SC: LIC’s Jeevan Aadhar Policy conforms with S. 80DD(2)(b) of the Income Tax Act

The Hon’ble Supreme Court, on 3rdJanuary, 2018, in the matter of Ravi Aggarwal v. Union of India and Another, pronounced that LIC’s Jeevan Aadhar Policy is in conformity with Section 80DD(2)(b) of the Income Tax Act, 1961 which is a provision based on reasonable classification having a valid rationale behind it and there is a specific objective sought to be achieved by it.

The Hon’ble Supreme Court observed that:

Section 80DD of the Income Tax Act, 1961 is a provision made by the Parliament under the Act in order to give incentive to the persons whose dependents are persons with disability. Incentive is to give such persons concessions in income tax by allowing deductions of the amount specified in Section 80DD of the Act in case such parents/guardians of dependents with disability take insurance policies of the nature specified in this provision. Purpose is to encourage these parents/guardians to make regular payments for the benefit of dependents with disability. In that sense, the Legislature, in its wisdom thought it appropriate to allow deductions in respect of such contribution made by the parent/guardian in the form of premium paid in respect of such insurance policies. Of course, this deduction is admissible only when conditions stipulated therein are satisfied (Para 15)

Insofar as insurance policy (Jeevan Aadhar) is concerned, it incorporates a condition to the effect that the amount shall not be given to the handicapped persons during the lifetime of the parent/guardian/life assured. This is in conformity with Section 80DD(2)(b) of the Act. (Para 16)

When there is a need to get these funds even for the benefit of handicapped persons, that will not be given to such a person only because of the reason that the assured who is a parent/guardian is still alive. This would happen even when the entire premium towards the said policy has been paid. The policy (Jeevan Aadhar) does not have maturity claim. Thus, after making the entire premium for number of years, i.e. during the duration of the policy, the amount would still remain with the LIC. That may be so. However, the purpose behind such a policy is altogether different. As noted from the provisions ofSection 80DD as well as from the explanatory memorandum of the Finance Bill, 1998, by which this provision was added, the purpose is to secure the future of the persons suffering from disability, namely, after the death of the parent/guardian. The presumption is that during his/her lifetime, the parent/guardian would take care of his/her handicapped child. (Para 17)

Further, such a benefit of deduction from income for the purposes of tax is admissible subject to the conditions mentioned in Section 80DD of the Act. The Legislature has provided the condition that amount/annuity under the policy is to be released only after the death of the person assured. This is the legislative mandate. This Court cannot give a direction to the Parliament to amend or make a statutory provision in a specified manner. The Court can only determine, in exercise of its power of judicial review, as to whether such a provision passes the muster of the Constitutional Scheme. The main provision is based on reasonable classification, which has a valid rationale behind it and there is a specific objective sought to be achieved thereby. (Para 18)

There could be harsh cases where handicapped persons may need the payment on annuity or lumpsum basis even during the lifetime of their parents/guardians.In such cases, it may be difficult for such a parent/guardian to take care of the medical needs of his/her disabled child. Even when he/she has paid full premium, the handicapped person is not able to receive any annuity only because the parent/guardian of such handicapped person is still alive. There may be many other such situations. However, it is for the Legislature to takecare of these aspects and to provide suitable provision by making necessary amendments in Section 80DD of the Act. (Para 22)

Copy of judgement:Judgement_03-Jan-2019

-Tushar Kaushik

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