9911796707
TMI Blog2010 (9) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ished position of law that benevolent circular are binding and the department is expected to follow the same in the spirit in which the same is issued by the C.B.D.T. Hon'ble Bombay High Court in the case of B.N. Exports (2010 (3) TMI 186 - BOMBAY HIGH COURT) in similar facts and circumstances of the case held that where Keyman Insurance Policy was taken not for the personal benefit of the partner but for the benefit of the firm in order to protect itself against the set-back that may be caused on account of the death of the partner, the insurance premium was deductible. - AO directed to reconsider the issue in light of the decision of the Hon'ble Bombay High Court in the case of B.N. Exports (2010 (3) TMI 186 - BOMBAY HIGH COURT) as per law - ITA NO. 3691/AHD/2008 - - - Dated:- 30-9-2010 - ORDER Per N.S. Saini, Accountant Member : This is an appeal filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-IV, Surat, dated 18-8-2008. 2. The sole ground of appeal of the Revenue reads as under :- "On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals)-IV, Surat has erred in dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention that the expenditure is in the nature of capital expenditure is well-founded. By taking out these insurance policies, the assessee-firm desires to ensure the availability of liquid cash for payment to the legal representatives of the deceased partner in the event the surviving partners desire to continue the firm. When the share of the deceased partner is paid off, the shares of the surviving partners in the assets of the firm can be augmented. What is, therefore, sought to be acquired is capital, that is, liquid cash needed for buying the share of the deceased partner by paying off his legal representatives. If the amount received from the insurance company on the demise of the partner is a capital asset like any other amount borrowed by the partnership firm from third parties, what the partnership firm expends for acquiring that capital asset can only be said to be capital expenditure within the meaning of section 37(1) of the Act." 7. Hence, the sole purpose of taking out these insurance policies is to secure liquid cash at the time it will be needed to pay off the legal representatives of the deceased partner. If the amount paid by way of insurance premia is for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emium paid as Keyman insurance premium on life of partner on account of the want of any employee-employer relationship and absence of distinct separation between the firm and the partners. 12. Hence the following emerge from the above discussion regarding the deductibility of premium paid on partner's life: l The partner is not a Keyman of the firm, but constitutes the Firm l There is no employee-employer relationship between the firm and the partner. l The expenditure by the firm on the premium for insurance of Keyman is a capital expenditure. l The expenditure by the firm on the premium for insurance of Keyman is a personal expenditure by the partners. 13. On account of the reasons discussed above, the deduction of Rs. 14,38,100 claimed with regard to the premium of Keyman Insurance policy on life of partners is disallowed and added back to the taxable income. 14. On appeal, the ld. CIT(A) held as under :- "I have considered the submissions and find that the decision of Hon'ble Gujarat High Court relied upon by the Learned Assessing Officer pertains to A.Y. 1971-72. Subsequent to that section 2(24)(xi) was amended with effect from 1-10- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. M/s. B.N. Exports [2010] 323 ITR 178 (Bom.) and by the order of the Ahmedabad Bench of the Tribunal dated 6-3-2009 in the case of ACIT v. M/s. Gem Art ITA No. 1722/Ahd/.2008 for the A.Y. 2005-06 ACIT v. M/s. Gem Art ITA No. 2725/Ahd/.2007 for the A.Y. 2004-05 ORDER DT. 26-3-2010. Therefore, following the same the appeal of the assessee is allowed. 16. The Learned Departmental Representative on the other hand supported the orders of the lower authorities. 17. We have heard the rival submissions and perused the materials available on record. In the instant case the A.O. has disallowed the claim of the assessee for deduction of premium of Rs. 14,38,100 under Keyman Insurance Policy for the reason that the expenses were incurred on the life of the partner and there was no employer-employee relationship and absence of distinct separation between the firm and the partners. In appeal, the CIT(A) confirmed the disallowance. We find that the Hon'ble Bombay High Court in the case of B.N. Exports (supra) in similar facts and circumstances of the case held that where Keyman Insurance Policy was taken not for the personal benefit of the partner but for the benefit of the firm in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Bombay High Court in the case of B.N. Exports (supra) as per law after allowing reasonable opportunity of hearing to the assessee. 19. Before parting with the issue we would also like to observe that the Learned Assessing Officer has relied upon the decision of the Hon'ble Gujarat High Court in the case of Khodidas Motiram, Panchal (supra) for disallowing the claim of the assessee firm. We find that in the aforesaid decision the Hon'ble High Court has disallowed the claim of the assessee by treating the amount of premium paid in respect of Keyman's Insurance Policy as capital expenditure. However, in view of the subsequent position admitted by the Hon'ble C.B.D.T. which is the highest body for tax administration in the country that Keyman's Insurance premium can be treated as an allowable expenditure the benefit given by the Circular to the assessee cannot be taken away on the basis of earlier legal pronouncement. It is an established position of law that benevolent circular are binding and the department is expected to follow the same in the spirit in which the same is issued by the C.B.D.T. Therefore, this ground of the appeal is allowed for statistical purposes. Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
