Keyman insurance premium deductible as business expenditure where policy fits statutory definition and regulator circulars do not control tax law.

Premium paid on keyman insurance policies was treated as deductible business expenditure because the policies were life insurance policies on persons connected with the business and therefore satisfied the statutory definition of a keyman insurance policy. The view that only a pure life policy or term policy could qualify was rejected as having no basis in the statute. Circulars issued by the insurance regulator were held not to govern interpretation of the Income-tax Act. The disallowance was also rejected on the ground of lack of commercial expediency, and the expenditure was held allowable. A contrary coordinate bench view was treated as non-binding in the circumstances.

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Issues: Whether the premium paid on keyman insurance policies was allowable as a deduction and whether the disallowance made by the authorities below was sustainable.

Analysis: The premium paid on the policies was held to be on life insurance policies taken on the lives of persons connected with the business, satisfying the statutory definition of a keyman insurance policy. The restriction inferred by the revenue authorities that only a pure life policy or term policy could qualify was held to have no basis in the statute. The insurance regulator's circulars were found not to control the interpretation of the Income-tax Act. The Tribunal also held that the disallowance could not be sustained on the ground of lack of commercial expediency, and that the expenditure was allowable as business expenditure. The contrary coordinate bench view was treated as non-binding in the circumstances.

Conclusion: The premium on the keyman insurance policies was allowable, and the disallowance was unsustainable.

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