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TMI Blog2016 (5) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure under Section 37(1) of the Act. It was further noted that the object and purpose of the said policy is to protect the business against a financial set back which may occur as a result of a premature death, to the business or professional organization. There is no rational basis to confine the allowability of the expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. The said policy when obtained to secure the life of a partner against a disruption of the business is equally for the benefit of the partnership business which may be affected as a result of premature death of a partner. Thus, the premium on the 'Keyman Insurance Policy' of partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was issued on 14.9.2009. Subsequently, notice under Section 142(1) of the Act was issued on 7.1.2010 along with preliminary questionnaire and again notice dated 28.4.2010 under Section 142(1) of the Act along with detailed questionnaire was issued. The Assessing Officer vide order dated 3.12.2010 (Annexure A-1) framed the assessment under Section 143(3) of the Act at nil income and made the additions of ₹ 21,52,812/- and ₹ 1,27,49,983/- on account of disallowance of excess depreciation and disallowance of premium paid on 'Keyman Insurance Policy' taken on life of the partners. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity the CIT(A) ]. The CIT(A) vide or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. The said policy when obtained to secure the life of a partner against a disruption of the business is equally for the benefit of the partnership business which may be affected as a result of premature death of a partner. Thus, the premium on the 'Keyman Insurance Policy' of partner of the firm is wholly and exclusively for the purposes of business and is allowable as business expenditure. The relevant observations read thus:- 4. In order to appreciate the submission which has been made a reference to some of the relevant provisions of the Income Tax Act, 1961 would be in order. Section 2(31) defines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee of the person who subscribes to the policy of insurance or is or was connected in any manner whatsoever with the business of the subscriber to the policy. In other words, a Keyman Insurance Policy for Clause (10D) is not confined to a policy taken by a person on the life of an employee, but also extends to an insurance policy taken with respect to the life of another who is connected in any manner whatsoever with the business of the subscriber. 6. The Central Board of Direct Taxes has issued a circular on 18th February, 1998 (Circular 762) [(1998) 145 CTR (St) 5] which clarifies the scope and purpose of the provision. Paragraph 14.1 of the circular states thus : 14.1 A Keyman Insurance Policy of the Life Insurance Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords is or was connected in any manner whatsoever with the business of the subscriber are wider that what would be subsumed under a contract of employment. The latter part makes it clear that a Keyman Insurance Policy for the purposes of Clause (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 Central Board of Direct Taxes clarifies the position by stipulating that the premium paid for a Keyman Insurance Policy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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