Sarvesh Naidu Vs DDIT (Inv.)-1 (ITAT Delhi)
ITAT Delhi: Foreign Life Policy Acquired as NRI Not Undisclosed Asset or Taxable Under Black Money Act; Section 10(10D) Exemption Applies to Maturity Proceeds Despite Foreign Insurer
Summary: The ITAT Delhi allowed the assessee’s appeal concerning ₹40,03,212.78 treated as undisclosed foreign income under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The assessee had obtained a life insurance policy in Dubai while non-resident, paying initial premiums from income not chargeable to tax in India and subsequent premiums from taxable salary income in India. The Tribunal observed that the sources of the premium payments were explained and, referring to CBDT Circular No. 13 of 2015, Questions 18, 24 and 32, held that the policy and maturity proceeds could not be treated as undisclosed assets or income under the Black Money Act. The Tribunal further held that Section 10(10D) of the Income-tax Act refers to “any sum received under a life insurance policy” and does not restrict the exemption to policies issued by Indian insurers. It held that Section 2(28BB), defining “insurer”, could not be read into Section 10(10D). Accordingly, Grounds 9 and 10 were allowed and the appeal was allowed, while the other grounds were kept open.
A foreign life-insurance policy acquired by a non-resident from income not chargeable to Indian tax, with subsequent premiums paid from duly taxed Indian income, cannot be treated as an undisclosed foreign asset merely because it was not reported; and section 10(10D), which exempts “any sum received under a life insurance policy,” cannot be restricted to policies issued by Indian insurers by importing the definition in section 2(28BB).
Core Issue: Whether maturity proceeds of a foreign life-insurance policy, acquired while the assessee was a non-resident from income not chargeable to tax in India and subsequently funded from taxable Indian salary, could be treated as undisclosed foreign asset/income under section 10(3) of the Black Money Act, and whether such maturity proceeds qualify for exemption under section 10(10D) despite the policy being issued by a foreign insurer.
Facts: The assessee worked in Dubai from April 2001 and remained non-resident until July 2007. On 04.03.2005, while non-resident, he jointly with his wife obtained a life-insurance policy from Scottish Life International/Royal London, subsequently renamed RL360 Insurance Company Ltd., Isle of Man, paying premiums initially from income not chargeable to tax in India. After returning to India, he continued paying premiums from his taxable salary through disclosed Indian bank accounts. The policy matured and ₹35,25,453.18 was received on 24.06.2016. For AY 2017-18, the assessee disclosed salary income of ₹86,09,880 and did not include the maturity proceeds, claiming exemption under section 10(10D).
AO Finding: The AO held that, on a conjoint reading of sections 10(10D) and 2(28BB), exemption was available only where the insurer was an Indian company. Since the policy was issued by a foreign insurer, the maturity proceeds were held taxable. The AO further invoked section 4(1)(a) of the Black Money Act, treating the amount as undisclosed foreign income on the reasoning that non-disclosure in the return, rather than taxability under the Income-tax Act, was the relevant criterion.
CIT(A) Finding: The CIT(A), after considering the assessee’s submissions, sustained the addition made under the Black Money Act.
ITAT Finding — Black Money Act: The Tribunal held that section 2(11) defines an “undisclosed asset located outside India” as an asset for which the assessee has no explanation regarding the source of investment or whose explanation is unsatisfactory. In the present case, the assessee had satisfactorily demonstrated the source of premiums—initially from income earned during non-resident status and not chargeable to Indian tax, and subsequently from salary income on which Indian tax had been paid. Therefore, the policy and its maturity proceeds could not constitute an undisclosed foreign asset.
CBDT Circular Finding: The Tribunal placed significant reliance on CBDT Circular No.13 of 2015 dated 06.07.2015, particularly Questions 18, 24 and 32. These clarifications state that fully explained foreign assets acquired from tax-paid income, and assets acquired by a person while non-resident from income not chargeable to tax in India, do not constitute undisclosed foreign assets and need not be declared under Chapter VI of the Black Money Act. The Tribunal specifically observed that CBDT’s clarification was applicable not merely to taxpayers but equally to the tax authorities, who could not ignore the assessee’s explained source.
