Chandulal Harjivandas, Jamnagar Vs.
Commissioner of Income-Tax, Gujarat [1966] INSC 221 (14 October 1966)
14/10/1966 RAMASWAMI, V.
RAMASWAMI, V.
SHAH, J.C.
CITATION: 1967 AIR 816 1967 SCR (1) 921
CITATOR INFO:
R 1971 SC2293 (6,9) R 1971 SC2328 (6) R 1986
SC 959 (11)
ACT:
Income-tax Act (11 of 1922), s.
15(1)--Children's Deferred Endowment Assurance-Assured a minor-Proposer of
insurance his father Payment of premium out of taxable income of assured-If
entitled to rebate of income-tax.
HEADNOTE:
The father of the assessee was the proposer,
in 1959, of a policy called Children's Deferred Endowment Assurance, the life
assured being-that of the assessee, who was a minor.
Under the contract of insurance, the Life
Insurance Corporation of India was liable to pay the sum assured (a) on the
stipulated date of maturity, if the life assured was alive on that date, or (b)
if the life assured were to die before that date, provided that the death
occurred on or after the deferred date specified in the policy. A special
clause of the policy provided that at any time after attaining majority and
before the deferred date, the life assured may adopt the policy and on such
adoption, the policy was to be a contract between the Corporation and the life
assured as the absolute owner of the policy from the date of such adoption. In
the absence of such adoption it was the proposer who would be entitled to the
amounts payable by the Corporation, and not the assessee. Further, if the
assessee were to die before the deferred date the policy would stand cancelled
and it was the proposer and not the heirs of the assessee who would get back
the premiums paid. The premium payable in respect of the policy was, however,
paid out of the taxable income of the assessee. In the- course of the
assessment for the assessment year 1960- 61 the assessee claimed rebate on the
premium paid under the provisions of s. 15(1) of the Income-tax, 1922 The
Department, the Appellate Tribunal and the High Court, on reference, held
against the assessee.
In appeal to this Court,
HELD : In order to get exemption from payment
of tax two conditions have to be satisfied under the section, namely, (i) the
premium must have been paid by the assessee himself;
and (ii) the payment must have been made to
effect an insurance on the life of the assessee himself. The contract of
insurance in the present case, between the assessee's father and the
Corporation must be read as a whole and so read, in spite of the clauses
referred to, it was in substance a contract of life insurance with regard to
the life of the assessee. As the premium was paid by the asses- see out of his
taxable income, rebate under s. 15(1) was admissible on the premium, paid. [924
E, H]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 684 of 1965.
Appeal from the judgment and order dated
September 9, 1963 of the Gujarat High Court in Income-tax Reference No. 20 of
1962.
I. N. Shroff, for the appellant.
M17SupCI/66-13 922 S.T. Desai, Gopal Singh
and R. N. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by certificate, from the judgment of the
High Court of Gujarat dated September 9, 1963 in Income-tax Reference No. 20 of
1962.
On June 23, 1959, a policy called
"Children's Deferred Endowment Assurance" for a sum of Rs. 50,000/-
was issued by the Life Insurance Corporation of India. The proposer was
Harjivandas Kotecha, the father of the appellant (hereinafter called the
'assessee') and the life assured was that of the assessee. The premium payable
in respect of the policy was Rs. 1,925/ per annum. That amount was paid as
premium out of the taxable income of the assessee. In the course of the
assessment for the assessment year 1960-61, the assessee claimed rebate on the
insurance premium of Rs. 1,925/ under the provisions of s. 15(1) of the
Income-tax Act, 1922 (hereinafter called the 'Act'). The Income-tax Officer
rejected the claim on the ground that under the said policy the life of the
minor assessee had not been assured.
