Keyman insurance premium deductible where the policy meets the statutory definition, without importing extra regulatory conditions.

A keyman insurance premium was held allowable as a deduction because the policy satisfied the statutory definition of a life insurance policy taken on the life of a person connected with the assessee's business under the Explanation to section 10(10D) of the Income-tax Act, 1961. The Tribunal rejected the attempt to add a further requirement that the policy be a pure insurance policy, noting that IRDA-based conditions not found in the statute could not be imported to deny relief. It also rejected objections based on commercial expediency and assignment of the policy, and sustained the deduction on the statutory test applied in the earlier connected decision.

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Issues: Whether the premium paid on the keyman insurance policy was allowable as a deduction and the resulting disallowance could be sustained.

Analysis: The controversy turned on the meaning of a keyman insurance policy under the Explanation below Section 10(10D) of the Income-tax Act, 1961. The policy had to be a life insurance policy taken by the assessee on the life of a person connected with its business. The authorities had imported a requirement of a pure insurance policy and relied on IRDA guidelines, but those requirements were not found in the statute. The reasoning adopted earlier in the connected matter was followed, holding that once the policy satisfied the statutory definition, its character as a life insurance policy was sufficient. The Tribunal also rejected the objection based on commercial expediency and assignment of the policy, and held that the expenditure was allowable on the principles already accepted in the earlier decision.

Conclusion: The premium on the keyman insurance policy was allowable and the disallowance was not sustainable; the issue was decided in favour of the assessee.

Ratio Decidendi: A keyman insurance premium is deductible where the policy answers the statutory definition of a life insurance policy taken on a person connected with the assessee's business, and extraneous regulatory or prudential requirements not found in the Act cannot be imported to deny the deduction.

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