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TMI Blog2012 (5) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... existence of other types of relationship apart from employer-employee relationship for claiming deduction on account of premium paid on Keyman Insurance Policy as business expenditure - in favour of assessee. - IT Appeal NO. 7303 (MUM.) of 2010 - - - Dated:- 2-5-2012 - N.V. VASUDEVAN, RAJENDRA, JJ. ORDER N.V. Vasudevan, Judicial Member This is an appeal by the assessee against the order dated 16/8/2010 of CIT(A)-26, Mumbai relating to assessment year 2007-08. Ground No. 1 raised by the assessee reads as under: "1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 7,40,646/- made by the learned Income Tax Officer hereafter referred to as Assessing Officer considering the gross receipts as Rs. 35,91,680/- against the actual receipts is Rs. 32,00,000/-.,) the learned Assessing Officer be directed to consider additional amount only of Rs.3,48,966/- (Rs.32,00,000/- less Rs. 28,51,034/- being amount of receipts claimed in the return) and not Rs. 7,40,646/- (Rs. 3,59,16,680/- less Rs. 28,51,034/-) while computing the total income of the appellant." 2. The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the ease, findings of the Assessing Officer and rival submission of the Appellant, carefully. I do not subscribe to the arguments advanced by the Ld. AR that service tax was receivable and it was not to be included in gross receipts. When bills were issued on 12.04.2006, 08.05.2006, 05.06.2006, 26.06.2006, 04.08.2006, 09.09.2006 and 31.09.2006 there was no reason for not including the amount of taxes in gross receipts shown in Profit Loss A/e. It is very obvious that while filing return of income Appellant has concealed the basic information of difference in amount may be on account of service tax or on account of other reason. Only while making the investigation and inquiry from M/s D.K. Pharma Chem Pvt. Ltd., it was found by the AO that 2 invoices dated 13.12.2007 and 14.03.2007 were issued by the Appellant having mention of Consultation charges of Rs. 26,93,760/- and Rs. 8,97,920/-. Thus, there was a total bill amount of Rs. 39,51,680/- whereas, Appellant had shown only an amount of Rs. 28,51,034/-. The facts of the case further reveals that basic consultation charges raised by the Appellant by these two invoices were of Rs. 24,00,000/- and Rs. 8,00,000/- respectivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of Rs. 7,40,646/- while furnishing the return of income. As such, I find the substance and propriety in the finding of the Ld. AO for making addition of Rs. 7,40,646/- to the total income of the Appellant. Because of above facts concealment admitted by Ld. AR, the case of CIT v. Udaipur Distillery Co. Pvt. Ltd. (1) 2004, 368 ITR 305 (Raj) is not relevant at all as facts of the case is altogether is having different footing. Therefore, the arguments advanced by Ld. AR arc not tenable. Considering the facts and inability f the Appellant to explain less disclosure of consultation charges as pointed out b the Assessing Officer and also found during the course of Appellate proceeding, the addition of Rs. 7,40,646/- made by the Assessing Officer is sustained." 5. Aggrieved by the order of the CIT(A) the assessee has raised Ground No. 1 before the Tribunal. 6. We have heard the rival submissions. The learned DR relied on the orders of the Revenue authorities. The learned Counsel for the Assessee reiterated submissions made before the Revenue authorities. 7. We have considered the rival submissions. As per the Service Tax Law, Service Tax is payable as and when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this Act in respect of- ( a ) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or ( b ) ." Reading of this section makes it clear that any deduction claimed of any amount paid by way of an tax, duty, cess, etc. will be allowed only if the said sum is paid. In the present case the liability to pay service tax itself has not, crystallized owing to non receipt of payment. Thus, the question of claiming deduction of such tax does not arise. The Chennai Bench of ITAT in the case of Assistant Commissioner of Income-tax, Media Circle-II, Chennai v. Real Image Media Technologies (P.) Ltd. [2008] 114 ITD 573 (CHENNAI) had an occasion to examine identical case. It was held that, the rigor of the provision of section 43B would be attracted only to a case where an item is allowable as deduction but because of the failure to make payment, such deduction would not be allowed. The rigor of section 43B might be applicable to the 'case of sales-tax or excise duty but the same could not be said to be the position in case of service-tax because of two reasons. Firstly, the assessee is never al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Sec. 43B cannot be invoked unless the Assessee has claimed by way deduction