2010 (6) TMI 656 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 75,00,000 made by the Assessing Officer on account of expenditure towards keyman insurance policy.
2. Determination of whether the insured individuals qualify as key persons of the company.

Summary:

Issue 1: Deletion of Addition of Rs. 75,00,000

The Revenue appealed against the order dated December 17, 2009, by the Commissioner of Income-tax (Appeals) concerning the assessment year 2006-07. The primary issue was the claim of Rs. 75 lakhs made by the assessee for the deduction towards payment of premium on keyman insurance policy for two working directors, Ms. Priyanka Mittal and Mrs. Binita Gupta. The Assessing Officer disallowed the claim, arguing that the insured individuals were neither directors nor held managerial posts and that the expenses were not laid out wholly and exclusively for the assessee's business as per the memorandum of association. The Commissioner of Income-tax (Appeals) reversed this decision, allowing the claim by noting that both individuals were directors and key persons of the company, and the premium paid was allowable as business expenditure per the Central Board of Direct Taxes Circular No. 762, dated February 18, 1998.

Issue 2: Determination of Key Persons

The Assessing Officer contended that Ms. Priyanka Mittal and Mrs. Binita Gupta were not key persons as their business decisions required approval from other directors, and there was no employer-employee relationship evidenced by the lump sum salary payments. The Commissioner of Income-tax (Appeals) found that both individuals were qualified and involved in the day-to-day functioning of the company, thus qualifying as key persons. The Tribunal upheld this view, noting that the policies taken on their lives had significant effects on the business's profitability and that the maturity amount received from these policies was included in the company's income, demonstrating compliance with the relevant circular and tax laws.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the Commissioner of Income-tax (Appeals)'s decision to allow the deduction of Rs. 75 lakhs towards the keyman insurance policy premium, recognizing the insured individuals as key persons of the company.