1985 (10) TMI 80 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of insurance premium u/s 36(1)(i) of the Income-tax Act, 1961.
2. Deductibility of insurance premium u/s 37(1) of the Income-tax Act, 1961.

Summary:

Issue 1: Deductibility of Insurance Premium u/s 36(1)(i)
The assessee, a registered partnership firm, claimed deduction of Rs. 9,839 paid as insurance premium for life insurance policies taken on the lives of its partners, including a minor, u/s 36(1)(i) of the Income-tax Act, 1961. The Income-tax Officer disallowed the claim, leading to an appeal to the Appellate Assistant Commissioner, who allowed the deduction. The Revenue's appeal to the Appellate Tribunal was dismissed, prompting a reference to the High Court. The High Court examined whether the insurance policies covered the risk of damage or destruction of stocks or stores used for business purposes. The court concluded that the policies were taken to ensure liquid cash availability to pay off the legal heirs of a deceased partner, not to cover the risk of damage or destruction to stocks. Therefore, the insurance premium did not qualify for deduction u/s 36(1)(i).

Issue 2: Deductibility of Insurance Premium u/s 37(1)
The court then considered whether the insurance premium was deductible u/s 37(1). The sub-section allows deduction of any expenditure laid out wholly and exclusively for business purposes, provided it is not capital expenditure or personal expenses. The court found that the insurance policies were taken to secure liquid cash, a capital asset, for paying off the legal representatives of a deceased partner. Consequently, the expenditure on insurance premiums was deemed capital expenditure and not deductible u/s 37(1).

Conclusion:
The High Court answered the reference in the negative, ruling in favor of the Revenue and against the assessee. The insurance premium of Rs. 9,839 was not an allowable deduction u/s 36(1)(i) or u/s 37(1) of the Income-tax Act, 1961. The court also rejected the assessee's request for a certificate of fitness to appeal to the Supreme Court.