ITAT Finding — Section 10(10D): Independently, the Tribunal held that the maturity proceeds were exempt under section 10(10D). The statutory language covers “any sum received under a life insurance policy” and does not restrict the exemption to policies issued by Indian insurers. Section 2(28BB), which defines “insurer” by reference to an Indian insurance company, could not be imported into section 10(10D), because section 10(10D) itself does not use or incorporate that definition.
Oxford University Press Principle: Following Oxford University Press v. CIT (2001) 247 ITR 658 (SC), the Tribunal reiterated that a definition contained in one statutory provision cannot automatically be imported into another provision unless the latter provision so requires. Since section 10(10D) contains no distinction between an Indian and foreign insurer, the authorities could not introduce such a territorial restriction by interpretation.
Final Decision: The ITAT allowed the assessee’s appeal, holding that the policy maturity proceeds were neither undisclosed foreign income nor an undisclosed foreign asset under the Black Money Act and, independently, were exempt under section 10(10D). The Tribunal allowed grounds relating to the exemption and foreign asset treatment, while keeping the remaining grounds open.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)-3, Gurgaon [for short ‘ld. CIT (A)] dated 29.10.2024 for the Assessment Year 2017-18 raising following grounds of appeal :-
“01. That the Ld. Deputy Director of Income Tax(Inv)-I, Gurugram (DDIT in short) has erred in law and on facts in framing the assessment at Rs.40,03,212.78 treating the same as undisclosed foreign income, u/s 10(3) of Black Money (UFIA) & Imposition of Tax Act 2015 in an arbitrary and capricious manner and therefore, is liable to be set aside.
02. That the Ld. DDIT had no jurisdiction to pass the order impugned herein as he was not the Assessing Officer on whom jurisdiction was conferred .to make the assessment under the Income Tax Act r/w section 6(3) of Black Money (UFIA) &Imposition of Tax Act 2015.
03. That the assessment framed by the Ld. DDIT is time barred as the information was received during the FY 2017-18 whereas the assessment is framed on 31.03.2021. Hence, the same is liable to be set aside.
04. That the assessment framed by the Ld. DDIT though allegedly stated to be passed on 31.03.2021, was never served during the FY 2021-22. Hence, it is evident that the same was not passed on 31.03.2021 and therefore, is time barred.
05. That the ld. DDIT has erred in treating the amount of Rs.40,03,212,78 received by the appellant on maturity of his life insurance policy as his undisclosed foreign asset so as to invoke provisions of section 10(3) of the Black Money (UFIA) &Imposition of Tax Act 2015.
06. That the life insurance policy was purchased by the appellant put of his disclosed tax paid income when he was non-resident and thereafter, he continued to payout of his disclosed tax paid salary income in India. Hence, it was not the “undisclosed foreign asset located outside India” within the meaning of section 2(11), so as to invoke provisions of section 10(3) of the Black Money (UFIA) & Imposition of Tax Act 2015 in view of question No.24 of Circular No.13 of 2015 dated 06.07.2015.
07. That as per question No.18 of Circular No.13 of 2015 dated 06.07.2015, the appellant was not under an obligation to declare such asset under Chapter-VI of the Black Money (UFIA) & Imposition of Tax Act 2015 and therefore, the same is outside the ambit of the said Act.
08. That as per question NO.32 of Circular No.13 of 2015 dated 06.07.2015, appellant was not required to declare such amount under Chapter-VI of the Black Money (UFIA) & Imposition of Tax Act.2015. Hence, the assessment framed by the Ld. DDIT is bad-in-law.
09. That even otherwise, amount received by the appellant on maturity of life insurance policy is exempt u/s 10(10D) of the Income Tax Act and therefore, the appellant was not required to disclose such amount in the return of income as well as under Chapter-VI of the Black Money (UFIA) & Imposition of Tax Act 2015.
10. That the Ld. DDIT has erred in reading the provisions of section 2(28BB) defining the term “insurer” in the provisions of section 10(10D) of the Act when the said term is not reflected in the provisions of section 10(10D) of the Act and therefore, observation of the Ld. DDIT that the benefit of section 10(10D) of the Act is not available to the appellant is bad-in-law.
11. That the Ld. DDIT has not passed-the order independently but is passed as per the direction of the Ld. Additional Director of Income Tax. (Investigation) and therefore, it is bad-in-law.”
