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TMI Blog2018 (8) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... ny consequential relief, to which the assessee may be entitled to under the foregoing grounds of appeal, may kindly be granted to the assessee." 2. The brief facts of the case have been brought out by the ld. CIT(A) as under : 3. The appellant is engaged in the business of Design & Engineering, manufacturing and trading of vertical Roller Grinding Mill Systems & Components thereof for cement, steel, power plants and other mineral based industries. A return declaring total income of Rs. 19, 12, 54, 863/- was e-filed by the assessee on 30.09.2010. During the course of scrutiny, a perusal of the details placed on record revealed that during the above year, the assessee has claimed an amount of Rs. 15, 48, 654/- on account of medical insurance. Since an addition of Rs. 10, 91, 169/- during AY 2009-10 in the case of the assessee company was made in respect of payment of medical insurance premium covering the family members of the employees, vide further questionnaire dated, 13.11.2013, the assessee company was further required to furnish details of the relations in respect of whom premium has been paid and to show cause why premium paid for insurance of relatives of employees be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made before the authorities below and has also submitted a written synopsis before us, stating as under : 6.1 Allowability of the expenditure disallowed The allowability of this expense is governed by section 37(1). The main requisites laid down by the Supreme Court for allowability of expenditure u/s 37(1) are that the money paid out must be - a) wholly and exclusively for the purpose of the business or profession; and further b) must not be for: (i) Capital expenditure; (ii) Personal expense; or (iii) Expense of the character described in section 30 to section 36. In this connection we may also invite your attention to the decisions of Supreme Court in the following cases - CIT v. Indian Molasses Co. (P.) Ltd. [1970] 78 ITR 474 (SC) [for copy of this judgement pl refer pages 56 to 64 of the accompanying paper book - sl no. 8]; J.K. Cotton Mfrs. Ltd. v. CIT [1975] 101 ITR 221 (SC); Sassoon J. David & Co. (P) Ltd. v. CIT [1979] 118 ITR ITR 261 (SC). Section 37(1), generally provides for allowance of the residuary business expenditure. Therefore, business expenditure is allowable u/s 37, the sole condition precedent being the existence of nexus with the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect to whom the medical insurance premium has been incurred would reveal that the amount has been incurred for leave apart immediate family, towards the medical insurance of relatives like mother-in law of the managing director and sister of the other directors". The appellant respectfully submits that there were only 3 instances where insurance premium was paid for the distant family members of the employees and that the premium paid for such persons aggregated to Rs. 32, 274 details of which are as under: Name of the employee Name of the family member covered Relationship with the employee Insurance Premium (Amount Rs.) K. Subramanian Visalam Gopalakrishnan Mother-in-law 18, 070 AC Goyal Sushma Agarwal Sister 7, 102 AC Goyal Anju Rani Sister 7, 102 Total 32, 274 The above sum of Rs. 32, 274 has been included in the total premium paid of Rs. 67, 456 considered at para 5 above which was offered as disallowance before the CIT(Appeals). We may add that as per clause (iv) of the proviso to section 17(2)(viii), the reimbursement by the employer of the medical insurance premium paid by the employee for himself or any member of his fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther acts incidental to the carrying on a business (b) CIT v. Edward Keventer (Private) Ltd. 197286 ITR 370 The legitimate needs of the business of the appellant are required to be considered objectively from the point of view of a businessman and not of the Revenue to determine whether expenditure was wholly or exclusively laid out for the purpose of business and whether such expenditure was commercially expedient. The benefit derived by or accruing to the company must also be considered from the angle of a prudent businessman. The term 'benefit' to a company in relation to its business, it must be remembered, has a very wide connotation and may not necessarily be capable of being accurately measured in terms of pounds, shillings and pence in all cases. Both these aspects have to be considered judiciously, dispassionately without any bias of any kind from the view-point of a reasonable and honest person in business." (c) CIT v. Laxmi Cement Distributors Pvt. Ltd. [1976] 1041TR 711 (Guj) In this case, an employee of the assessee, sent abroad for training, died. Thereafter, the board of directors of the assessee passed a resolution to pay some compensation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judged from the point of view of the business and not from the point of view only of the Revenue. With respect, we follow the decision of this court in Edward Keventer Pvt. Ltd. [1972] 86 ITR 370, which has been affirmed by the Supreme Court. We also accept the contentions made on behalf of the assessee that a provision for payment of pension to the widow of an employee is neither unusual nor unnecessary. Such provisions are in consonance with the modern trend. Employees have generally come to expect such provisions as their normal due for the services rendered to their employer. Even in Government service, provisions have been made for payment of pension to the widows of Government servants. The Income-tax Act, 1961, recognises this trend and has provided for superannuation funds for the benefit not only of the employees but also of their widows. (e) Additional Commissioner of Income tax vs. Kuber Singh Bhagwandas [1979) 118 ITR 379 (MP)(FB) the Court In this case the Court held that to decide whether a payment of money or incurring of expenditure is for the purpose of the business and an allowable expenditure, the test applied is of commercial expediency and principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar disallowance made the AO in AY 2009-10 on an appeal filed by the assessee, CIT Appeals VIII, vide order dated September 18, 2014 upheld only the disallowance of premium paid for distant relatives amounting to Rs. 58, 401 and allowed the claim of insurance paid for the family members of the employees aggregating to 1, 032, 768. [For copy of the order of CIT Appeals VIII for AY 2009-10 dated September 18, 2014 pI refer pages 97 to 118 of the accompanying paper book- sl no. 12.] In the light of the above, It is respectfully submitted that the medical insurance premium expense should be allowed to the extent of Rs. 11, 73, 257 after disallowing the expenditure of Rs. 32, 274 in line with the decision of the CIT Appeals in relation to A Y 2009-10." On the strength of above submissions, the ld. AR urged for allowing the appeal of the assessee. 5. On the other hand, the ld. DR relied on the order of the lower authorities and submitted that the lower authorities have rightly disallowed the claim of the assessee as business expenditure u/s. 37(1) of the Act. The assessee did not incur the impugned expenditure in the ordinary course of business. The case laws relied by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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