BABULAL KANJI Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) This is a reference under Section 66 of the Indian Income-tax Act and the question referred to us is, whether, upon the facts found by the Tribunal, the sum of Rs. 5,276 is a permissible deduction under Section 15(1) of the-Indian Income-tax Act. The sum of Rs. 5,276 represents the larger sum of Rs. 5,813, being the total annual premium of the policy of insurance to which I am about to refer. The sum of Rs. 5,813 has been scaled down to Rs. 5,276, because the assessee has another insurance policy and the premiums on the two policies added together exceed the total exemption allowed by the Income-tax Act. The question as framed in this reference in substance raises two questions of law for our consideration, first, has there been an insurance on the life of the assessee, and, if so, secondly, what was the amount of the animal premium paid in the accounting year, which is 1942-43, for effecting such insurance. The relevant section of the Act provides: 15. (1) " The tax shall not be payable in respect of any sums paid by an assessee to effect tin 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 " and so on.

(2.) The important words are "paid by an assessee to effect an insurance on the life of the assessee". So that the first question I have formulated demands a consideration whether the policy in this case effects an insurance contingent on the duration of human life. The policy, which is called a "Businessman"^ own policy without profits", commences by reciting that "Whereas the person named and described in the schedule hereunder (hereinafter called the assured ) has proposed an assurance on his life with the Tropical Insurance Company Limited". Then under the heading of "Details of sum assured" we find the sub-heading: "Date of maturity", and underneath that, "in the event of the death of the assured before maturity" and then is set out in a table the sums which will be paid at the end of the first year, second year, third year and the fourth year, with a proviso in the same portion of the policy "Provided that the above amounts shall be payable only after deducting the loan and interest and current year's premium (if any) then standing against the policy". In another division against the marginal note, "To whom payable" are the words, "To the life Assured if alive at the date of maturity or else to his nominee, executors, administrators or legal heirs at earlier death." Against the marginal note, "Events in which payable", is "Survivance of the life assured to the date of maturity or his earlier death". Then under a separate heading "Details of premium", is marginal note, "Special Provisions", and, "This Policy is issued subject to the conditions that a compulsory loan of ninety-five per cent, of the premium will be taken by the assured within a week of the payment of each premium on the security of the Policy as stipulated in privileges and conditions overleaf under the heading Loans ", Turning to the back of the policy, there are set out various numbered paragraphs headed, "Privileges and Conditions". Paragraph No. 8, which is called, "Paid-up value", provides: "Since the payment of loan is made compulsory, the policy does not acquire paid-up value" and then comes a very important paragraph, paragraph 9 "Loans": A compulsory loan of 95 per cent, of the premium will have to be taken by the assured within a week of the payment of each premium on the security of Policy only. Loan will be subject to an interest of 6J per cent, per annum payable half- yearly on 30 June and 31 December each year. Failure to raise loan or pay premia or interest will make the Policy null and void. By paragraph 11 the assured agrees that, If at any time due to non-payment of interest, the amount of loan with interest accumulation exceeds the surrender value of the policy at the time, the policy shall become liable to forfeiture without notice and in security of the said advance of Rs.... interest and expenses . A curious feature of this policy is, that taking into account the interest on the compulsory loan at six and a quarter per cent, per annum, the assured, in any eventuality, pays out more than he can possibly receive. At the end of five years, assuming that the assured survives, the policy matures, and the assured will have paid Rs. 968-12-0 in premium for every Rs, 1,000 insured and in addition he will have paid Rs. 57-6-0 by way of interest on the compulsory loans making together the sum of Rs. 1,026-2-0. For this outlay he will receive the sum of Rs. 1,000. Similar results will be found to prevail, if calculations are made at any previous periods up to the maturity of the policy.

(3.) We have been referred to the definition in Mr. Bunyon's well-known book on Life Assurance, where at p. 1 the learned author says: The contract of life insurance may be further defined to be that 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.