2015 (9) TMI 1114 - AT - Income Tax

Disllowances towards premium of keyman insurance policies - Held that - What constitutes a keyman insurance policy under section 10(10D) is not dependent on what is it treated even by the insurer; as long as the assessee is allowed to take life insurance policy on its keymen, as have been undisputedly taken in this case, the same satisfies the requirement of Section 10(10D). What can be sold as a life insurance policy taken by a business entity for its employee, former employee or any other person important for business of such an entity is between the insurance regulator and insurance service provider. However, once it has been sold as a life insurance policy on the keyman to the business, as long as it is in the nature of life insurance policy, whether pure life cover or term cover or a growth or guaranteed return policy, it is eligible for coverage of Section 10(10D). It is not open to us to infer the words which are not there on the statute and then proceed to give life and effect to the same. In view of these detailed discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and delete the impugned disallowance. See case of Suri Sons vs. Addl. CIT 2015 (9) TMI 798 - ITAT AMRITSAR - Decided in favour of assessee.

Issues Involved:
1. Disallowance of premium paid on Keyman Insurance Policies.
2. Applicability of Section 14A of the Income Tax Act, 1961.
3. Commercial expediency of taking Keyman Insurance Policies.
4. Reopening of assessment for AY 2005-06.

Issue-wise Detailed Analysis:

1. Disallowance of Premium Paid on Keyman Insurance Policies:
The primary grievance of the assessee was the disallowance of premiums paid on Keyman Insurance Policies amounting to Rs. 1,99,99,941/- for AY 2006-07 and 2007-08, and Rs. 2,00,00,000/- for AY 2005-06. The tribunal observed that the material facts of the case were similar to those in the case of Suri Sons vs. Addl. CIT, where it was held that the premiums paid on such policies are allowable as business expenditure. The tribunal emphasized that the key requirements for a policy to qualify under Section 10(10D) are that it should be a life insurance policy taken by the assessee on the life of another person who is connected with the business of the assessee. The tribunal rejected the Revenue's argument that only pure life insurance policies qualify, stating that such a requirement is not specified in the statute. The tribunal also noted that IRDA guidelines, which were referred to by the Revenue, have no bearing on the interpretation of the Income Tax Act.

2. Applicability of Section 14A of the Income Tax Act, 1961:
The tribunal noted a consensus between the parties that Section 14A, which deals with disallowance of expenditure in relation to income not forming part of total income, does not apply to the facts of this case. This is because the receipts in question were not exempt under Section 10(10D). Therefore, no disallowance could be made on the grounds that the payment of the policy premium results in tax-exempt income.

3. Commercial Expediency of Taking Keyman Insurance Policies:
The tribunal addressed the Assessing Officer's objections regarding the commercial expediency of taking Keyman Insurance Policies. The tribunal cited the Hon'ble Delhi High Court's decision in CIT vs. Rajan Nanda, which upheld that premiums paid on Keyman Insurance Policies are allowable as business expenditure. The tribunal rejected the Revenue's argument that the policies were taken for the benefit of the partners rather than the firm, noting that the policies were taken to safeguard the business against potential disruptions due to the death of key personnel. The tribunal also dismissed the objections based on the fall in turnover and the assignment of policies to partners, stating that these factors do not negate the commercial expediency of taking such policies.

4. Reopening of Assessment for AY 2005-06:
The assessee also raised grievances against the reopening of the assessment for AY 2005-06. However, the tribunal noted that no specific arguments were advanced in support of this grievance. Consequently, this grievance was dismissed for want of prosecution.

Conclusion:
The tribunal allowed the appeals, deleting the disallowances of premiums paid on Keyman Insurance Policies for the assessment years in question. The tribunal upheld the assessee's grievances and provided relief accordingly. The reopening of the assessment for AY 2005-06 was dismissed due to lack of prosecution.

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