2. Brief facts of the case are, the assessee is a senior citizen, now retired from Pathways World School. We observed that the assessee went to Dubai, UAE on employment in April 2001 and returned to India in July 2007. Till that time, he was non-resident. On 04.03.2005, assessee took an insurance policy in Dubai with Scottish Life International, a Royal London Company jointly with his wife Mrs Pathmarani Kanagarayar at an annual premium of 8898 USD. The insurance company afterwards changed its name to RL360 Insurance Company Limited during the tenure of the said insurance contract. The said insurance company was operating from Isle of Man. During AY 2002-03 to 2007-08, assessee was non-resident and therefore, his income was not chargeable to tax in India. While in Dubai, assessee paid the premium out of this non-taxable income. The assessee returned to India in July 2007 and started working with Pathways World School, Gurugram as School Director. He retired from the employment in December 2020.After returning from Dubai, assessee continued to pay premium on the policy officially through his savings bank account following the Government of India rules for foreign exchange transmissions, initially through Citi Bank and subsequently through HDFC Bank. Since AY 2008-09, the assessee was regularly filing his return of income in India. For the year under consideration i.e. AY 2017-18, assessee filed the return declaring income at Rs.86,09,880/-being a salary income on which tax of Rs.24,72,453/- was deducted at source. Assessee also paid Rs.2,600/- by way of self-assessment tax. In return of income, assessee did not declare this maturity amount of Rs.35,25,453.18 as income for the reason that it is exempt u/s 10(10D) of the Income-tax Act, 1961 (for short ‘the Act’) and that the premiums were paid out of tax paid salary income.
3. During assessment proceedings under BMA, the Assessing Officer held that on conjoint reading of section 10(10D) with section 2(28BB) of the Act, it is clear that the exemption on maturity amount of life insurance policy is available only when the insurer is an Indian company. Since insurer in the present case is a foreign company, exemption is not available u/s 10(10D) of the Act. Further, the Assessing Officer also observed that as per the provisions of section 4(1)(a) of the Black Money Act, the assessee had not disclosed the income from source located outside India in the return of income and therefore, the said income amounts to undisclosed foreign income and is liable to tax in the year of receipt. The criteria for taxability under the Black Money Act is the disclosure of receipt in the return of income and not the chargeability to tax.
4. Aggrieved by the above order, assessee preferred an appeal before the ld. CIT (A) and after considering the detailed submissions of the assessee, ld. CIT (A) sustained the addition.
5. Aggrieved with the above order, assessee is in appeal before us.
6. At the time of hearing, ld. AR of the assessee submitted that the maturity amount of life insurance policy is not the undisclosed foreign income, in this regard, she brought to our notice the relevant on record and further submitted that the life insurance policy matured in 2015 and the assessee received a sum of USD 52896.76 equal to Rs.35,25,453.18 on 24.06.2016 in his HDFC Bank A/c. Assessee does not have any account overseas since he returned from Dubai in 2007. Further, for the year under consideration i.e. AY 2017-18, assessee filed the return declaring income at Rs.86,09,880/- being a salary income on which tax was duly paid. Assessee was not supposed to declare the maturity amount of Rs.35,25,453.18 in the return of income as it was exempt u/s 10(10D) of the Income Tax Act. Ld AR submitted that during the assessment proceeding, assessee had duly submitted before the Assessing Officer that the life insurance proceeds are exempt u/s 10(10D) of the Income Tax Act. He had also stated to the Assessing Officer that he was under a bonafide belief that maturity amount is exempt u/s 10(10D) of the Act. Section 10(10D) does not specify any such condition that for maturity amount to be claimed as exempt, the insurance policy should have been taken from an Indian insurance company and not from foreign insurance company. He had already paid a tax of approx. twenty-five lakh rupees on his salary income and there was no malafide intention on his part not to disclose the maturity amount in the income tax return. However, the Assessing Officer did not convince with the same and read down the provisions of section 2(28BB) with section 10(10D) of the Act and came to the conclusion that the maturity amount was not exempt u/s 10(10D) of the Income Tax Act. He invoked the provisions of section 4(a) of the Black Money Act and treated the amount of Rs.40,03,212.78 as undisclosed foreign income of the assessee, liable to tax. She submitted that the Assessing Officer has wrongly read the provisions of section 2(28BB) into section 10(10D) as section 10(10D) does not use any term “insurer”. It simply says:
“any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy”.
