perquisite section 17(2)(v)

Query regarding tax payable on insurance policy taken under employer – employee scheme:

As per section 17(2)(v) , any life insurance premium paid by employer will be taxed as perquisite in the hands of employee.i.e employer will have to assign the policy to employee on very first day & then only employee can enjoy the rights of the policy.

It is well settled by many case laws that Personal accident insurance premium paid by employer is not a perquisite if a)the policy is taken out by employer & not by employee on his own voluntarily b)the benefits will accrue to employee in future i.e. contingent.[CIT V Lala Shri Dhar (1972)84 ITR 192,Delhi & P.Newcome v CIIn CIT v Lala Shri Dhar (1972)84 ITR 192(Delhi)though it pertains to per. accident insurance but principal settled is that (i)when employer himself takes out the policy on his own initiative to protect the interest of employees(i.e. proposal forms etc are signed by employer) and (ii) when no immediate benefit accrues to employees and the benefit is contingent on fulfilling of certain conditions and (iii) the employee had not voluntarily taken out the policy and employee was not obliged to pay premium if employer had stopped paying it. The above grounds also holds true in case of life insurance premium paid by employer.

A) What will be the legal position if life insurance premium is paid by employer on life policies taken out by employer himself on lives of one or more employee? Note that employee has not himself made proposal to LIC, it is done by employer himself to protect his business interest and staff welfare measure. Till the date policy is assigned i.e. after 3 to 5 years by employer in favor of employee, all benefit will accrue to employer. In case of death before assignment, maturity proceeds will go to employer.

B) Whether it will be added to salary as perquisite?

C) What will happen if life policy is assigned to employee after 3 to 5 yrs to employee? I.e defer assignment. In that case, say after 3 to 5 year what would be the tax liability on employee? Since today he is not enjoying any rights of policy & if any claim arise (death claim or maturity claim) before assignment, than it will go to employer.

In that case is it true that employee will have to pay tax in the future i.e. only at the time of policy is assign to him? if in the future policy is not assigned to him & employer surrender the policy for cash, than employee will be the looser , so ideally tax on perquisite should be payable in future only when policy is assign to him.

( for e.g. In the first year, policy is taken by employer but will assign the policy in future , & tax on perquisite is payable in current year , in that case if employee leaves the organization & employer doesn’t assign the policy to him bcoz person is leaving ,employee will be the looser)

D) On what value of perquisite, tax is payable i.e. on premium paid earlier or on surrender value? bcoz after 3-5 years when policy is assign to him, cash value of the policy in the hands of employee will be only the surrender value which could be as low as 40 % of premium paid. (Since, in key man policy when it is assign to individual, tax payable by him is on surrender value of policy & not on premium paid – as per circular 762)

E) Weather any F.B.T is payable by employer on this policy? Bcoz if F.B.T is payable than I guess it will not taxed as perquisite. Otherwise it will be a double taxation.

please advise urgently.