1. The only dispute raised by the revenue in this appeal is in respect of deletion of addition of Rs. 6,868,representing interest income on a fixed deposit receipt ['FDR'] taken out of the insured sum obtained by the assessee on the death of his wife in respect of joint insurance policy held by him and his wife and another policy of Rs. 1,128 in which assessee was a nominee.
2. The facts pertaining to the issue are in a short compass. There were two life insurance policies bearing No. 6645469 for a sum of Rs. 60,040 being joint policy of Prem Chand and his wife Parsini Devi. The second policy was numbered 6606422 for a sum of Rs. 1,128 and it was on the life of Parsini Devi in which Prem Chand was nominee.Parsini Devi died in November, 1981 and the Life Insurance Corporation of India ['LIC'] sent a consolidated cheque for the two policies amounting to Rs. 61,168 to Prem Chand.The assessee Prem Chand took an FDR and on the same he earned a sum of Rs. 7,631 as interest for the year under consideration.
Since Parsini Devi was survived by six sons, three daughters and her husband Prem Chand, the assessee. The assessee contended that hecould be subjected to tax only in respect of Rs. 763 being one-tenthof Rs. 7,631, total amount of interest earned on the said FDR made on the insurance policy money secured by the assessee. The ITO subjected the total amount of Rs. 7,631 in the hands of the assessee as interest on FDR but when his action came to be disputed by the assessee before the AAC, he held that the assessee could be subjected to tax only on Rs. 763, i.e., one-tenth of the interest earned on the FDR out of the funds secured on the death of Parsini Devi.
3. It is this action of the AAC which is contested by the revenue. The learned departmental representative, Mr. M.P. Singh, after reading the ITO's order at length submitted that nomination in a policy acted as a will and once under will an amount is secured by any one on death, he becomes the owner of the same. He also submitted that the FDR was obtained in the name of the assessee, Prem Chand. He relied on the order of the ITO.4. The learned counsel for the assessee, Mr. D.K. Gupta, on the other hand, submitted that in joint policy in case one of the assured dies, other gets the money as nominee and in that circumstance the nominee is only the recipient, he does not derive any benefit whatsoever. He took us to Section 38(5) of the Insurance Act, 1938 and placed his reliance on the cases of AIR 1973 Ori. 83, AIR 1978 Ker. 8, AIR 1972 All. 167, AIR 1981 NOC 173 in which AIR 1973 Ori. 83 came to be considered. He submitted that in the light of the said decisions, in the insurance money the assessee did not hold more than one-tenth right which was his other survivor's who were to inherit the deceased' s share (sic).
5. The learned departmental representative, in the rejoinder, submitted that in case of joint policy survivor gets the money and it is in that capacity that he gets it in his own right.
6. After taking into consideration the rival submissions, we are unable to interfere in the finding of the AAC. There is no dispute about the above stated facts pertaining to the issue that out of the two policies, policy for Rs. 60,040 was a joint policy whereas policy for a sum of Rs. 1,128 was also on the life of Parsini Devi. In respect of these two policies, Prem Chand, husband of Parsini Devi and the assessee, got the said amount of Rs. 61,168, as is apparent from letter dated 24-2-1982 from the LIC on this issue, placed at page 6 of the assessee's compilation, which reads as under : We may inform you that on the death of Smt. Parsini Devi, the claims under the above policies were settled on 7-1-1972 and the payment of Rs. 61,168 was made to you being the nominee under policy No. 6606422 and as surviving co-assured under joint life policy No. 6645469 through our cheque No. 990578 dated 7-1-1972drawn on Punjab National Bank, Ludhiana, in your favour in full and final settlement of the claim under both the policies, as per details below:Policy No. Net amount paid There is no dispute about the fact that Parsini Devi is survived by six sons, three daughters and her husband Prem Chand.
7. Section 38 and relevant Sub-sections (5) and (6) of the Insurance Act, 1938, on assignment or transfer of policies and nominations, read as under : 38. Assignment and transfer of insurance policies-** ** ** (5) Subject to the terms and conditions of the transfer or assignment, the insurer shall, from the date of the receipt of the notice referred to in Sub-section (2), recognise the transferee or assignee named in the notice as the only person entitled to benefit under the policy and such persons shall be subject to all liabilities and equities to which the transferor or assignor was subject at the date of the transfer or assignment and may institute any proceedings in relation to the policy without obtaining the consent of the transferor or assignor or making him a party to such proceedings.
(6) Any rights and remedies of an assignee or transferee of a policy of life insurance under an assignment or transfer effected prior to the commencement of this Act shall not be affected by the provisions of this section.
Their Lordships of the Orissa High Court regarding the rights of a nominee, observed as under in the head note AIR 1973 Ori. 83 : On the death of an insured a nominee is only entitled to receive the insurance amount but he does not thereby acquire title to the amount to the exclusion of all other heirs of the insured.
In another High Court decision that from the Full Bench of the Allahabad-AIR 1972 All. 167-regarding the rights of nominee, it has been held as under : The policy-holder continues to hold interest in the policy till the moment of his death and, if the policy matures during his lifetime then the benefit arising there under shall be his and not of his nominee. As the benefit secured by the policy forms part of the estate of the deceased policy-holder, his creditors can realise their loans from the money paid to the nominee. Nominee in such circumstances would be legal representative of the deceased policy-holder.
The assessee's case is even on stronger footing, as it is the claim of the heirs with which we are concerned. We are unable to accept the contention of the learned departmental representative that survivor in a joint policy gets it in his own right. In a life policy whether single or joint, nomination cannot be irrelevant. In the light of the above discussion and for the reasons given by the in his order, his finding is confirmed.