HARSIMRON SINGH SANDHU,DELHI V. ITO,WARD-12(1), DELHI

ITA 1852/DEL/2023

AI Insights

The case revolves around the taxability of a maturity amount received by Harsimron Singh Sandhu from a Keyman Insurance Policy. The policy was initially purchased by his employer, M/s India Infomedia Pvt. Ltd., and later assigned to Sandhu. The key legal issue was whether the maturity amount, received after the policy's assignment, was exempt from tax under section 10(10D) of the Income Tax Act, 1961. The Tribunal considered amendments to section 10(10D) and relevant judicial precedents, ultimately deciding that the maturity amount was taxable.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 839855 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 20-06-2023
• Other Referred Cases: CIT vs. Rajan Nanda and Ors., Allu Arvind Babu Vs. Asst. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL MUKHI
• Keywords: Question of law
• Section: 154; 80C; 10(10D)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.1852/Del/2023 (ASSESSMENT YEAR 2017-18) Harsimron Singh Sandhu, D-219, Saket, Delhi-110017. PAN-AAZPS5035N Vs. Deputy Commissioner of Income Tax, CPC, Bengalore. (Appellant) (Respondent) Assessee by Shri Sunil Mukhi, Adv. Department by Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 23.12.2025 Date of Pronouncement 25.02.2026 O R D E R PER MANISH AGARWAL, AM: This appeal is filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [‘Ld. CIT(A)’ in short], in Appeal No. CIT(A), Delhi-4/11034/2019-20 dated 06.04.2023 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’ in short) arising out of the assessment order passed u/s 143(1) of the Act dated 27.03.2019 for the Assessment Year 2017-18. 2. Brief facts of the case are that assessee is an individual and had filed the return of income for the year under appeal on 30.03.2018 declaring total income of Rs.6,63,500/- and claimed Rs.47,50,000/- received from the maturity of keyman insurance policy with LIC as exempted u/s 10(10D) of the Act. The case was processed u/s 143(1) of the Act by the CPC wherein the CPC has added the amount Printed from counselvise.com 2 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO received on the maturity of keyman insurance policy as income of the assessee and denied the exemption claimed by the assessee u/s 10(10D) of the Act. 3. Against the said order, assessee filed rectification application u/s 154 of the Act before the CPC which was dismissed by the CPC. Thereafter, assessee filed appeal against the intimation order passed u/s 143(1) before the ld. CIT(A) and claimed that CPC has incorrectly added the amount received on the maturity of keyman insurance policy and requested for the deletion of same. After considering the submissions, ld. CIT(A) vide impugned order dated 06.04.2023 dismissed the appeal of the assessee. 4. Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking following grounds of appeal: “1. That the orders of Ld. CIT(A), NFAC u/s 250 are illegal, erroneous and perverse and thus needs to be quashed. 2. That the orders of the Ld. CIT(A), NFAC u/s 250 concurring with the original intimation u/s 143(1) dated 27.03.2019 and u/s 154 dated 17.02.2020 is illegal, having confirmed the maturity amount of Rs.47,50,000/- without considering the facts and circumstances and the contentions of the appellant along with evidences and replies filed before the Authorities below by the appellant. 3. That the appellant craves leave to add, amend or delete any of the grounds of appeal on or before the disposal of the present appeal.” 5. Only effective ground of appeal is No. 2 where the assessee has challenged the action of the lower authorities in treating the amount of Rs.47,50,000/- received on the maturity of Keyman Insurance policy as taxable. 6. Before us, Ld. AR for assessee submitted that assessee is an employee of M/s India Infomedia Pvt. Ltd. and the company had purchased an insurance policy popularly known as Keyman Insurance Policy in the year 2001-02 and the same was Printed from counselvise.com 3 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO assigned in favour of assessee in Financial Year 2010-11. It is submitted that assessee retained the policy till its maturity and during the previous year, received the maturity sum of Rs. 40,50,000/- which was claimed exempt in terms of section 10(10D) of the Act. The Ld. AR submits that section 10(10D) has been amended w.e.f. 01.04.2003 wherein the amount received at maturity under key man insurance policy is brought to tax. Ld. AR further submits that Explanation 1(b) is inserted in section 10(10D) w.e.f. 01.04.2013 as per which sum received at the time of maturity of policy assigned is taxable in the hands of the recipient. As per ld. AR originally policy was purchased by the employer in the year 2001-02 i.e. prior to the amendment in section 10(10D) through which it became taxable and also the policy was assigned to assessee prior to another amendment through which the maturity sum becomes taxable in the hands of person to whom the policy is assigned. Accordingly, ld. AR submits that maturity amount under Keyman Insurance policy should not be held as taxable in the hands of the assesse. The Ld. AR placed reliance on the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Rajan Nanda and Ors. in ITA No.400/2008 dated 16.12.2011. 