7. She submitted that certain exceptions have been carved out from the main provision, however the case of the assessee does not fall within it. Hence, the maturity amount received by the assessee under a life insurance policy is exempt u/s 10(10D) of the Act. Further, the premium was paid by the assessee from his tax paid income and therefore, taxing the maturity amount would be double taxation. Section 10(10D) of the Income Tax Act do not require the maturity amount to be paid by the life insurance company from the Indian insurer only. It does not make any distinction whether the amount is received from Indian insurer or the foreign insurer. She submitted that wherever legislature has intended so, it has been specifically mentioned in the provision itself. It is a trite law that a taxing statute must be read as it stands: no words may be added, no words subtracted. Further where Parliament had intended the exemption u/s 10 to be limited in any way to the territory of India it had been assiduous in so stating, for example clauses (20A), (22B), (23), (24), (26) and (29) of section 10. In this regard, she submitted that while dealing with section 10(22) of the Income Tax Act, Full Bench of Hon’ble Supreme Court in the case of Oxford University Press vs CIT (2001) 247 ITR 658 have held that for the purpose of exemption u/s 10(22) of the Income Tax Act 1961, the university or other educational institution need not exist in India. Hon’ble Supreme Court went to the extent that it is not permissible to read the definition of a word in one Act into another Act unless the later Act so requires and accordingly, held that the definition of university given in University Grants Commission Act cannot be read into section 10(22) of the Income Tax Act. It was further held that if Parliament had meant to provide an exemption with a location limitation in clause (22A) it would have made it clear, and it would have amended clause (22). Similarly, had the Parliament not intended to exempt the receipts from foreign insurer then it would have made it clear in the section itself.”
8. With regard to Ground No.9, the Ld AR of the assessee submitted that no obligation to make Declaration under Black Money Act. She submitted that Assessing Officer has observed that the assessee has earned income from source located outside India which has not been disclosed in return of income. In fact, even as per section 59 of Black Money Act assessee was not under an obligation to disclose the said source in the return of income because as per the provisions of section 59, a person may make a declaration in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under the Income Tax Act for any assessment year prior to assessment year 2016-17:
i) for which he has failed to furnish a return u/s 139 of the Income Tax Act,
ii) which he has failed to disclose in a return of income furnished by him under the Income Tax Act before the date of commencement of Black Money Act; and
iii) which has escaped assessment by reason of omission or failure on the part of such person to make a return under the Income Tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise.
9. She submitted that none of these provisions are applicable to the present case. There are twin primary conditions – i) undisclosed asset located outside India and ii) acquired from income chargeable to tax under the Income Tax Act. None of these conditions are satisfied. As stated in the preceding paras, it is not undisclosed asset located outside India and it was not acquired from income chargeable to tax in India for which no return has been filed or if filed, no tax is paid. The first two premiums were paid by the assessee out of salary in Dubai which was not chargeable to tax in India and the subsequent premiums were paid by the assessee from salary income on which tax was duly paid. Hence, assessee was not under an obligation to make even declaration u/s 59 of the Black Money Act so as to invoke section 60 or section 3(1) of the said Act. She submitted that the term “undisclosed asset located outside India” is defined in section 2(11) of the Black Money Act which says that
“undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory”.
10. She submitted that in the present case, assessee had the explanation about the source of investment in the insurance policy and therefore it could not have been treated as undisclosed asset located outside India. Assessing Officer has not raised any issue in respect of source of investment. Further she submitted that vide Circular No.13 of 2015 dated 06.07.2015, the government had come out with the clarification on tax compliance for undisclosed foreign income and assets under Black Money Act, question No.18 of which is as under:-
Question No.18 – A person holds certain foreign assets which are fully explained and acquired out of tax paid income. However, he has not reported these assets in Schedule FA of the Income Tax Return in the past. Should he declare such assets under Chapter VI of the Act?
Answer– Since, these assets are fully explained, they are not treated as undisclosed foreign assets and should not be declared under Chapter VI of the Act.
11. She submitted that the answer to question no.18 squarely applies to present case. Further, she submitted that Question No.24 of the said circular No.13 is also applicable to the present case which is as under:-
Question No.24 – A person is a resident now. However, he was a non-resident earlier when he had acquired foreign assets (which he continues to hold now) out of income which was not chargeable to tax in India. Does the person need to file a declaration in respect of those assets under Chapter VI of the Act?
Answer – No. Those assets do not fall under the definition of undisclosed assets under the Act.
