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TMI Blog2010 (6) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the company, therefore, it cannot be said that these employees are key persons of the company and the said expenditure cannot be allowed." 3. From the grounds, it emerges that the only issue involved in this appeal is with regard to the claim of Rs. 75 lakhs made by the assessee on account of deduction towards payment of premium on keyman insurance policy of its two working directors/employees, namely, Ms. Priyanka Mittal and Mrs. Binita Gupta. 4. In the course of assessment proceedings, the assessee vide order sheet dated November 12, 2008 was asked to justify the claim of keyman insurance policy of Rs. 75 lakhs along with evidence in support. The assessee vide letter dated November 21, 2008 furnished the evidence of payment of keyman insurance premium of Rs. 75 lakhs as under : Priyanka Mittal Rs. 37.50 lakhs Binita Mittal Rs. 37.50 lakhs 5. The Assessing Officer again vide order sheet dated November 26, 2008 asked the assessee to show cause as to why the keyman insurance premium paid be allowed as business expenses as the same is not incurred for insurance of any of the keyman of the assessee, namely, directors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y are involved only in day-to-day functioning of the assessee-company, but on the business decisions of the assessee-company is taken by them with the approval of the directors, and it makes it clear that these two ladies are not key persons as their decisions are always subject to the approval of the directors. ( iii ) The expenses on account of keyman insurance policy cannot be said to be laid out wholly and exclusively for the assessee's business as per memorandum of association. ( iv ) The expenses on account of keyman insurance cannot be allowed under section 37(1) of the Act as the main business of the assessee-company is not as per the main object mentioned in the memorandum of association, for which the company was incorporated. ( v ) There was no supporting evidence of the employer or employee relationship inasmuch as, the salary paid to these two persons were paid in lump sum as against normal periodical payment generally paid to employees. The lump sum payment to these two persons indicates that there was no employer-employee relationship, and the assessee's claim is afterthought, and purportedly made only to show it look like that the aforesaid two persons are the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 18, 1998 ([1998] 230 ITR (St.) 12), the Commissioner of Income-tax (Appeals) allowed the assessee's claim and reversed the Assessing Officer's order. The order of the Commissioner of Income-tax (Appeals), thus, runs as under : "I have carefully considered the assessment order and the submissions made by the learned authorised representative on the above issue. It is argued by the learned authorised representative that the impugned amount of Rs. 75 lakhs was paid by the appellant-company on account of keyman insurance policy obtained on the life of Ms. Priyanka Mittal and Mrs. Binita Gupta. It is argued that the said persons are employed as salaried directors in the appellant-company. The authorised representative has filed copy of Form 32 filed with the Registrar of Companies on January 13, 2006 as per which Ms. Priyanka Mittal and Mrs. Binita Gupta who were earlier additional directors of the company since January 31, 2005 were appointed as directors at the annual general meeting held on September 30, 2005. It is submitted by the learned authorised representative that the above copy of Form 32 was also submitted to the Assessing Officer on the last date of the assessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant is squarely covered by the aforesaid circular of the Central Board of Direct Taxes and hence cannot be rejected. The case law relied upon by the appellant also supports this view. Further, I find that the Assessing Officer has not disputed the fact that the appellant-company has subscribed to the keyman insurance policies in respect of the above two employees and has paid the impugned amount as premium on such policies and that the said employees are involved in a day-to-day functioning of the appellant-company and all the business decisions are taken by them, although subject to approval of other directors. Having accepted the above facts, disallowance of the said amount of expenditure by the Assessing Officer on various irrelevant and flimsy grounds certainly amounts to denial of justice and hence the same cannot be sustained. The addition of Rs. 75 lakhs on this ground is, therefore, deleted." 11. Hence, the Department is in appeal. 12. The learned Departmental representative submitted that the insurance policy taken on the lives of Ms. Priyanka Mittal and Mrs. Binita Gupta had no significant effect on the profitability of the assessee's business, they being merely a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as additional directors of the company on January 31, 2005, which was subsequently confirmed as director at the annual general meeting held on September 31, 2005. This fact is fully established from the copy of Form 32 filed with the Registrar of Companies on January 13, 2006. Both these ladies are qualified persons, being MBA from the University of South California and graduate from University of Delhi respectively. They have been paid salary of Rs. 1,50,000 each in the relevant financial year. They have been rendering services to the assessee-company in the course of carrying on its business activities. Therefore, the Assessing Officer's finding that they are not employees or they have no significant role to play in the business activities of the assessee-company, is not correct. The Assessing Officer has not brought any material except by drawing presumption that there were no employer and employee relationship between the assessee-company, and these two ladies. Therefore, in the light of the Board's Circular No. 762, dated February 18, 1998 ([1998] 230 ITR (St.) 12), these two ladies are to be treated as employees or directors, whose services had significant effect on the smoo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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