2021 (4) TMI 797

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....g the restriction placed by the insurance company on the sum assured in the case of Key Man insurance policy and allowing the entire premium including the sum assured in excess of such restriction? (iii) Whether based on material placed before it, the income Tax Appellate Tribunal could have come to the conclusion that the entire premium is towards the sum assured on Key Man insurance policy, though insurance company has placed restriction on the sum assured in the Key Man insurance policies?" 3. Heard Mr.J.Narayanaswamy, learned Senior Standing counsel for the appellant and Mr.V.S.Jayakumar learned counsel for the Respondent. 4. The facts reveal that, the assessee company has debited a sum of Rs. 2,39,61,737/- towards insurance under the administrative expense, out of which, Rs. 2,35,34,728/- relates to expenses towards Keyman Insurance. The assessee is a Private Limited Company having less than 10 No. of share holders. According to the guidelines of LIC for Keyman Insurance, the concern should be a profit making one and the profits for the last three years should justify the cover being allowed and the maximum sum allowable is three times of average gross profit or five times....

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....ed on Keyman Insurance policy, the entire premium cannot be considered as premium towards Keyman Insurance policy. He further submitted that the Tribunal also erred in applying the circular No.762, dated 18.02.1998 on the allowability of premium on Keyman Insurance policy while the issue before it was the quantum of deduction. 8. Per contra, the learned counsel for the respondent / assessee submitted that CIT(A) as well as the Tribunal was right in holding that thus the premium on Keyman Insurance policy was allowable as business expense under Section 37(1) of the Act. In support of his contentions, the learned counsel relied upon the following judgments: (i) The Hon'ble Supreme Court in the case of Sassoon J.David & Co.P.Ltd. Vs. Commissioner of Income Tax reported in 1979 (Volume 118) ITR 0261, held as follows: "20. The next contention urged on behalf of the Department was that since Davids and Tatas were indirectly benefited by the retrenchment of the services of he employees of the company and payment of compensation to them and since there was no necessity to retrench the services of all the employees, the expenditure in question could not be treated as an expenditure....

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....inst a financial set back which may occur as a result of a premature death, to the business or professional organization. There is no rational basis to confine the allowability of the expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. The said policy when obtained to secure the life of a partner against a disruption of the business is equally for the benefit of the partnership business which may be affected as a result of premature death of a partner. Thus, the premium on the 'keyman Insurance Policy' of partner of the firm is wholly and exclusively for the purposes of business and is allowable as business expenditure. The relevant observations read thus:- 4. In order to appreciate the submission which has been made a reference to some of the relevant provisions of the Income Tax Act, 1961 would be in order. Section 2(31) defines the expression "person" to include an individual, a Hindu Undivided Family, a company, a firm, an AOP or a BOI whether incorporated or not, a local authority and every artificial juridical person, not falling within the previous sub clauses. Consequently,....

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....ium is paid by the employer." 7. The Circular notes that there were certain doubts on the taxability of the income, including bonus, received from such policies and as regards whether the premium paid should be allowed as capital or as revenue expenditure. The circular clarifies that the Act lays down the tax treatment for a Keyman Insurance Policy. The circular clarifies that the premium paid on a Keyman Insurance Policy. The circular clarifies that the premium paid on a keyman Insurance Policy is allowable as business expenditure." (iii) The Hon'ble Division Bench of the High Court of Delhi in the case of Commissioner of Income Tax &ORS Vs Rajan Nanda & ORS., reported in 2012(Volume 349) ITR 8(Delhi), held as follows: "25. After giving our due and thoughtful consideration to the submissions of the parties of both sides, we feel that the assessee has been able to make out a case in its favour and order of the Tribunal does not call for any interference. We are persuaded by the following reasons in support of this vies of ours: (i) The Department has itself allowed the expenditure incurred on the premium paid for keyman insurance policies in previous years as business e....