12. By way of above questions, government has clarified that the assets acquired by the assessee out of income which was not chargeable to tax in India are not required to be declared under Chapter-VI of the Act. Further she submitted that again government has clarified the position vide Question No.32.
Question No.32 – A person was employed in a foreign country where he acquired or made an asset out of income earned in that country. Whether such asset is required to be declared under Chapter VI of the Act?
Answer – If the person, while he was a non-resident in India, acquired or made a foreign asset out of income which is not chargeable to tax in India, such asset shall not be an undisclosed asset under the Act. However, if income was accrued or received in India while he was non-resident, such income is chargeable to tax in India. If such income was not disclosed in the return of income and the foreign asset was acquired from such income then the asset becomes undisclosed foreign asset and the person may declare such asset under Chapter VI of the Act.”
She submitted that according to the above said questions and its answers, the assessee was not required to declare his LIC Policy under Chapter-VI of the Black Money Act. Appellant was also not required to declare the maturity amount in the return of income as it was exempt u/s 10(10D) of the Income Tax Act.
13. On the other hand, ld. DR of the Revenue relied on the orders of the lower authorities.
14. Considered the rival submissions and material placed on record. We observed from the record that the assessee had acquired insurance policy from Royal London company when he was working in Dubai and the relevant premiums were paid by him through the salary income which was exempt from Tax in India and after return to India, he was employed in the school known as Pathways World School, Gurugram. Subsequent premiums were paid by him out of his taxable salary in India. The issue raised by the revenue under BMA was that the assessee failed to disclose the above financial interest in his return of income before or after maturity of the policy. We observed that the assessee had disclosed the sources of making payments towards the premium for the above said policy, which was out of salary which was not taxable in India and subsequently paid out of taxable salary income in India. Even though, the sources were explained and once it is established that the assessee had earned the maturity proceeds which were out of declared sources. The AO had brushed aside the stand of the revenue, which were explained through the explanations by way of publishing the provisions in the form of Question and Answers by the CBDT. The explanations given by the CBDT are applicable not only to the public, but this is also equally applicable to the tax authorities. However, they chose to ignore the reasonable explanations offered by the assessee. The questions and answers contained in the frequently asked questions (FAQ), the CBDT had clearly clarified to the question nos. 18, 24 and 32 that in the situation where the facts of the assessee’s case fall in, the same will be treated as not falling under category of undisclosed assets or income. In the present case, the assessee had taken the term policy and met out the premiums out of income not chargeable to tax in India and out of income which was already suffered tax. This issue cannot be treated as undisclosed income or undisclosed assets under the BMA.
15. Further we observed that as per the definition of section 2(11) of the BMA, the term undisclosed assets located outside India means an asset located outside India held by the assessee and has no explanation about the source of such investment in assets or explanation offered are not satisfactory. In the given case, the assessee had disclosed the sources of the payment towards the insurance policy and also brought on record the relevant details. After considering the relevant documents and information available on record, we observe that the maturity of the policy cannot be treated as undisclosed assets.
16. Even on merits, the AO had invoked the provisions of section 10(10D) and 2(28BB) to interpret that the maturity of funds from the foreign insurer is taxable in India. However, we observed that in the section 10(10D), the words used in the section are, “any sum received under a life insurance policy,” therefore the legislature had not restricted or not put condition for giving benefit to the respective assessee, it can be from any insurer. The section 2(28BB) gives the meaning of the term’s “insurer”, it can be only an Indian Insurance Company as defined under Insurance Act, 1938. However, no such reference was made in the section 10(10D) of the Act. The authorities cannot interpret the meaning differently. As held in the case of Oxford University Press (supra), the Hon’ble Supreme Court held that for the purpose of exemption u/s 10(22) of the Income Tax Act 1961, the university or other educational institution need not exist in India. Further they held that it is not permissible to read the definition of a word in one Act into another Act unless the later Act so requires. In the given case, the definition given in the section 10(10D) is very clear that the benefit extended to the policy holders who invest in the insurance policies whether they invest with the insurer Indian or Foreign, they have not made any distinction. Therefore, the interpretation of the authorities below are not proper and correct. Hence, we are inclined to allow the ground nos. 9 and 10 raised by the assessee is allowed and other grounds raised by the assessee are kept open at this stage.
17. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on this 31st day of July, 2026.
