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TMI Blog2015 (8) TMI 1464X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Mumbai Bench of the Tribunal, in the case of ITO vs M/s N.D. Nissar (ITA No.4826/Mum/2007) and also in the case of B.N.Exports 323 ITR 178 (Bom.) This factual matrix was not controverted by ld. DR. 2.1. We have considered the rival submissions and perused the material available on record. We find that in the case of assessee, on identical issue/facts for A.Y. 2004-05 held that the assessee is entitled for deduction on account of Keyman insurance policy taken on the life of two partners and dismiss the appeal of the Revenue vide order dated 26/05/2009. The Relevant portion of the same is reproduced hereunder for ready reference:- 2. The grounds of appeal raised by the Revenue are as under:- "1. Whether on the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting addition of Rs. 1,68,00,000/- made by [he Assessing Officer on account of payment made for Keyman insurance Policies taken on the life of partners. " 2 Whether on the facts and circumstances of the case and in law, [he learned CIT(A) has erred In relying on the decision of the ITAT, Mumbai in the case of ITO vs Takur Vaidyanatn Aiyer, 1984 7 ITD 9 and holding that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Bench of the Tribunal in the case of P.G. Electronics vs ITO ITA No. 1463/Del/2002 for assessment year 1998- 99. The Bench vide its order dated 07-10-2005 has deliberated upon the issue in detail and decided the issue in favour of the assessee. We deem it necessary to extract the findings of the Tribunal below to give more clarity: "4. I have carefully considered the matter. Various amendments were made to the IT Act, 1961, simultaneously by the finance (No.2) Act, 1996, w.e.f. 1ST Oct., 1996 relating to the subject of Keyman Insurance Policy. Clause (xi) was inserted to Section 2(24), which defined "income", to include any sum received under a Keyman Insurance Policy including the sum allocated by way of bonus on such policy. Sub-section (100) to Section 10 was inserted to exempt any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy other than sums received under a Keyman Insurance Policy. The Explanation inserted below the sub-section defined a "Keyman Insurance Policy" to mean a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person. Clause (ii) of Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement be taken as "profits in lieu of salary" for tax purposes; and in case of other persons having no employer-employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly. The premium paid on the Keyman Insurance Policy is allowed as business expenditure. 14.5 The amendments take effect from the 1Si day of October, 1996." It may be seen from para 14.2 of the circular that the Board was aware of the doubts relating to the treatment of the premium paid in respect of a Keyman Insurance Policy issued by the LIC of India and has accordingly clarified, to put the doubts at rest, in the last sentence of para 14.4 that 'The premium paid on the Keyman Insurance Policy is allowed as business expenditure". 6. In the light of the above amendments and the circular clarifying the position relating to the allowability of the premium paid on Keyman Insurance Policy, the CIT, in my view, was not justified in directing the AO to disallow the premium paid by the assessee-firm in respect of the life of partner Anurag Gupta, assured under the Keyman Insurance Policy. There is no doubt regarding the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in the case of employees and not for the partners/directors. On appeal, the ld. Commissioner of Income Tax (Appeals) following the decision for A.Y. 2004-05 of the Tribunal, decided in favour of the assessee. Now, the Revenue is aggrieved and is in appeal before this Tribunal. It is noted that the Tribunal, while coming to a particular conclusion, followed the decision from Delhi Bench of the Tribunal in the case of P.G. Electronics vs ITO (ITA No.1463/Del./2002), which has been reproduced at page-3 (internal page of the order) and page-10 of the paper book. Even, the same has been explained by Circular no. 762 dated 18/02/1998, issued by CBDT. In the present appeal, payment of premium is not in doubt, however, the only question to be adjudicated by us is whether such premium is allowable for partners or directors? This issue has been settled by the Hon'ble jurisdictional High Court in CIT vs B.N. Exports (2010) 323 ITR 178 (Bom.) by holding that, for claiming business expenditure u/s 10(10D) read with section 37 of the Act, insurance premium on Keyman insurance policy to ensure life of a partner and effect of Circular No.762 (supra), is an allowable deduction. The object and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the rival submissions and perused the material available on record. The facts, in brief, are that the ld. Assessing Officer, while framing the assessment, observed that the assessee earned tax free dividend income of Rs. 11,51,845/- which was claimed as exempt and the assessee suo-moto disallowed expenditure of Rs. 1,15,185/-. The Assessing Officer was of the view, that no deduction is allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income and he place reliance upon the decision in Godrej & Boyce Manufacturing Company ltd. vs DCIT (ITA No.626 of 2010), thus, he re-calculated the disallowance u/s 14A, as per formula provided in Rule-8D. The net disallowance made to the tune of Rs. 23,26,332/-. On appeal, the ld. Commissioner of Income Tax (Appeals) followed the decision of the Tribunal in the case of Morgan Stanley India Securities Ltd. vs ACIT (ITA No.5072/Mum/2005 and 6774/Mum/2004) and held that the disallowance of interest should be made with reference to net interest only. The ld. First Appellate Authority, directed the Assessing Officer to calculate the disallowance under Rule-8D on the basis of net int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals) did not appreciate that the assessee was not holding shares and securities, by way of investment rather the shares and securities were held in stock in trade and further confirming computation of disallowance u/s 14A r.w.r.8D, considering the interest paid to partners on their capital, while computing the disallowance under Rule-8D(2)(ii) of the Rules. On the other hand, the ld. DR, Shri Vijay Kumar Soni, defended the conclusion arrived at in the impugned order. 4.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business as stock broker of BSE and also trading in shares and securities, declared total income of Rs. 3,89,81,380/-. The Assessing Officer made disallowance of Rs. 24,41,517/- against the disallowance of Rs. 1,15,185/-, computed by the assessee. The ld. Assessing Officer disallowed the interest paid to the partners on their capital attributing to earning of dividend income by treating the partners capital as borrowed funds. On appeal, the ld. Commissioner of Income Tax (Appeals) directed to calculate the disallowance under Rule 8D on the basis of net interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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