2015 (8) TMI 372 - HC - Income Tax

Disallowance of business expenditure claimed in respect of keyman insurance policy - ITAT deleted the addition - AO by the order treated the entire sum of ₹ 2.10 crores as business income in the hands of the Assessee. He also treated the sum of ₹ 50 lakhs as capital gains - Held that - The AO by the order dated 24th December 2009 treated the entire sum of ₹ 2.10 crores as business income in the hands of the Assessee. He also treated the sum of ₹ 50 lakhs as capital gains. - Decided against revenue.

Summary

Issues:
1. Disallowance of business expenditure claimed for 'keyman insurance policy' by the Revenue.
2. Treatment of a sum of Rs. 50 lakhs offered to tax by the Assessee as capital gains for AY 2007-08.

Analysis:
1. The High Court addressed the issue of disallowance of business expenditure claimed for a 'keyman insurance policy' by the Revenue for AYs 2007-08 and 2008-09. The Revenue contended that the policy held by the Assessee did not qualify as a keyman insurance policy as per IRDA circulars. The Court noted that the keyman insurance policy aims to indemnify the company for the loss of earnings due to the death of a valuable employee. The Revenue argued that the policy holder should not be the sole proprietor or own a major share in the company. However, the Court emphasized the principle of consistency and cited previous deductions allowed by the Revenue for the same policy. The Court held that no substantial question of law arose in this regard and dismissed the appeal.

2. Regarding AY 2007-08, the Court examined the treatment of Rs. 50 lakhs offered to tax by the Assessee as capital gains. The Assessee intended to purchase flats but canceled the booking due to non-delivery by the seller. The Assessee received a refund of Rs. 2.10 crores and offered Rs. 50 lakhs as capital gains. The AO treated the entire sum as business income, but the CIT (A) and ITAT upheld the Assessee's claim for capital gains. The Revenue, at a later stage, argued that the Rs. 50 lakhs should be treated as business income. The Court found no such plea earlier and declined the Revenue's attempt to change its stand. Consequently, the Court dismissed the appeal, stating no substantial question of law required examination from the ITAT's order.

In conclusion, the High Court dismissed the appeals, emphasizing the importance of consistency in tax assessments and rejecting the Revenue's attempt to alter its stance on the treatment of income.