7. On the other hand, the Ld. Sr. DR submits that the Explanation was inserted w.e.f. 01.04.2013 which is explanatory in nature and thus, the same is applicable retrospectively. Ld. Sr. DR further submits that even though the policy under reference was purchased in Financial Year 2001-02 since it is assigned to the assessee in the Financial Year 2010-11 precisely on 14.03.2011 and since the assessee owned the policy after 01.04.2003 and, therefore, maturity sum received on such policy is taxable in the hands of the assessee. Printed from counselvise.com 4 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO 8. Reliance is placed by the Ld. Sr. DR on the judgment of Hon’ble Madras High Court in the case of Allu Arvind Babu Vs. Asst. CIT reported [2020] 122 taxman.com 66 (Madras). 9. Heard both the parties and perused the material available on record. The solitary issue before us is regarding the taxability of maturity amount received under keyman insurance policy assigned to the life of the person in whose name it was taken. In the instant case, originally policy was taken by the employer in the name of assessee and later it was assigned to the assessee. Section 10(10D) of the Act reads as under: (10D) any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than— (a) any sum received under sub-section (3) of section 80DD or sub-section (3) of section 80DDA; or (b) any sum received under a Keyman insurance policy; or (c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured; or (d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured: Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a person: Provided further that for the purpose of calculating the actual capital sum assured under sub-clause (c), effect shall be given to the Explanation to sub- section (3) of section 80C or the Explanation to sub-section (2A) of section 88, as the case may be: Provided also that where the policy, issued on or after the 1st day of April, 2013, is for insurance on life of any person, who is— (i) a person with disability or a person with severe disability as referred to in section 80U; or (ii) suffering from disease or ailment as specified in the rules made under section 80DDB, Printed from counselvise.com 5 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO the provisions of this sub-clause shall have effect as if for the words \"ten per cent\", the words \"fifteen per cent\" had been substituted. Explanation 1.—For the purposes of this clause, \"Keyman insurance policy\" means a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration; Explanation 2.—For the purposes of sub-clause (d), the expression \"actual capital sum assured\" shall have the meaning assigned to it in the Explanation to sub-section (3A) of section 80C.” 10. From the perusal of the above, it is clear that the amount received under keyman insurance policy is not exempted u/s 10(10D) of the Act. Further Explanation -1 is inserted w.e.f. 01.04.2013 which further provides that keyman insurance policy incudes the policy which has been assigned to a person at any time during term of policy with or without another consideration. In the instant case, the keyman insurance policy under reference was initially purchased by the employer of assessee on 08.02.2002 on the life of assessee which was assigned to assessee on 24.03.2011 as could be seen from the letter dated 24.03.2011 submitted by the employer to the LIC available at PB-10. Since, after assigning the policy to assessee, it was held by assessee and no payment whatsoever was made by the assessee either at the time of assignment and at the time of maturity to the employer. The Hon’ble Madras High Court in the case of Allu Arvind Babu (supra) has held as under: “13. We find considerable force in the submission made by the learned counsel for the Revenue and we are unable to accept the submissions made by the learned counsel for the Assessee. 14. The Key Insurance Policy taken by a limited company in favour of its key employee, the Managing Director of the Company in the present case, even though it is Life Insurance Policy, is excluded from the ambit of exemption under section 10(10D) by specifically mentioning the same in clause (b) of the said exception of the provision quoted above. Therefore, any amount received under Printed from counselvise.com 6 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO Keyman Insurance Policy is a taxable receipt in the hands of the employee concerned as perquisite. 