The Appellate Assistant Commissioner agreed
with the Income- tax Officer and held that the claim of the assessee was
rightly rejected. The assessee took the matter in further appeal before the
appellate Tribunal but the appeal was dismissed. At the instance of the assessee
the appellate Tribunal stated a case to the High Court on the following
question of law :
"Whether rebate under s. 15(1) of the
Income- tax Act, 1922 is admissible on the premia payable as per Annexure 'A'
during the minority of the assessee?" The High Court of Gujarat answered
the Reference in favour of the respondent and against the assessee. The High
Court held that the contract of insurance with the Life Insurance Corporation
was entered into by the father of the assessee and under the terms thereof the
contract was to become the assessee's contract only by his adopting it on
attaining majority. The High Court further held that on the true interpretation
of the terms of the contract, even if the minor were to be alive on the
deferred date it was the' assessee's' father who was entitled to receive the
cash option unless the assessee adopted the contract as his own.
The High Court ,accordingly observed that the
real contracting parties were the father of the assessee and the Life Insurance
Corporation and it was only under certain contingency on the happening of which
the contract was to become the contract of the assessee.
Section 15(1) of the Act provides as follows:
"Exemption in the case of life
insurances.(1) The tax shall not be payable in respect of any sums paid by an
923 assessee to effect an insurance on the life of the assessee or on the life
of a wife or husband of the assessee or in respect of a contract for a deferred
annuity on the life of the assessee or on the life of a wife or husband of the
assessee or as a contribution to any Provident Fund to which the Provident Funds
Act, 1925 [XIX of 1925] applies:
The policy, a copy of which is annexed to the
statement of the case as Annexure 'X mentions the following details:
"Cash option Deferred Date of Maturity,
Rs. 11.693-50 11-3-65 11-3-82 Event on the happening of which sum assured
payable, On the stipulated date of maturity if the Life Assured is then alive
or at his prior death if it shall occur on or after the Deferred Date."
Clause 5 of the policy provides:
"All moneys payable in terms of these
provisions shall, if the Policy has been adopted by the Life Assured, be
payable to the Life Assured, or his Assigns or Nominees under Section 39 of the
Insurance Act or Proving Executors or Administrators or other legal
Representatives...... Provided always that in the event of the Life Assured not
having adopted the Policy, the moneys payable in terms of these provisions
shall become payable to the proposer or his proving Executors or Administrators
or other Legal Representatives........." Certain other provisions
contained in the policy which are material are to the following effect:
"The Life Assured shall at any time
after attaining majority and before the Deferred Date by a writing signed by
him adopt this Policy, agreeing to be bound by all its provisions. On such
adoption by the Life Assured, this Policy shall be deemed to be a contract
between the Corporation and the Life Assured as the absolute owner of the
Policy as from the date of such adoption and the proposer or his Estate shall
not have any right or interest therein.. .
Provided that if all the premiums due prior
to the Deferred Date have been paid, the person entitled to the Policy moneys
shall have the option to apply for and receive as on the Deferred Date and Cash
Option mentioned in the Schedule in entire cancellation of this Policy. This
Policy shall stand cancelled in case the Life Assured shall die before the
Deferred Date and in such event a sum of money equal to all the premiums paid
without any deduction whatsoever shall become payable to the person entitled to
the Policy moneys.
This Policy shall stand cancelled also in the
event of the Life Assured declining to adopt or failing or neglecting to adopt
the Policy before the Deferred Date, and in such event a sum of money equal to
the Cash Option will become payable to the person entitled to the Policy
moneys." According to the contract of insurance the Life Insurance
Corporation was liable to pay the sum assured (a) on the stipulated date of
maturity, if the life assured was alive on that date, i.e., March 11, 1982, or (b)
if the life assured were to die before the said date, provided that the death
occurred on or after the deferred date i.e., March 11, 1965. Under the terms of
the policy these are the two events upon the happening of either of which the
Corporation was to pay the sum assured, viz., Rs. 50,000/-. A special clause of
the policy provides that at any time after attaining majority and before the
Deferred Date the life assured may adopt the policy and on such adoption the
policy is deemed to be a contract between the Corporation and the life assured
as the absolute owner of the policy from the date of such adoption. In our
opinion, the requirements of s. 15(1) of the Act are satisfied in this case
because all that S. 15(1) requires is that in order to get exemption from
payment of tax in respect of any sum two conditions may be satisfied, viz., (1)
such sum must have been paid by the assessee himself, and (2) that such payment
must have been made to effect an insurance on the life of the assessee himself.
