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

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

  1. Hon’ble Court convinced that payment of annuity under the policy should be more suitable to a handicap person during the lifetime of the guardian vide para 22 and para 23 of the Judgement. The relief to the under mentioned person could be granted within the existing legislative framework :-

    1. A person not covered under the tax paying limit of Income Tax.

    2. The person who, although covered under the income tax paying limit, but has not availed the tax exemption for taking this policy.

    Further fundamental rights of handicapped person and fundamental rights of his parent/policy holder should be distinguished. This petition was filed to protect the Fundamental Rights of disabled persons, but the Government of India wrongly argued/mentioned about rationality of tax exemption under section 80 DD of the Income Tax Act, 1961 provided to the parent of the handicapped person. Section 80 DD is providing tax deduction to the parent/guardian and not to the handicapped person. The petitioner has not challenged the fundamental right of the parent/guardian to get the tax exemption for taking this insurance policy for his handicapped dependent. The fundamental rights of the handicapped person should not be denied on the ground that the tax exemption was availed by their parent, because the tax exemption was not availed by the disabled person.

  2. In reply to your contention(s)

    As per the reliefs claimed by the petitioner:

    “(a) Issue a writ of Mandamus or any other appropriate writ, order of direction to Respondents No 1 to amend Section 80DD of the Income Tax Act to allow for the payment of annuity or lump sum amount to a person with disability on attaining the age of 55/58 years by the guardian/parent of disabled person, in addition to in the event of death of the guardian/parent.

    There is a concept of seperation of powers as per which the judiciary cannot interfere with the functions of the legislature or the executive and vice-versa. Amendment to a statute is a function of the legislature and there is a proper procedure prescribed for the same. However, it would be pertinent to mention here that in case a statutory provision fails at the touchstone of constitutionality, then the judiciary may intervene and render such provision non-operative.

    Secondly, the purpose behind the said policy as explained by the Hon’ble Supreme Court was 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. Tax exemption is a statutory benefit which is given to the policy holder. As per my opinion what the petitioner should have challenged was basically the constitutional validity of the maturity claim clause of the policy whereas the petitioner ended up seeking directions for amendment.

    Thirdly, it was held that the policy conforms with Section 80DD. What can be posed as a question is whether the maturity claim clause passes the constitutionality test? Because as per Article 14 it does not prohibit reasonable classification of persons, objects and transactions by the legislature for the “purpose of attaining specific ends.” What is sought to be attained by such maturity claim clause? Is it reasonable classification? Also a substantial question of law which arises is that “Is it necessary that where a policy conforms with a statute (which passes the constitutionality test), such policy shall also be deemed to pass the constitutionality test?”

    -Adv. Tushar Kaushik

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