Keyman insurance premium deduction allowed under Section 37(1) despite initial policy in partner's name

The ITAT Mumbai allowed deduction of premium paid on keyman insurance policy under Section 37(1). The tribunal held that despite the policy being initially taken in the partner's name with his wife as nominee, it was validly assigned to the firm with insurance company's endorsement. The firm paid premiums and received surrender proceeds, which were offered to tax in subsequent year. The tribunal found both conditions of Explanation 1 to Section 10(10d) fulfilled - it was a life insurance policy taken on an employee's life. Regarding TDS under Section 195 on foreign commission payments, the tribunal confirmed no liability existed as services were rendered outside India by non-resident agents without business presence in India, following established precedents.

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Issues Involved:
1. Disallowance of premium paid on Keyman Insurance Policy.
2. Addition in respect of commission paid to foreign entities.

Summary:

Issue 1: Disallowance of premium paid on Keyman Insurance Policy

The assessee challenged the disallowance of Rs. 1,00,00,000/- paid as a premium on Keyman Insurance Policy for A.Y. 2017-18 and 2018-19. The AO disallowed the expense u/s 37(1), arguing that the policies were not Keyman Insurance Policies and were instead investment plans for the partners' benefit. The AO's observations included:
- The policies did not explicitly state they were Keyman Insurance Policies.
- The proposer was not the employer but the partner, Mr. Chetan K Desai.
- The policies were endowment plans, not term insurance policies as required by IRDAI guidelines.
- The policy rights were not fully transferred to the firm, and the nominee was Mrs. Sonal Desai, not the firm.

The Tribunal found that:
- The policies were indeed life insurance policies and were assigned to the firm.
- The insurance company acknowledged the assignment, and the amount received upon surrender of the policies was offered to tax by the firm.
- The policies met the conditions of Section 10(10D) and Explanation 1, which allows deduction for Keyman Insurance Policies assigned to a firm.
- The Hon'ble Bombay High Court's decision in B.N. Exports supported the claim that such expenses are incurred wholly and exclusively for business purposes.

Thus, the Tribunal allowed the deduction of the premium paid on Keyman Insurance Policies for both assessment years.

Issue 2: Addition in respect of commission paid to foreign entities

For A.Y. 2018-19, the Revenue challenged the addition of Rs. 1,82,66,691/- paid as commission to foreign entities. The AO disallowed the commission payments, citing non-deduction of tax at source u/s 195, as the services were deemed to accrue in India. The CIT(A) deleted the addition, relying on the Tribunal's decision in the assessee's own case for earlier years.

The Tribunal upheld the CIT(A)'s decision, noting:
- The services were rendered outside India by non-resident agents without any Permanent Establishment in India.
- The payments were made outside India for procuring export orders, and the agreements specified the nature of services as commission-based.
- The Tribunal's earlier decisions and the Hon'ble Bombay High Court's ruling in Gujarat Reclaim and Rubber Products Ltd supported the non-applicability of TDS on such payments.

Therefore, the Tribunal dismissed the Revenue's appeal and confirmed the deletion of the addition for commission payments to foreign entities.

Conclusion:

The Tribunal allowed the assessee's appeals regarding the Keyman Insurance Policy premium disallowance and dismissed the Revenue's appeal concerning the commission payments to foreign entities. The decisions were based on established legal principles and precedents, ensuring compliance with relevant sections of the Income Tax Act.

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