1. This is an appeal of the revenue for the assessment year 1981-82. It was argued in common with a similar appeal in the connected case of Smt. Shukla Rani, [IT Appeal No. 363 (Asr.) of 1983]. It was the accepted position that the facts involved were similar in both the appeals and the issue involved was the same. The decision in this appeal will, therefore, govern the disposal of the other appeal of the revenue in IT Appeal No. 363 (Asr.) of 1983.
2. The facts may now be briefly stated as these are neither clearly brought out in the assessment order nor in the order of the AAC. The assessee's husband, Shri Kanwal Kishore, took four anticipated policies, as the assessee has described them, of Rs. 20,000 each from the LIC as provided in Section 6 of the Married Women's Property Act, 1874. The total premium payable on these four policies amounted to Rs. 5,272.40 per annum. These were taken in the year 1963-64 and excepting two payments out of total premium paid amounting to Rs. 68,541, the balance amount of over Rs. 62,000 was, in fact, paid from the funds of the HUF of the husband. The trustees, however, got the policies paid up in 1976 and paid the amount received to the assessee. The dispute in these appeals is in respect of interest income of Rs. 6,275 earned by the assessee on investing these funds. From the statement of income included in the assessee's paper book, the interest was received to the extent of Rs. 5,926 from the HUF of the husband and Rs. 349 from the husband in his individual capacity. In the case of Smt. Shukla Rani (supra) similar four policies of Rs. 20,000 each were taken by her husband, Shri Valayati Ram, under Section 6 of the Married Women's Property Act and the annual premia payable amounted to Rs, 5,497.20.
These policies were also got paid-up by the trustees in 1976 and out of the total premium payment of Rs. 71,464, a sum of Rs. 65,967 was paid from the funds of the HUF of Shri Valayati Ram. The trustees paid the amount to Smt. Shukla Rani, who invested these with Valayati Ram-HUF and earned an interest of Rs, 6,025, which is the subject-matter of the departmental appeal in her case.
3. In both the cases, the stand of the assessee was that the amount received by the two ladies, in fact, belonged to the HUFs of their husbands and the interest earned by them was to be accountable in the assessments of those HUFs and not in the hands of the ladies. It was pointed out that the assessments in the earlier years of the interest income had been made by the ITO on the same basis and the same view should be taken for the year now in appeal. Attention was also invited to an extract from a publication of the LIC by the name Tax Laws and Life Insurance (revised edition 1982) from page 55. A decision of the Tribunal, which was cited before the AAC was also cited before me. The decision was in the case of Liladhar Jajoo in [WT Appeal No. 81 (Asr.) of 1979, order dated 19-8-1980.] 4. The stand of the revenue against the order of the AAC is contained in ground No. 2, which is quoted below : 2. The learned AAC failed to note that Section 64 is not applicable in the case of a HUF and does not require or permit the inclusion of the income of the wife of the karta in computing the total income of the HUF. The learned AAC failed to appreciate that as also stated in her order the premium for the insurance policy taken under the Married Women's Property Act were paid by the HUF and not by the assessee's husband as individual, Section 64 had no applicability in the facts and in the circumstances of the case. The learned AAC also failed to note that the ITAT's decision in the case of Shri Leeladhar Jajoo, which has been relied upon by the assessee, was in the case of an 'individual' and not that of HUF and that, therefore, it had no application to the facts of the case of the assessee.
The departmental representative argued that the ITO was correct in view of the provisions of Section 6 of the Married Women's Property Act that the amount belonged to the lady and will not form the part of the estate of her husband and the income therefrom was correctly taxable in her hands. Attention was also invited to Section 14 of the Hindu Succession Act, 1956, which made the personal property of a Hindu lady to be her absolute property. It was further submitted that the AAC had failed to understand the position on facts and in law and also the decision of the Tribunal cited before her. It was explained that that was a case of an individual financing the policies and not of a HUF financing the policies and here the provisions of Section 64 of the Income-tax Act, 1961 ('the Act') will not be attracted and the position as per Section 6 of the Married Women's Property Act would prevail.
5. In reply, the assessee's counsel stated that as the funds to finance the policies came out of the HUF funds, rightly or wrongly, the amount received at the time of making the policies paid up will in reality belong to the HUF of the husband of the assessee-lady.
6. On a consideration of the rival submissions and the relevant provisions of the Married Women's Property Act and the extract from the LIC publication referred to by the assessee's counsel, I am of the opinion that the stand of the revenue is correct and the AAC fell in error in both the cases. The relevant portion of Section 6 of the Married Women's Property Act is quoted below : 6. Insurance by husband for benefit of wife.-(1) A policy of insurance effected by any married man on his own life and expressed on the face of it to be for the benefit of his wife, or of his wife and children, or any of them, shall enure and be deemed to be a trust for the benefit of his wife, or of his wife and children, or any of them, according to the interest so expressed and shall not, so long as any object of the trust remains, be subject to the control of the husband, or to his creditors, or form part of his estate.
When the sum secured by the policy becomes payable, it shall, unless special trustees are duly appointed to receive and hold the same, be paid to the Official Trustee of the State in which the office at which the insurance was effected is situate and shall be received and held by him upon the trusts expressed in the policy, or such of them as are then existing.
And in reference to such sum he shall stand in the same position in all respects as if he had been duly appointed trustee thereof by a High Court, under Act No. XVII of 1864 to constitute an Office of Official Trustee, Section 10.
It is clear from the reading of the above section that a policy of insurance can be effected by any married man on his own life, which can be expressed on the face of it to be for the benefit of his wife and children, or any of them and in law it will be deemed to be a trust for the benefit of his wife or of his wife and children or any of them and shall not be subject to the control of the husband or form part of his estate. In other words, taking out of a policy under this section will bring into existence a trust herein for the benefit of the assessee and the amount, which was to be received under the policy was to be collected by the trustees appointed to be passed on to her. From these provisions of law, it is clear that the amount received by either of the two ladies was for their benefit and could not revert back to the person, who financed the policies. In the instant case, it is the stand of the assessee that in reality it is the HUF of the husband, which took out the four policies and paid the premium. According to Section 6, the amount received under the policies will belong to the lady herself and cannot belong to the husband himself or to his HUF. The extract from the LIC publication is quoted by me below.
(15) HUF and MWP Act Policies : If a karta of a HUF takes out a life insurance policy on his life and pays the premium out of the HUF funds, then the policy belongs to the HUF. In view of this position, the karta of the HUF cannot take out a policy under Section 6 of the MWP Act and pay the premium from the HUF funds because such a policy being a trust for the specific benefit of wife and children the payment of premiums under such policies is not a legitimate expenditure of the HUF but an unauthorised appropriation to the detriment of the joint family funds. Such a policy should be financed out of the karta's own private property. The, position is the same with regard to other married male members of the HUF.A reading of the above extract also supports the view expressed by me and it is clear that even if the policy is financed from HUF funds, it cannot belong to the HUF when a policy is taken under Section 6 of the Married Women's Property Act.
7. Further, it may be observed that there is no deeming provisions in Section 64, which could make the interest income to belong to the HUF of the lady's husband. The wealth-tax case of Liladhar Jajoo (supra) has been rightly distinguished by the revenue. That was a case where an individual paid the premium for securing a policy under Section 6 of the Married Women's Property Act and the deeming provisions of Section 4(1)(a)(iii) were held to be attracted but this is not the position under the Act in the facts and the circumstances of this case.
Consequently, I reverse the order of the AAC and restore the order of the ITO in each of the two cases and allow the appeal of the revenue.