# CHANDULAL HARJIVANDAS, JAMNAGAR v. COMMISSIONER OF INCOME-TAX, GUJARAT

- **Citation:** [1967] 1 S.C.R. 921
- **Court:** Supreme Court of India
- **Decided:** 1966-10-14
- **Case number:** Civil Appeal No. 684 of 1965
- **Bench:** J.C. Shah, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/chandulal-harjivandas-jamnagar-v-commissioner-of-income-tax-gujarat-3935
- **Pages:** 5

## Headnote

Income-tax Act (11 of 1922), s. 15(1)-Children's Deferred Endowment Assurance-Assured a minor-Proposer of insuranc.e his fatherPayment of premium out of taxable incorn, of assured-If entitled to
rebate of income-tax.
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 s~
cial clause of the policy provided that at any time after attaming majonty
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 th~ assessee himself; 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 cl~uses
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 assessee out of
his taxable income, rebate under s. 15(1) was admissible on the premium
paid. [924 E, HJ

## Text

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CHANDULAL HARJIVANDAS, JAMNAGAR
v.
COMMISSIONER OF INCOME-TAX, GUJARAT.
October 14, 1966
(J.C. SHAH AND V. RAMASWAMI, JJ.)
Income-tax Act (11 of 1922), s. 15(1)-Children's Deferred Endowment Assurance-Assured a minor-Proposer of insuranc.e his fatherPayment of premium out of taxable incorn, of assured-If entitled to
rebate of income-tax.
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 s~
cial clause of the policy provided that at any time after attaming majonty
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 th~ assessee himself; 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 cl~uses
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 assessee out of
his taxable income, rebate under s. 15(1) was admissible on the premium
paid. [924 E, HJ
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 684 of
1965.
Appeal from the judgment and order dated September 9. 1963
H
of the Gujarat High Court in Income-tax Reference No. 20 of
1962.
I. N. Shroff. for the appellant.
Ml 7SupCI/66-1 l
922
SUPREME COURT REPORTS
{1967] 1 S C.R.
S. T. Desai, Gopal Singh and R. N. Sachthcy, for the respondent.
The J udgmcnt of the Court was dclil'ered 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 "Ch:ldren'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 'asscsscc')
and the life assured was that of the assesscc.
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 asscssce claimed rebate on the insurance premium of
Rs. 1,925/ under the provisions of s. 15(1 J of the Income-tax Act,
!922 {hereinafter called the 'Act'). The Income-tax Officer rejected
the claim on the ground that under the said policy the life of the
minor assessec 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 assesscc 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 assessec?"
The High Court of Gujarat answered the Reference in favour
of the respondent and against the asscssec. 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 qintract,
even if the minor were to be alive on the deferred date it was the
assesscc's father whc was entitled to receive the cash option unless
the assessce adopted the contract as his own. The High Court
accordingly observed that the real contracting parties were the father
of the assessee and the Life I nsurancc Corporation and it was only
under certain contingency on the happening of which the contract
was to become the contract of the assessec.
Section 15{1) of the Act provides as follows:
"Exemption in the case oflife insurances. -(1) The tax
shall not be payable in respect of any sums paid by an
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923
assessee to effect an insurance on the life of the assessee oron the life of a wife or husband of the assessee or in respect
of a contract for a deferred
a~uity 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 'A' mentions the following details:
"Cash option
Deferred Date
Date
of
Maturity,
Rs.11.693-50
11-3-65
11-3-82
Event on the happening of which sum
assured payable,
Clause 5 of the policy provides:
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."
"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 lf 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 equal to all the premiums paid without any deduc-
924
SUPREME COURT REPORTS
[1967] l S.<.:.R.
tion whatsoever shall become payable to the person entitled to the Policy moneys.
This Policy shall staffil 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. Jn our opinion, the requirement~ of s. 15(1) of the Act are satisfied in this case because all
thats. 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.,
(I) such sum must have been paid by the asscssee 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 subject·
matter of the contract is the insurance on the life of the assessce
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 asscssee and under the terms
thereof it could become the assessce's contract only on his adopting
it on his attaining majority. It was pointed out that if the assessec
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 asscssee who would
get the sums equal to the premiums paid. We arc, however, of the
opinion that the contract of insurance between the asscsscc's father
and the Life Insurance Corporation must he read as a "hole Jn<l
in spite of the clauses referred to by Mr. Desai we consider that the
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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,(JOO/- to the
assessee on the stipulated date of maturity, i.e., March 11, 1982
if the 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(') 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 I ife, and any contract
which is subject to payment of premiums for a term dependent 011 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 t:lat it is in substance
a contract of insurance on the life of the assessee and therefore
rebate under s. 15(1) of the Actis 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.
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(!} 6 T.C. 293.