the amounts specified u/s. 43B without making actual payment. The following were the relevant observations of the Court in this regard: "5. Learned counsel for the Revenue urges that the decision of the Calcutta High Court in Chowringhee Sales Bureau P. Ltd. [1977] 110 ITR 385, covers the point in its favour. We are unable to agree. In that case, it was held that the liability to pay sales tax arose the moment a sale or purchase was effected and if an assessee was maintaining accounts on the mercantile system it would be entitled to deduction of the estimated liability of sales tax, even though such sales tax had not been paid to the sales tax authorities. The question there concerned was the entitlement of the assessee to deduction under section 10(1) and 10(2)(xv) of the Indian Income-tax Act, 1922. The decision is clearly distinguishable in its application to the present case. Here we are concerned with an assessee who has not even claimed any deduction on the ground of service tax and has not debited the amount to its profit and loss account. Moreover, the provisions of section 43B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance policies by paying a premium of Rs.200000 per annum on the lives of two key persons of the firm viz., Shri.Vikas Puri and Smt.Chitra Iyer Puri, who were partners of the Assessee firm. The Assessee was the proposer of the policies. The beneficiary of the policies were the proposer, life assured or assignees where there is valid assignment. The premiums were payable for three years. The nomenclature of the policy was shown as "Keyman Insurance Policy". The AO disallowed the claim of deduction on account of premium paid on such policies of an amount of Rs. 42,00,000 paid by the appellant firm for effecting insurance on the life of the working partners treating the same as expense in the nature of expenses incurred for the enjoyment of personal benefits of the partners. The Assessing Officer opined that, since the words 'Key man Insurance" are not printed over the policy document, the same cannot partake character of a "Key Man Insurance Policy." This apart, the Assessing Officer opined that, since the policies under question were assignable in nature, they could not be treated as "Key Man Insurance Policies." 15. Before CIT(A), the Assessee submitted that the Key Man Insura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival submissions. The maturity proceeds of the Key Man Insurance Policy is taxable and premium paid on such policies is deductible. The CBDT in Circular No. 762 dated February 18, 1998 has made this aspect very clear. It is not necessary that a key man insurance policy should be only in the name of the employees and not partners Mumbai ITAT in the case of ITO v. Modi Motors (ITA No.6900/MUM./2006, DATED 12-12-2008)(MUM-ITAT) 31 DTR Trib 347/27 SOT 476 (Mum.) had to deal with a case where the Assessee, a partnership firm, claimed deduction u/s 10(1OD) of the Act on account of Keyman Insurance Policy premium paid on the life insurance policies of two of its working partners. The AO disallowed the claim on the ground that partnership firm in not a separate legal entity. The CIT(A) allowed the assessee's claim holding the firm and its partners as separate persons. The tribunal held that for the purposes of the Act, partnership firm is a separate entity than that of its partners under the Income-tax Act and if there exist any specific provision in the Income-tax law modifying the partnership law then, such specific provision shall be applied and if the tax law is silent on a speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration such clarifications issued by the CBDT. ( iii ) The nature of expenditure incurred on keyman insurance policy has even been judicially considered and Bombay High Court has held in B.N. Exports ( supra ) that this expenditure is to be allowed as business expenditure. ( iv ) The argument of Mr. NP. Sahni, learned counsel for the Revenue that taking such keyman insurance policy every year and thereafter assigning the same to the beneficiaries may be treated as colourable device, may not be correct. Though this argument appears to be attractive when we look into the fact that the assessee had been taking the policies and thereafter assigning the same year after year in favour of the beneficiaries, what cannot be ignored that this course of action is permitted by the Department itself as stated in the Circular dated 18.2.1998. ( v ) The expenditure incurred has to be tested on the touchstone of Section 37 of the Act and to see as to whether such expenditure is permissible or not. No doubt, the object of a keyman insurance policy is to enable business organizations to insure the life of a keyman in order to protect the business against the financial loss which ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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