u/s. 17(3)(ii) of the Act. Further, oncethere is an assignment of Key Man InsurancePolicy by employer company to employee, insurancepolicy gets converted into an ordinary policy andhence, in that case, maturity value received byemployee would not be subject to tax in view ofsection 10(10D) of the Act. In our opinion, theargument of assessee's counsel is totallymisplaced that the two insurance policies weretaken in the name of Managing Directorof theassessee company ie. present assessee foramounting to Rs.100 lakhs each. The said policywas assigned to the assessee on 31.03.2006, andthe surrender the value of that policy amountingto Rs.58,74,752/- was offered as income asperquisite u/s. 17(3) of the Act for assessmentyear 2006-07. Subsequently, within a short time,the said policy was encashed at Rs.97,03,083/- on29.06.2006. In our opinion, the device adopted bythe assessee by assigning the policy andencashing the same is nothing but colorabledevice adopted to evade tax and we do not findany merit in the argument of assessee's counsel.The Ld. CIT(A) has taken the correct view of thefacts of the case and as discussed by the CIT(A)in para Nos.9.1 to 9.6, the same is confirmed.This ground of appeal is dismissed." 5. The learned counsel for the Assessee, Mr.Vijayaraghavan,relying upon the decision of the Delhi High Court in the case ofCIT v. Rajan Nanda & Ors. [(2012) 349 ITR 008], submitted that'Key Man Insurance Policy' taken by the company M/s. AlluEntertainment Privated Ltd. (AEPL) was assigned in favour of itsMangaging Director, the present assessee Shri Allu Arvind Babu,to the extent of Rs.100.00 Lakhs, on 31.03.2006 and forAssessment Year 2006-07, the surrender value of the saidInsurance Policy to the extent of Rs.58,74,752/- was offered as"income" taxable in the hands of the Assessee as "perquisite"under Section 17(3) of the Act. But, shortly after the assignmentin favour of the Assessee on 31.03.2006, which assignment wasduly recognised and approved by the Insurance Company, theAssessee got the Insurance Policy encashed on 29.06.2006 andreceived a sum of Rs.97,03,083/- which was not taxable in thehands of the Assessee, as it was an ordinary Life Insurance claimreceived by the Assessee on his Life Insurance Policy which wasexempted under Section 10(10D) of the Act and therefore, for theAssessment Year 2007-08, such encashment of surrender of one ofthe two such Insurance Polices taken in favour of the Assessee bythe Company was not taxable in the hands of the Assessee and theAssessing Authority has erred in again bringing to tax thedifference sum of Rs.38,28,331/- (Rs.97,03,083 - Rs.58,74,752taxed in the previous year) in the present Assessment Year 2007-08. 6. The learned counsel for the Assessee also relied upon alater Bombay High Court decision, in which, following thedecision of the Delhi High Court, the Bombay High Court on aconcession made on behalf of the Revenue Department in the caseof CIT v. Prashant J Agarwal [(2016) 243 taxmann 119], held thatExplanation 1 to Section 10(10D) of the Act had come into forceonly from 1st April 2014 and therefore, it would not govern/applyto amounts received under assigned Keyman Insurance Policy priorto Assessment year 2014-15. He, therefore, submitted that theappeal of the Assessee deserves to be allowed. 7. Per contra, Mr.M.Swaminathan, learned Senior StandingCounsel appearing for the Revenue vehemently opposed thesesubmissions and drawing the attention of this Court to theprovision of Section 10(10D) of the Act, submitted that only thesum received under Life Insurance Policy is exempt from taxationunder Section 10(10D) of the Act. But, clause (b) thereaftermakes an exception with regard to Keyman Insurance Policy andtherefore, the sum received by the Assessee under the KeymanInsurance Policy after the assignment in his favour on 31.03.2006was also clearly taxable as perquisite in the hands of theAssessee. 8. The learned Senior Standing Counsel further submittedthat the present Assessee individually never paid any premium onthe said Keyman Insurance Policy after its assignment in itsfavour on 31.03.2006 and soon after three months of assignment,he got it surrendered, encashed and received the additional sumof Rs.97,03,083/- and therefore, the balance sum was rightlytaxed as "perquisite" in the hands of the Assessee. 