2013 (11) TMI 1655 - HC - Income Tax

Court Upholds Decision on Keyman Insurance Deductions

Commissioner of Income Tax-I, Ludhiana Versus M/s Laj Exports,

The High Court upheld the Income Tax Appellate Tribunal's decision to set aside the Commissioner of Income Tax's order allowing deductions on Keyman ... Revision u/s 263 - deductions for premium paid on Keyman Insurance Policies - CIT exercising power under Section 263 held that deduction could not be allowed on premium paid to secure the lives of parties. The ITAT has set aside this order - Held that:- Similar issue is allowability of premium paid on lives of partners under Keyman Insurance Policy arose before the Hon’ble Bombay High Court in CIT Vs. B.N. Exports [2010 (3) TMI 186 - BOMBAY HIGH COUR] and the said expenditure has been allowed. In view of the above said judicial precedents on the issue, the order of the Assessing Officer in allowing the claim of the assessee was a plausible view and the said view is not open for review by the CIT by way of invoking the jurisdiction under section 263 of the Act Issues:1. Challenge to order passed by Income Tax Appellate Tribunal setting aside Commissioner of Income Tax's order allowing deductions on Keyman Insurance Policies.2. Jurisdictional conflict between circulars issued by Central Board of Direct Taxes and Insurance Regulatory and Development Authority.3. Disallowance of premium on Keyman Insurance Policies under Section 154 of the Income Tax Act.4. Consistency in allowing deductions for premium in previous assessment years.Analysis:1. The High Court dealt with a challenge to the order passed by the Income Tax Appellate Tribunal (ITAT) setting aside the Commissioner of Income Tax's order allowing deductions on Keyman Insurance Policies. The Revenue contended that the circular from the Insurance Regulatory and Development Authority rendered the Income Tax Department's circular on deductions irrelevant. However, the assessee argued that the Central Board of Direct Taxes' circular was binding, and the ITAT's decision to set aside the Commissioner's order was legal. The High Court found no substantial question of law and dismissed the appeal.2. The conflict between circulars issued by the Central Board of Direct Taxes and the Insurance Regulatory and Development Authority was a crucial aspect of the case. The ITAT's decision was based on the Central Board of Direct Taxes' circular allowing deductions for premium paid on Keyman Insurance Policies. The High Court emphasized that the Insurance Regulatory Authority's circular did not bind authorities under the Income Tax Act. The High Court upheld the ITAT's decision, stating that the Commissioner erred in ignoring the Central Board of Direct Taxes' circular.3. Regarding the disallowance of premium under Section 154 of the Income Tax Act, the Assessing Officer initiated proceedings but later dropped them after satisfaction. The Commissioner, under Section 263, held that the deduction for premium on Keyman Insurance Policies was not allowable. However, the ITAT set aside this decision, citing precedents where similar deductions were allowed. The High Court agreed with the ITAT, stating that the Commissioner's decision was erroneous, and the ITAT rightfully restored the Assessing Officer's order.4. The High Court also addressed the issue of consistency in allowing deductions for premium in previous assessment years. The premium was allowed based on consistency with past practice, which was not challenged by the revenue. The High Court found no error in the ITAT's decision to set aside the Commissioner's order, emphasizing that no substantial question of law arose. Consequently, the appeal was dismissed based on the findings and analysis provided.