Sunday, October 30, 2016

Nature of Proceeds of Life Insurance in relation to Income Tax

Nature of Proceeds of Life Insurance in relation to Income Tax
(as cited in EL ORIENTE FABRICA DE TABACOS, INC. vs. JUAN POSADAS)

"..proceeds of life insurance paid on the death of the insured are in fact capital, and cannot be taxed as income.."



Life insurance in such a case is like that of fire and marine insurance, — a contract of indemnity. Central Nat. Bank vs. Hume, 128 U.S., 195. The benefit to be gained by death has no periodicity. It is a substitution of money value for something permanently lost, either in a house, a ship, or a life. Assuming, without deciding, that Congress could call the proceeds of such indemnity income, and validly tax it as such, we think that, in view of the popular conception of the life insurance as resulting in a single addition of a total sum to the resources of the beneficiary, and not in a periodical return, such a purpose on its part should be express, as it certainly is not here.

In this case, the Corporation took out a life insurance policy on the life of its manager, with the Corporation being the beneficiary. The proceeds of life insurance received by the Corporation was in the nature of an indemnity for the loss which it actually suffered because of the death of its manager.