15. In the present facts, the Keyman Insurance Policy was taken out by the Company and was assigned in favour of the Managing Director on 31-3-2006. To the extent of surrender value accrued as on 31-3-2006, namely Rs. 58,74,752/-, was offered for taxation as \"perquisite\" in the hands of the Assessee. The character of Insurance Policies does not change after assignment. The Assessee himself has never paid any premium on the said Keyman Insurance Policy from his own resources. Therefore, even if the assignment is endorsed by the Insurance Company as on 31-3-2006, the character of the Policy does not convert into an ordinary Life Insurance Policy in the hands of the Assessee. The Keyman Insurance Policy is a Life Insurance Policy taken by the employer company in favour of its employee Managing Director. Its character continues to be the same. 16. The view expressed by the Delhi High Court quoted below in Rajan Nanda case was undone by the Parliament by inserting Explanation 1 to Section 10(10D) of the Act, which was further amended to include the case of the Policy which has been assigned to a person at any time during term of the Policy with or without any consideration. This Explanation 1, in our opinion, is merely of clarificatory nature and like all other Explanations, which are inserted to clarify certain issues relevant in the parent provision, apply retrospectively back for correct interpretation to the date of insertion of main provision itself. The Explanation is not a substantive provision which creates a new tax liability on the Assessee and which only could be normally applied prospectively. The Explanation in the present case as well as others will therefore have to be read with the main provision right from day one as they are only of clarificatory nature and explain the position as the Legislature always intended it to mean. Therefore, in our opinion the amendment by way of Explanation is merely of clarificatory nature and effectively wipes out the effect of the decision of the Delhi High Court in the case of Rajan Nanda (supra). 17. A Division Bench of Delhi High Court, in the case of Rajan Nanda (supra) with regard to Keyman Insurance Policy, had earlier held as under: \"52. Thus, the issue depends on the question as to whether on assignment of the insurance policy to the assessee, it changes its character from Keyman insurance also to an ordinary policy. It is because of the reason that if it remains Keyman insurance policy, then the maturity value received is subjected to tax as mary policy per Section 10(10D) of the Act. On the other hand, if it had become ordinary policy, the premium received under this policy, in view of the aforesaid section 10(10D) itself, the same would not be subjected to tax. Printed from counselvise.com 7 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO 53. Once there is an 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 which initially took the policy. Such 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. One has to keep in mind on maturity, it does not the company but who is an individual getting the matured value of the insurance. 54. No doubt, the parties here, viz., the company as well as the individual taken huge benefit of these provisions, but it cannot be treated as the case of tax evasion. It is a case of arranging the affairs in such a manner as to avail the state exemption as provided in Section 10(10D) of the Act. Law is clear. Every assessee has right to plan its affairs in such a manner which may result in payment of least tax possible, albeit, in conformity with the provisions of Act. It is also permissible to the assessee to take advantage of the gaping holes in the provisions of the Act. The job of the Court is to simply look at the provisions of the Act and to see whether these provisions allow the assessee to arrange their affairs to ensure lesser payment of tax. If that is permissible, no further scrutiny is required and this would not amount to tax evasion. Benefit inured owing to the combined effect of a prudent investment and statutory exemption provided under section 10(10D) of the Act, the section does not envisage of any bifurcation in the amount received on maturity on any basis whatsoever. Nothing can be read in section 10(10D) of the Act, which is not specifically provided because any attempt in that behalf as contended by Revenue would be tantamount to legislation and not interpretation. 18. The Delhi High Court decision quoted above, clearly expresses that the character of the Insurance Policy gets converted into an ordinary policy. Because Section 10(10D) of the Act does not make any such distinction, it cannot be said to be a case of tax evasion, but rather a case of tax planning, even if huge benefit of these provisions are taken by both company as well as individual. It is this caveat, along with the pronouncement of Delhi High Court, led to the insertion of aforesaid Explanation I to section 10(10D) of the Printed from counselvise.com 8 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO Act and therefore, after such amendment, which in our opinion applies retrospectively to all the previous years, including the Assessment Year 2007- 08 in the present case, the reliance placed by the learned counsel for the Assessee of Delhi High Court decision is misplaced and cannot ensure to the benefit of the Assessee. 