The Tax Publishers2020 TaxPub(DT) 5322 (Mad-HC) : (2021) 430 ITR 0172 : (2021) 277 TAXMAN 0622

INCOME TAX ACT, 1961

Section 10(10D)

Keyman Insurance Policy does not get converted into ordinary Life Insurance Policy, despite its assignment and therefore, any benefit accruing to the employee upon its surrender or encashment would be taxable in the hands of Employee as ''perquisite'.

Exemption under section 10(10D) - Allowability - Surrender value of assigned Keyman insurance policy -

Assessee, Managing Director of M/s 'A' Pvt. Ltd., claimed exemption under section 10(10D) as regards surrender value of assigned Keyman insurance policy. AO taxed the same as income of assessee. Held: Key Insurance Policy taken by a limited company in favour of its key employee, Managing Director of Company in the instant case, even though it was Life Insurance Policy, is excluded from the ambit of exemption under section 10(10D). The character of Insurance Policies does not change after assignment. Assessee himself never paid any premium on said Keyman Insurance Policy from his own resources. Therefore, even if assignment was endorsed by Insurance Company, the character of Policy did not convert into an ordinary Life Insurance Policy in the hands of assessee. Keyman Insurance Policy was a Life Insurance Policy taken by employer company in favour of its employee Managing Director. Its character continued to be the same. On the basis of section 10(10D), with its Explanation 1, the clear position of law which emerges is that character of Keyman Insurance Policy does not get converted into ordinary Life Insurance Policy, despite its assignment and therefore, any benefit accruing to the employee upon its surrender or encashment would be taxable in the hands of Employee as ''perquisite'.

REFERRED :

FAVOUR : Against the assessee.

A.Y. :



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