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PETITIONER: CHANDULAL HARJIVANDAS, JAMNAGAR

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, GUJARAT

DATE OF JUDGMENT: 14/10/1966

BENCH: RAMASWAMI, V. BENCH: 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;

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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]

JUDGMENT: 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

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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       Date     of   M aturity,               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

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             equal  to  all the premiums paid  without  any               deduc-               924               tion  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  be               come  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  subjectmatter  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

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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. 926