In the present case, the subject matter of the contract is the insurance on the
life of the assessee and it is not disputed that the payment of the premium was
made by the assessee out of his taxable income. On behalf of the respondent Mr.
Desai contended that the assessee was not entitled to the rebate under s. 15(1)
of the Act on the premium paid. it was pointed out that the contract of
insurance provided that the assessee was not entitled to the benefit of the
policy till he adopted the contract on the date of his attaining majority. The
argument was stressed that the contract was made between the Life Insurance
Corporation and the father of the assessee and under the terms thereof it could
become the assessee's contract only on his adopting it on his attaining majority.
It was pointed out that if the assessee continued to be alive after the
deferred date but failed to adopt the policy, it was the proposer who would be
entitled to the cash option and not the assessee. If the assessee were to die
before the deferred date the policy would stand cancelled and in that event it
was the proposer and not the heirs of the assessee who would get the sums equal
to the premiums paid. We are, however, of the opinion that the contract of
insurance between the assessee's father and the Life Insurance Corporation must
be read as a whole and in spite of the clauses referred to by Mr. Desai we
consider that the 925 contract is in substance a contract of life insurance
with regard to the life of the assessee. The important point to notice is that
if the assessee adopts the policy upon attaining majority the Corporation
becomes liable to pay the sum assured, viz., Rs. 50,000/- to the assessee on
the stipulated date of maturity, i.e., March 11, 1982 if the assessee was
alive. The Life Insurance Corporation will also be liable to pay the amount
assured if the assessee were to die before the stipulated date of maturity but
on or after the deferred date i.e., March 11, 1965. In our opinion, the
insurance on the life of the assessee was the main intention of the contract
and the other clauses upon which Mr. S. T. Desai relied are merely ancillary or
subordinate to that main purpose. Life insurance in a broader sense comprises
any contract in which one party agrees to pay a given sum upon the happening of
a particular event contingent upon the duration of human life, in consideration
of the immediate payment of a smaller sum or certain equivalent periodical
payments by another party (Halsbury's Laws of England, 3rd Edn. Vol. 22, p.
273). It was held by the Court of Appeal in Gould v. Curtis(1) that for the
purpose of the statutory provisions relating to relief in respect of life
insurance premiums for purposes of income-tax, a contract by which a sum is
payable on the death of the assured within a specified period and a larger sum
if he is alive at -the end of the period must be held to be an insurance on
life. There is no definition of 'life insurance' in the Act but there is such a
definition given in s. 2(11) of the Insurance Act, 1938 (Act 4 of 1938) which
reads:
"Life insurance business' means the
business of effecting contracts of insurance upon human life, including any
contract whereby the payment of money is assured on death (except death by
accident only) or the happening of any contingency dependent on human life, and
any contract which is subject to payment of premiums for a term dependent on
human life............" It should be remembered in this connection that
the object of enacting s. 15(1) of the Act is the encouragement of thrift and
the section should hence be interpreted in such a manner as not to nullify that
object. Having examined all the clauses of the contract of insurance in this
case, we are satisfied that it is in substance a contract of insurance on the
life of the assessee and therefore rebate under s. 15(1) of the Act is
admissible on the premium payable as per Annexure 'A' of the statement of the
case during the minority of the assessee.
For these reasons we hold that this appeal
must be allowed with costs of this court and of the High Court.
V.P.S.
Appeal allowed.
(1) 6 T.C. 93.
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