2012 (6) TMI 544 - HC - Income Tax

Keyman Insurance Policy - premium paid for the partners was a revenue expenditure deductible under Section 37 or not - Held that - In computing the total income of a previous year of any person as per Section 10(10)D any sum received under a Keyman insurance policy is not to be included - Keyman insurance policy means a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person and going through the Explanation given in the said section the partner definitely comes within the purview of the person who is connected with in any manner whatsoever with the business of the firm - The premium paid on the Keyman Insurance Policy is allowed as business expenditure as the amendment had taken effect from October 1 1996 - in favour of assessee.

Summary

Issues:
- Interpretation of Section 37 of the Income Tax Act regarding deductibility of premium paid for partners under Keyman Insurance Policy.

Analysis:
The High Court judgment in this case involved an appeal under Section 260A of the Income Tax Act by the Revenue against the order of the Income Tax Appellate Tribunal. The sole issue raised by the Revenue was whether the Tribunal erred in holding that the premium paid for partners under the Keyman Insurance Policy was a revenue expenditure deductible under Section 37 of the Income Tax Act. The Court referred to the provisions of Section 10(10D) of the Act to analyze the matter. The Court noted that partners fall within the definition of persons connected with the business of the firm as per the Explanation provided in the said section.

Furthermore, the Court considered the Finance Act, 1996, which stipulated that sums received by organizations under Keyman Policy should be taxed as business profits. It was highlighted that the surrender value of the policy or the sum received by the employee (Keyman) at retirement should be treated as "profits in lieu of salary" for tax purposes. For individuals without employer-employee relationships, the surrender value or sum received under the policy should be considered income from other sources. The premium paid on the Keyman Insurance Policy was allowed as a business expenditure, with the amendment effective from October 1, 1996.

Based on the above analysis, the High Court concluded that the Tribunal was correct in holding that the premium paid for a partner was deductible under Section 37 of the Act. The Court found no substantial question of law involved in the appeal and subsequently dismissed it. The judgment provided a detailed interpretation of the relevant provisions of the Income Tax Act and the Finance Act, establishing the deductibility of the premium paid for partners under the Keyman Insurance Policy as a legitimate business expenditure under Section 37.