19. We are also a bit surprised by the concession given on behalf of the Department before the Bombay High Court in the case of Prashant J Agarwal. The relevant portion of the short judgment of the Bombay High Court in this regard is quoted below for ready reference: \"5. The Revenue's appeal before the Tribunal was dismissed by the impugned order dated 6th September. 2013. It held that the assessment year being A.Y. 2010-11, the issue stand concluded against the Revenue by the decision of Delhi High Court in Rajan Nanda (supra) on identical facts. This it held is particularly so as Explanation -I to Section 10(10D) of the Act was amended by clarifying the meaning of \"Keyman Insurance Policy\" to include a Keyman Policy which has been assigned to any other person only effective from 1st April, 2014. The amended Explanation I to Section 10(10D) of the Act now reads as under: \"[Explanation 1] - For the purposes of this clause, \"Keyman insurance Policy\" means a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person [and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration].\" 6. However, as we are concerned with the period prior to 1st April, 2014, the above amendment would not apply in the subject assessment year. 7. Ms. Bharucha, learned counsel for the Revenue very fairly states that the issue arising stands concluded against the Revenue for the reasons mentioned by the Delhi High Court in Rajan Nanda (supra). It is also accepted by the Revenue that the amendment in Explanation 1 to Section 10(10D) of the Act has specifically come into force only from 1st April, 2014 and it would not govern/apply to amounts received under the assigned Keyman Insurance Policy prior to Assessment Year 2014-15 8. In view of the above, the question as proposed does not give rise to any substantial question of law. Hence, not entertained.\" Printed from counselvise.com 9 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO 20. Since the position of law with regard to only prospective application of Explanation 1 was recorded by Bombay High Court on the basis of a concession of the Department, which in our opinion is not the correct legal position, we are unable to agree with the said decision of the Bombay High Court to this extent, on the basis of a concession made by the counsel for the Revenue. The Court itself has not discussed the necessity of reading the said Explanation only prospectively from the Assessment Year 2014-15 onwards. Therefore, the said judgment as well as the Delhi High Court decision are of no avail to the Assessee in the present case. 21. On the basis of section 10(10D) of the Act, with its Explanation 1, the clear position of law which emerges is that the character of the 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 will be taxable in the hands of the Employee as \"perquisite\". 22. The appeal filed by the Assessee, therefore, deserves to be dismissed and the same is accordingly dismissed. The questions are answered in favour of the Revenue and against the Assessee. No costs.” 11. In the aforesaid judgement, the hon’ble Madras High court has distinguished the judgement of hon’ble Delhi high court delivered in the case of Rajan Nanda (supra) and held that the Explanation-1 inserted in section 10(10D) is clarificatory in nature and retrospectively applicable, thus the judgement of hon’ble Delhi High court in the case of Rajan Nanda (supra) cannot be applied to the facts of present case. Thus, by respectfully following the judgement of the Hon’ble Madras High Court, we are of the considered view that the amount received by assessee on maturity of Keyman Insurance policy is taxable. We wish to further clarify that after the judgment of hon’ble Delhi High Court in the case of CIT vs. Rajan Nanda (supra), amendment was brought in statute which are Explanation 1 is inserted w.e.f. 01.04.2013 which provides that keyman insurance policy includes the policy assigned with or without consideration, therefore, the assessee cannot take shelter of that judgment of the Hon’ble Delhi High Court. Further the law as stood at the time of maturity has to be taken into consideration, according to which, there is no Printed from counselvise.com 10 ITA No.1852/Del/2023 Harsimron Singh Sandhu vs. ITO exemption available to the assessee u/s 10(10D) in respect of amount received on the maturity of keyman insurance policy. In the light of above discussion, we upheld the order of ld. CIT(A) and accordingly, the only effective ground of appeal No. 2 of the assessee is dismissed. 12. In the result, the appeal filed by the assessee is dismissed. Order is pronounced in the Open Court 25. 02. 2026 Sd/- Sd/- (YOGESH KUMAR U.S) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:25.02.2026 *PK, Sr. Ps* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "