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TMI Blog2016 (5) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... rubber products along with also involved in loans and investments. The return of income was filed disclosing the total income of Rs. 27,82,963/- on 29-09-2009. Notices under section 143(2) and 142(1) of the Act issued and in response to such notices, the Ld.AR appeared filed various relevant details before the AO. 4. During the assessment proceedings, the AO found that the assessee has paid an amount of Rs. 45 lakhs in cash towards insurance premium for its three directors having coverage for five years and the sum assured being 75 lakhs. The assessee submitted that its policy to protect the company from any risk that it may sustain by losing the valuable services of their directors and its senior staff from any eventuality by any accident or death. AO added Rs. 45 laks to the total income of the assessee for non explanation of how the services of the said directors are being utilized for the benefit of business and thereto earn profits and for not following principle of "key man policy". The CIT-A, in first appeal, was of the view that it is assessee's decision as to who is the key man to be protected against any risk and found satisfied by the educational qualifications of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder a contract of employment. The latter part makes it clear that a keyman insurance policy for the purposes of cl. (10D) is not confined to a situation where there is a contract of employment. Clause (10D) relates to the treatment for the purpose of taxation of moneys received under an insurance policy. In this appeal, the Court has to determine the question of expenditure incurred towards the payment of insurance premium on a keyman insurance policy. The circular which has been issued by the CBDT clarifies the position by stipulating that the premium paid for a keyman insurance policy is allowable as business expenditure. In the present case, on the question whether the premium which was paid by the firm could have been allowed as business expenditure, there is a finding of fact by the Tribunal that the firm had not taken insurance 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 a partner. The object and purpose of a keyman insurance policy is to protect the business against a financial set back which may occur, as a result of a premature death, to the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee contended that there is no limitation for a private limited company to pay remuneration out of its net profit. The assessee also submitted that said director is based in Pune exclusively dealing with Tata Motors for the benefit of assessee and he raised business with Tata Motors worth Rs. 614.86lakhs and relied on the case laws. The CIT-A examined the details of the said Director Sri Sunil Kumar Jain and found that he studied in U.S.A. and has vast experience of business development with variety of industries. Having found his gross total income of Rs. 73,68,380/- for assessment year 2009-10 and payment of income tax of Rs. 23,84,897/- held that he is a full- time working director does not falls in terms of section 40 A(2)(a) of the Act and deleted the adhoc disallowance of Rs. 10,00,000/-. 11. The learned DR relied on the order of AO. The learned AR relied on the order of CIT-A . 12. Heard both parties and perused the relevant material on record. The question before us is as to whether the CIT-A is justified in holding the disallowance u/s 40A(2)(a) as unsustainable. For the sake of better understanding let us examine the said provision (2) (a) Where the assessee incurs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the context of case on hand. 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". 16. The bare reading of the above suggests that in order to qualify or the true test for qualification of expenditure under s. 37 of the Act is that it should be incurred wholly and exclusively for the purposes of business and the expenditure should not be towards capital account. 17. The Hon'ble HIGH COURT OF DELHI in the case of COMMISSIONER OF INCOME TAX vs. SAMTEL COLOR LTD reported in 326 ITR 0425, the facts involved therein was that the assessee has paid corporate membership fee to Indian Habitat Centre and Sports & Cultural Club, Noida amounting to Rs. 5 lakhs and Rs. 1 lakh respectively. The AO disallowed the expenditure as it does not bear any nexus with the business carried on by the assessee and the CIT(A), on appeal, directed the AO to disallow 20% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the plea of the learned Departmental Representative that the decision in Alembic Chemical Works Co. Ltd. (supra), is not applicable to the facts of the assessee's case. In fact, their Lordships referred to various decisions particularly the decision in the case of City of London Contract Corporation vs. Styles (1987) 2 Tax Cases 239 wherein broad area of distinction is pointed out. It is held in that case that the outlay on the 'acquisition of the concern' would be capital while an outlay in 'carrying on the concern' is revenue. The Court further referred to the following observations in the case of Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC) : TC 16R.841 : "If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. The aim and object of the expenditure would determine the character of the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 43,571/- on account of cesstion of the liability u/s 41(1) of the Act. The AO found that the amount as indicated above has remained as unclaimed by creditors for a considerable period of time. For not offering proper explaination the A.O. added the amount to the total income of the assessee. Before the CIT-A the assessee contended that the addition made by the A.O. is not sustainable in the absence of any concrete proof that the suppliers given up their claim. The CIT-A was of the view that the onus is on assessee to establish that the liability is still existing having failed so confirmed the addition by the A.O. Before us, the learned AR submitted that the said issue is covered by order of B bench, Kolkata Tribunal in ITA1345/KOL/2011 for assessment year 2008-09 . 5. We find from the above facts that these are trade creditors admittedly coming from earlier years being opening balance. We also find from the record that the assessee has not written-off the liability or liability has not ceased or remitted. In such circumstances, now we have to go to the provisions of section 41 (l) of the Act and see the legal possession. Section 41 (1) would apply in a case where there has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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