9. Drawing our attention towards Explanation 1 to Section 10(10D) of the Act inserted by the Finance Act, 2012 with effectfrom 01.04.2013 and further amendment of Explanation 1 by FinanceAct, 2013, with effect from 01.04.2014, which was onlyclarificatory in nature and was brought to undo the effect ofDelhi High Court judgment in the case of Rajan Nanda (supra), hesubmitted that Explanation 1 effect will always relate back toparent provision and it clearly spelt that even after assignment,the Keyman Insurance Policy will continue to bear the characterof a Keyman Insurance Policy, even though it is a Life Insuranceof the Key employees of the Company and therefore, its surrendervalue will be an exception to Section 10(10D) of the Act videClause (b) thereafter and therefore, the income received by theAssessee would continue to be taxable. 10. The learned counsel also submitted that the concessiongiven on behalf of the Department before the Bombay High Courtwas misplaced and he is not conceding to any such legal positionon behalf of Department as was done before the Bombay High Court.He further submitted that the decision of the Delhi High Court isalso not applicable and the effect of the Delhi High Courtjudgment was undone by the Parliament by the aforesaidExplanation 1 to Section 10(10D) of the Act and therefore, thesaid decision cannot enure to the benefit of the Assessee. Inother words, he submitted that Expalantion 1 would clarify theposition for the Assessment Year 2007-08 involved in the presentcase and the surrender encashment value received by the Assesseewas liable to be taxed in his hands upon surrendering the KeymanInsurance Policy during the Assessment Year 2007-08 also. 12. Section 10(10D) of the Act, which gives exemptions tovarious types of income under the Act, relating to sum receivedunder Life Insurance Policy, is quoted below for ready reference: (10D) any sum received under a life insurancepolicy, including the sum allocated by way ofbonus on such policy, other than— https://hcservices.ecourts.gov.in/hcservices/ (a) any sum received under sub-section (3) ofsection 80DD or sub-section (3) of section80DDA; or (b) any sum received under a Keyman insurancepolicy; or 12. Section 10(10D) of the Act, which gives exemptions tovarious types of income under the Act, relating to sum receivedunder Life Insurance Policy, is quoted below for ready reference: (10D) any sum received under a life insurancepolicy, including the sum allocated by way ofbonus on such policy, other than— https://hcservices.ecourts.gov.in/hcservices/ (a) any sum received under sub-section (3) ofsection 80DD or sub-section (3) of section80DDA; or (b) any sum received under a Keyman insurancepolicy; or (c) any sum received under an insurance policyissued on or after the 1st day of April,2003 [87][but on or before the 31st day ofMarch, 2012] in respect of which thepremium payable for any of the years duringthe term of the policy exceeds twenty percent of the actual capital sum assured; [87][or] 88[(d) any sum received under an insurancepolicy issued on or after the 1st day ofApril, 2012 in respect of which the premiumpayable for any of the years during theterm of the policy exceeds ten per cent ofthe actual capital sum assured:]Provided that the provisions of [89][sub-clauses (c) and (d)] shall not apply to anysum received on the death of a person:Provided further that for the purpose ofcalculating the actual capital sum assuredunder [90][sub-clause (c)], effect shall begiven to the [91][Explanation to sub-section(3) of section 80C or the Explanation tosub-section (2A) of section 88, as the casemay be] : 92[Provided also that where the policy,issued on or after the 1st day of April,2013, is for insurance on life of anyperson, who is— (i) a person with disability or a personwith severe disability as referred toin section 80U; or (ii) suffering from disease or ailmentas specified in the rules made undersection 80DDB,the provisions of this sub-clause shallhave effect as if for the words "ten percent", the words "fifteen per cent" hadbeen substituted.] 93[Explanation 1].—For the purposes of thisclause, "Keyman insurance policy" means a lifeinsurance policy taken by a person on the life ofanother person who is or was the employee of the https://hcservices.ecourts.gov.in/hcservices/ first-mentioned person or is or was connected inany manner whatsoever with the business of thefirst-mentioned person [94][and includes such policywhich has been assigned to a person, at any timeduring the term of the policy, with or withoutany consideration];] 95[Explanation 2.—For the purposes of sub-clause(d), the expression "actual capital sum assured"shall have the meaning assigned to it in theExplanation to sub-section (3A) of section 80C;] _________ 86. Substituted by the Finance Act, 2003, w.e.f.1.4.2004. Prior to its substitution, clause(10D0, as inserted by the Finance (No.2) Act,1991, w.r.e.f. .4.1962, and later on amendedby the Finance Act, 1995, w.e.f. 1.4.1996 andFinance (No.2) Act, 1996, w.e.f. 1.10.1996,read as under:1.4.2004. Prior to its substitution, clause(10D0, as inserted by the Finance (No.2) Act,1991, w.r.e.f. .4.1962, and later on amendedby the Finance Act, 1995, w.e.f. 1.4.1996 andFinance (No.2) Act, 1996, w.e.f. 1.10.1996,read as under: 95[Explanation 2.—For the purposes of sub-clause(d), the expression "actual capital sum assured"shall have the meaning assigned to it in theExplanation to sub-section (3A) of section 80C;] _________ 86. Substituted by the Finance Act, 2003, w.e.f.1.4.2004. Prior to its substitution, clause(10D0, as inserted by the Finance (No.2) Act,1991, w.r.e.f. .4.1962, and later on amendedby the Finance Act, 1995, w.e.f. 1.4.1996 andFinance (No.2) Act, 1996, w.e.f. 1.10.1996,read as under:1.4.2004. Prior to its substitution, clause(10D0, as inserted by the Finance (No.2) Act,1991, w.r.e.f. .4.1962, and later on amendedby the Finance Act, 1995, w.e.f. 1.4.1996 andFinance (No.2) Act, 1996, w.e.f. 1.10.1996,read as under: (10D) any sum received under a life insurancepolicy, including the sum allocated by wayof bonus on such policy other than any sumreceived under sub-section (3) of section80DDA or under a Keyman insurance policy.Explanation.- For the purposes of thispolicy, including the sum allocated by wayof bonus on such policy other than any sumreceived under sub-section (3) of section80DDA or under a Keyman insurance policy.Explanation.- For the purposes of thisclause, "Keyman insurance policy" means alife insurance policy taken by a person onthe life of another person who is or wasthe employee of the first mentioned personor is or was connected in any mannerwhatsoever with the business of the firstmentioned person;life insurance policy taken by a person onthe life of another person who is or wasthe employee of the first mentioned personor is or was connected in any mannerwhatsoever with the business of the firstmentioned person; 87. Inserted by the Finance Act, 2012, w.e.f.1.4.2013.1.4.2013. 88. Inserted, ibid 89. Substituted for "this sub-clause" by theFinance Act, 2012, w.e.f. 1.4.2013.Finance Act, 2012, w.e.f. 1.4.2013. 90. Substituted, ibid 91. Substituted for "Explanation to sub-section(2A) of section 88" by the Finance Act, 2005,w.e.f. 1.4.2006.(2A) of section 88" by the Finance Act, 2005,w.e.f. 1.4.2006. 92. Inserted by the Finance Act, 2013, w.e.f.1.4.2014.1.4.2014. 93. Explanation renumbered as Explanation 1 bythe Finance Act, 2012, w.e.f. 1.4.2013.the Finance Act, 2012, w.e.f. 1.4.2013. 13. We find considerable force in the submission made by thelearned counsel for the Revenue and we are unable to accept thesubmissions made by the learned counsel for the Assessee. 14. The Key Insurance Policy taken by a limited company infavour of its key employee, the Managing Director of the Companyin the present case, even though it is Life Insurance Policy, isexcluded from the ambit of exemption under Section 10(10D) byspecifically mentioning the same in Clause (b) of the saidexception of the provision quoted above. Therefore, any amountreceived under Keyman Insurance Policy is a taxable receipt inthe hands of the employee concerned as perquisite. 15. In the present facts, the Keyman Insurance Policy wastaken out by the Company and was assigned in favour of theManaging Director on 31.03.2006. To the extent of surrender valueaccrued as on 31.03.2006, namely Rs.58,74,752/-, was offered fortaxation as "perquisite" in the hands of the Assessee. Thecharacter of Insurance Policies does not change after assignment.The Assessee himself has never paid any premium on the saidKeyman Insurance Policy from his own resources. Therefore, evenif the assignment is endorsed by the Insurance Company as on31.03.2006, the character of the Policy does not convert into anordinary Life Insurance Policy in the hands of the Assessee. TheKeyman Insurance Policy is a Life Insurance Policy taken by theemployer company in favour of its employee Managing Director. Itscharacter continues to be the same. 16. The view expressed by the Delhi High Court quoted belowin Rajan Nanda case was undone by the Parliament by insertingExplanation 1 to Section 10(10D) of the Act, which was furtheramended to include the case of the Policy which has been assignedto a person at any time during term of the Policy with or withoutany consideration. This Explanation 1, in our opinion, is merelyof clarificatory nature and like all other Explanations, whichare inserted to clarify certain issues relevant in the parentprovision, apply retrospectively back for correct interpretationto the date of insertion of main provision itself. TheExplanation is not a substantive provision which creates a newtax liability on the Assessee and which only could be normallyapplied prospectively. The Explanation in the present case as https://hcservices.ecourts.gov.in/hcservices/ well as others will therefore have to be read with the mainprovision right from day one as they are only of clarificatorynature and explain the position as the Legislature alwaysintended it to mean. Therefore, in our opinion the amendment byway of Explanation is merely of clarificatory nature andeffectively wipes out the effect of the decision of the DelhiHigh Court in the case of Rajan Nanda (supra). 17. A Division Bench of Delhi High Court, in the case of CITv. Rajan Nanda & Ors. [(2012) 349 ITR 008] with regard to KeymanInsurance Policy, had earlier held as under: "52. Thus, the issue depends on the questionas to whether on assignment of the insurancepolicy to the assessee, it changes its characterfrom Keyman insurance also to an ordinary policy.It is because of the reason that if it remainsKeyman insurance policy, then the maturity valuereceived is subjected to tax as per Section 10(10D) of the Act. On the other hand, if it hadbecome ordinary policy, the premium receivedunder this policy, in view of the aforesaidSection 10(10D) itself, the same would not besubjected to tax. 53. Once there is an assignment ofcompany/employer in favour of the individual, thecharacter of the insurance policy changes and itgets converted into an ordinary policy.Contracting parties also change inasmuch as afterthe assignment which is accepted by theinsurance, the contract is now between theinsurance company and the individual and not thecompany/employer which initially took the policy.Such company/employer no more remains thecontracting parties. We have to bear in mind thatlaw permits such an assignment even LIC acceptedthe assignment and the same is permissible. Thereis no prohibition as to the assignment orconversion under the Act. Once there is anassignment, it leads to conversion and thecharacter of policy changes. The insurancecompany has itself clarified that on assignment,it does not remain a keyman policy and getsconverted into an ordinary policy. In thesecircumstances, it is not open to the Revenue tostill allege that the policy in question is keyman policy and when it matures, the advantagedrawn therefrom is taxable. One has to keep inmind on maturity, it does not the company but whois an individual getting the matured value of theinsurance. keyman policy and when it matures, the advantagedrawn therefrom is taxable. One has to keep inmind on maturity, it does not the company but whois an individual getting the matured value of theinsurance. 54. No doubt, the parties here, viz., thecompany as well as the individual taken hugebenefit of these provisions, but it cannot betreated as the case of tax evasion. It is a caseof arranging the affairs in such a manner as toavail the state exemption as provided in Section10(10D) of the Act. Law is clear. Every assesseehas right to plan its affairs in such a mannerwhich may result in payment of least taxpossible, albeit, in conformity with theprovisions of Act. It is also permissible to theassessee to take advantage of the gaping holes inthe provisions of the Act. The job of the Courtis to simply look at the provisions of the Actand to see whether these provisions allow theassessee to arrange their affairs to ensurelesser payment of tax. If that is permissible, nofurther scrutiny is required and this would notamount to tax evasion. Benefit inured owing tothe combined effect of a prudent investment andstatutory exemption provided under Section 10(10D) of the Act, the section does not envisageof any bifurcation in the amount received onmaturity on any basis whatsoever. Nothing can beread in Section 10(10D) of the Act, which is notspecifically provided because any attempt in thatbehalf as contended by Revenue would betantamount to legislation and not interpretation. 18. The Delhi High Court decision quoted above, clearlyexpresses that the character of the Insurance Policy getsconverted into an ordinary policy. Because Section 10(10D) of theAct does not make any such distinction, it cannot be said to be acase of tax evasion, but rather a case of tax planning, even ifhuge benefit of these provisions are taken by both company aswell as individual. It is this caveat, along with thepronouncement of Delhi High Court, led to the insertion ofaforesaid Explanation 1 to Section 10(10D) of the Act andtherefore, after such amendment, which in our opinion appliesretrospectively to all the previous years, including theAssessment Year 2007-08 in the present case, the reliance placedby the learned counsel for the Assessee of Delhi High Courtdecision is misplaced and cannot enure to the benefit of theAssessee. 19. We are also a bit surprised by the concession given onbehalf of the Department before the Bombay High Court in the caseof Prashant J Agarwal. The relevant portion of the short judmentof the Bombay High Court in this regard is quoted below for readyreference: "5. The Revenue's appeal before the Tribunal wasdismissed by the impugned order dated 6thSeptember, 2013. It held that the assessment yearbeing A.Y. 2010-11, the issue stand concludedagainst the Revenue by the decision of Delhi HighCourt in Rajan Nanda (supra) on identical facts.This it held is particularly so as Explanation -Ito Sectionn 10(10D) of the Act was amended byclarifying the meaning of "Keyman InsurancePolicy" to include a Keyman Policy which has beenassigned to any other person only effective from1st April, 2014. The amended Explanation I toSection 10(10D) of the Act now reads as under: "[Explanation 1] - For the purposes of thisclause, "Keyman insurance Policy" means a lifeinsurance policy taken by a person on the lifeof another person who is or was the employeeof the first mentioned person or is or wasconnected in any manner whatsoever with thebusiness of the first-mentioned person [andincludes such policy which has been assignedto a person, at any time during the term ofthepolicy,withorwithoutanyconsideration]." 6. However, as we are concerned with theperiod prior to 1st April, 2014, the aboveamendment would not apply in the subjectassessment year. "[Explanation 1] - For the purposes of thisclause, "Keyman insurance Policy" means a lifeinsurance policy taken by a person on the lifeof another person who is or was the employeeof the first mentioned person or is or wasconnected in any manner whatsoever with thebusiness of the first-mentioned person [andincludes such policy which has been assignedto a person, at any time during the term ofthepolicy,withorwithoutanyconsideration]." 6. However, as we are concerned with theperiod prior to 1st April, 2014, the aboveamendment would not apply in the subjectassessment year. 7. Ms.Bharucha, learned counsel for theRevenue very fairly states that the issue arisingstands concluded against the Revenue for thereasons mentioned by the Delhi High Court inRajan Nanda (supra). It is also accepted by theRevenue that the amendment in Explanation I toSection 10(10D) of the Act has specifically comeinto force only from 1st April, 2014 and it wouldnot govern / apply to amounts received under theassigned Keyman Insurance Policy prior toAssessment Year 2014-15. 8. In view of the above, the question asproposed does not give rise to any substantialquestion of law. Hence, not entertained." 20. Since the position of law with regard to onlyprospective application of Explanation 1 was recorded by BombayHigh Court on the basis of a concession of the Department, whichin our opinion is not the correct legal position, we are unableto agree with the said decision of the Bombay High Court to thisextent, on the basis of a concession made by the counsel for theRevenue. The Court itself has not discussed the necessity ofreading the said Explanation only prosepctively from theAssessment Year 2014-15 onwards. Therefore, the said judgment aswell as the Delhi High Court decision are of no avail to theAssessee in the present case. 21. On the basis of Section 10(10D) of the Act, with itsExplanation 1, the clear position of law which emerges is thatthe character of the Keyman Insurance Policy does not getconverted into ordinary Life Insurance Policy despite itsassignment and therefore, any benefit accruing to the employeeupon its surrender or encashment will be taxable in the hands ofthe Employee as "perquisite". 22. The appeal filed by the Assessee, therefore, deserves tobe dismissed and the same is accordingly dismissed. The questionsare answered in favour of the Revenue and against the Assessee.No costs. Sd/- Assistant Registrar(CS VII)//True Copy// Sub Assistant Registrar kpl To 1.The Assistant Commissioner of Income TaxNon Corporate Circle-20(1)Chennai 2.The Income Tax AppellateTribunal 'C' Bench, Chennai. 3.The Commissioner of Income Tax (Appeals)-14, Chennai 34. 4.The Assistant Commissionerof Income Tax, Media Circle I,Chennai. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.39168 +1cc to M/s.Subbaraya Aiyar Padmanabhan, Advocate, S.R.No.39485 Judgment in TCA No.522 of 2017 VD(CO)KKV/22/12/2020