TMI Blog2010 (3) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... akur Vaidyanath Aiyer and Co. [1984] 7 ITD 9 (Mum). Accordingly, the Tribunal deleted an addition of ₹ 31,68,775 towards the insurance premium paid by the firm on a Key- man insurance policy. The contention of the Revenue before the court is that in law a partnership firm has no separate existence from its partners since a partnership firm is not a juristic entity. Moreover, it has been urged before the court that there is nor relationship of employer and employee between a firm and its partners, there being no contract of service. Held that-dismissing the appeal, that there was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of ITO v. Thakur Vaidyanath Aiyer and Co. [1984] 7 ITD 9 (Mum). Accordingly, the Tribunal deleted an addition of Rs. 31,68,775 towards the insurance premium paid by the firm on a Key- man insurance policy. 4. The contention of the Revenue before the court is that in law a partnership firm has no separate existence from its partners since a partnership firm is not a juristic entity. Moreover, it has been urged before the court that there is nor relationship of employer and employee between a firm and its partners, there being no contract of service. 5. 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) defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he life of another person who is or was the 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. 7. The Central Board of Direct Taxes has issued a circular on February 18, 1998 (Circular 762) which clarifies the scope and purpose of the provision. Paragraph 14.1 of the circular states thus ([1998] 230 ITR (St.) 12, 70): "14.1 A Keyman in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The firm owned certain tea estates. The issue before the Supreme Court was whether the sums drawn by the partners as salaries were wholly liable to income-tax or only to the extent of 40 per cent. which fell within the scope of non-agricultural income. The Supreme Court held that a partnership is only a collective of separate persons and is not a legal person in itself and as a result the salary paid to a partner from the firm is in reality a mode of division of profits of the firm since no person can be his own servant in law. On this principle, the Supreme Court dismissed the appeal filed by the Revenue and held that only 40 per cent. of the salary paid to a partner by a firm which grows and sells tea would be liable to tax whereas 60 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under a Keyman insurance policy is to be reckoned while computing the total income. For that purpose, a Keyman insurance policy means a life insurance policy taken by a person on the life of another person who is or was in employment as well as on a person on who is or was connected in any manner whatsoever with the business of the subscriber The words "is or was connected in any manner whatsoever with the business of the sub scriber" are wider than 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 mone ..... X X X X Extracts X X X X X X X X Extracts X X X X
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