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TMI Blog2013 (5) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... made to foreign agent and payment of insurance premium of partners‟ insurance, against which appeals were filed before the ld. CIT(A) and the ld. CIT(A) accepted the contentions of the assessee that deduction of TDS on payment of commission to foreign agent is not required as the foreign agents are not liable to pay taxes and accordingly allowed the claim, but with regard to the payment of partners‟ insurance premium, the ld. CIT(A) has rejected the claim of the assessee and confirmed the disallowance. 4. Against respective grievances, the assessees as well as the Revenue have preferred appeals before the Tribunal. 5. Through appeals in ITA Nos.433 434/LKW/2011, the Revenue has assailed the orders of the ld. CIT(A) on various grounds, but they all relate to the deletion of addition made on account of non-deduction of TDS on payment of commission to foreign agent without appreciating the facts brought on record by the Assessing Officer during the course of assessment proceedings. 6. The ld. D.R., besides placing heavy reliance upon the orders of the Assessing Officer, has contended that earlier circular issued by the Board vide Circular No.23 of 1969 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lower authorities and the judgments referred to by the parties, we find that undisputedly the assessee is an 100% export oriented unit and execute its orders by direct visit to foreign countries and through agent also whom they paid the commission for the services rendered outside India in connection with their business. The assessee has made payment of commission to foreign agent outside India for the services rendered outside India for the assessee. The Revenue has raised a dispute that payment of commission cannot be allowed without deducting TDS, having relied upon the Circular No.7 of 2009 whereby earlier Circular No.23 of 1969 dated 23.7.1969 and Circular No.786 dated 7.2.2000 were withdrawn. Our attention was invited to the fact that payments were made during the financial year 2007-08 and at the relevant point of time old Circular No.23 of 1969 dated 23.7.1969 and Circular No.786 dated 7.2.2000 were very much in force and Circular No.7 of 2009 was not issued. Therefore, the assessee was justified in non-deduction of tax on payment of commission to foreign agent following the old Circular No.23 of 1969 dated 23.7.1969 and Circular No.786 dated 7.2.2000. This aspect was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of earlier circulars with effect from 22.10.2009 has no bearing in the instant case. In our view, the above said decision is squarely applicable to the facts of the present case. It is worth mentioning that the previous year involved in 2006-07 relevant to the assessment year under consideration. At the relevant time, in view of the C.B.D.T. circular No.23 dated 23.7.1969 and circular no.786 dated 7.2.2000, the assessee was not obliged to deduct the tax under Section 195 of the Act and the circular No.7 of 2009 dated 22.10.2009 withdrawing the circular No.23 of 1969 and circular No.786 of 2000 will be operative only from 22nd October, 2009 and not prior to that date. We may also mention that the decision relied upon by the AO in the case of Van Oord ACZ India (P.) Ltd. vs. Addl.CIT (supra) has been overruled by the Hon'ble Delhi High Court which is reported in (2010) 230 CTR (Del.) 365, wherein the Hon'ble High Court has concluded as under: Obligation to deduct tax at source under s. 195 is attracted only when the payment is chargeable to tax in India: IT authorities having accepted: that the non-resident recipient is not liable to pay any tax in India, the assessee-paye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission to non-resident. We, therefore, find ourselves in agreement with the order of the ld. CIT(A) on this issue and confirm the same. 11. Through ITA Nos.347 348/LKW/2011, the assessees have assailed the orders of the ld. CIT(A) that the ld. CIT(A) has erred in confirming the disallowance of partners‟ insurance premium debited to the profit and loss account. 12. The facts in brief culled out from the orders of the lower authorities are that the premium for the life insurance policies purchased in the name of partners were disallowed by the Assessing Officer though it was emphatically argued before him that the policies have been taken in the status of keyman policy and the policies are quite old and premium has been paid year-after-year which has been allowed by the Assessing Officer himself while completing the assessment for earlier years. The Assessing Officer has disallowed the claim of payment of premium on the insurance policies purchased in the name of partners following the Circular issued by IRDA on 30.1.2006. While doing so the Assessing Officer has relied upon the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Khodidas Motiram Panc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are the main constituents and important for the business of the assessee-company. Simply the words Keyman Insurance Policy is not mentioned in the policy, the object of the policy cannot be changed. Therefore, the payment made by the assessee for the premiums of the insurance policies is an allowable expenditure. The ld. counsel for the assessee has placed reliance upon the judgment of Hon'ble Bombay High Court in the case of CIT vs. B.N. Exports, 231 CTR 227, in which their Lordships have held that Keyman insurance policy is not confined to a situation where there is a contract on employment. The premium on the policy of the partner of the employee is incurred wholly and exclusively for the purpose of business and is allowable as business expenditure. 15. The ld. D.R., on the other hand, has refuted the contention of the ld. counsel for the assessee with the submission that as per definition of Keyman policy, its concept can only be applied when the policy is purchased in favour of the employee of the firm or a Company. The partner of the firm cannot be called to be its employee. Moreover, there is no narration in the policy that the policies are Keyman Policies. These ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the preceding three years and annual remuneration of keyman. Medical fitness of key employees is one of the requirements of the policy. Apart from the elaborate eligibility norms, the annual premium is linked with companies‟ profits indicating that it is primarily intended to the employers of keyman and in the case of partnership insurance to the firm, while the life, that is insured is that of keyman, because the company/firm has an insurable interest on such life. 17. The Hon'ble Gujarat High Court in the case of CIT vs. Khodidas Motiram Panchal (supra) has taken altogether a different stand and has held that life insurance premia paid by the assessee-firm on the policies of the partners is not deductible under section 37(1) of the Act as the amount paid by way of insurance premium is for security of liquid cash in the event of death of one of the partners, for buying shares of deceased partners. The judgments was rendered in 1985 by the Hon'ble Gujarat High Court, but later on this issue came up before the Hon'ble High Court of Bombay in the case of CIT vs. B.N. Exports (supra). Their Lordships of Hon'ble Bombay High Court have examined this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the recipient. Since the assured sum received is chargeable to tax at the time of its receipt, the payment of premium is revenue expenditure and is allowable under section 37(1) of the Act. Similar was the position in the instant case that life insurance policies were purchased in the names of the partners by the assessee-firm and at the time of maturity, the sum assured is to be payable to the Proposer i.e. assessee-firm. Therefore, it should be taxable at the time of receipt of the sum assured. Undisputedly there is no mention of the Keyman Policy on the Policy Certificate, but the benefits of the insurance policies are almost same. In case of Keyman policy, the terms and conditions are quite clear that on maturity of the policy the sum assured is taxable in the hands of the recipient. But in the instant case it is not clear from the impugned policy whether these terms and conditions are envisaged while issuing the policy in the name of the partners. But the object of purchase of policy is the same. We are, therefore, of the view that the premium paid on the insurance policies on the partners is allowable as expenditure under section 37(1) of the Act, but in order to give ..... X X X X Extracts X X X X X X X X Extracts X X X X
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