TaxTMI 
TaxTMI 
2005 (10) TMI 226
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....is of the record and after hearing the learned Departmental Representative. 2. The assessee is a partnership firm, engaged in the business of manufacture and sale of electronic and electric goods. In the assessment completed under s. 143(3), the AO allowed deduction in respect of the insurance premium of Rs. 87,840 paid in respect of Shri Anurag Gupta, one of the partners, under the "Keyman Insurance Scheme". The CIT considered the allowance of the premium as business expenditure to be erroneous insofar as it is prejudicial to the interest of the Revenue. He, therefore took proceedings for revising the assessment under s. 263 and invited the assessee's objections. The assessee seems to have started (supported) the allowance of the ex....
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....pends on one or more keymen because of their leadership ability, long experience or technical skill, that such a person may even be a partner of the firm, that absence of such a partner will be a significant loss to the 'firm, and, therefore, the premia paid under the Keyman Insurance Scheme was allowable under s. 37(1). It was also pointed out that there was only two partners, of which Anurag Gupta was the keyman and the main tool for the profitability of the firm. In ground No 6, it is stated that a supplementary deed has been executed reflecting the clause relating to keyman insurance. In ground No 7, it is stated that supplementary deed shows that the partners have agreed to pay commission on insurance premium on the life of Anurag ....
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....ending Act, provided that if the sum received under the Keyman policy is not taxed under the head "salaries" or "profits and gains of business or profession", then it will be taxed under the head "income from other sources". . 5. The above amendments, all w.e.f. 1st Oct., 1996, were explained by Circular No. 762, dt. 18th Feb., 1998, issued by the CBDT as follows: "Taxation of a sum received under the Keyman Insurance Policy 14.1 A Keyman Insurance Policy of the Life Insurance Corporation of India, etc., provides for an insurance policy taken by a business organization or a professional organization on the life of an employee, in order to protect the business against the financial loss, which may occur from the employee....
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.... the 1st day of October, 1996." It may be seen from para 14.2 of the circular that the Board was aware of the doubts relating to the treatment of the premium paid in respect of a Keyman Insurance Policy issued by the LIC of India and has accordingly clarified, to put the doubts at rest, in the last sentence of para 14.4 that "The premium paid on the Keyman Insurance Policy is allowed as business expenditure". 6. In the light of the above amendments and the circular clarifying the position relating to the allowability of the premium paid on Keyman Insurance Policy, the CIT, in my view, was not justified in directing the AO to disallow the premium paid by the assessee-firm in respect of the life of partner Anurag Gupta, assured un....