Keyman insurance premium and foreign commission: assigned policy remained deductible, and non-resident export commission escaped disallowance.

An assigned life insurance policy continued to qualify as keyman insurance where the partner had transferred it to the firm during its term, the proceeds were received by the firm, and the premium was incurred to protect the business against loss of a key person; the premium was therefore deductible as business expenditure. Commission paid to non-resident agents for procuring export orders was also not disallowable, because services rendered outside India did not give rise to income accruing or arising in India in the absence of a business connection or permanent establishment. The note records that both issues were resolved in favour of the assessee.

---

---

Issues: (i) Whether premium paid on the insurance policy was allowable as business expenditure despite the policy being initially taken in the partner's name and later assigned to the firm. (ii) Whether commission paid to foreign agents for procuring export orders was liable to disallowance for want of tax deduction at source.

Issue (i): Whether premium paid on the insurance policy was allowable as business expenditure despite the policy being initially taken in the partner's name and later assigned to the firm.

Analysis: The policy was a life insurance policy and the record showed that the partner who was the key person had assigned the policy in favour of the firm. The assignment was acknowledged, the policy proceeds were ultimately received by the firm, and the surrender proceeds were offered to tax in a later year. Explanation 1 to Section 10(10D) of the Income-tax Act, 1961 expressly includes a policy assigned during its term, and the premium paid for protecting the business against the loss of a key person was held to be laid out wholly and exclusively for business.

Conclusion: The premium was deductible under Section 37(1) of the Income-tax Act, 1961 and the disallowance was set aside in favour of the assessee.

Issue (ii): Whether commission paid to foreign agents for procuring export orders was liable to disallowance for want of tax deduction at source.

Analysis: The issue was covered by earlier decisions in the assessee's own case and the settled principle that commission paid to non-resident agents for services rendered outside India does not accrue or arise in India in the absence of a business connection or permanent establishment. The Tribunal followed the earlier view and found no change in facts or law to depart from that position.

Conclusion: The commission payment was not liable to disallowance and the Revenue's challenge failed.

Final Conclusion: The assessee succeeded on the keyman insurance issue and the Revenue's appeal on foreign commission was rejected, resulting in disposal of the cross appeals in favour of the assessee on the substantive controversies decided.

Ratio Decidendi: A life insurance policy assigned during its term to the assessee continues to fall within the statutory concept of keyman insurance, and premium paid for such a business-protective policy is deductible if the expenditure is incurred wholly and exclusively for business; similarly, commission paid to non-resident agents for services rendered outside India is not taxable in India absent a relevant domestic nexus.

---