1967 (7) TMI 19 - HC - Income Tax

Company took the policy both for life and accident and paid premium in the name of governing direct and claimed the premium as deduction under s. 10(2)(xv) - deduction not permissible

Summary

Issues:
- Deductibility of a sum paid by way of premium under a policy under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis:
The case involved a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the deductibility of a sum of Rs. 33,150 paid as a premium under a policy. The company in question had resolved to insure its governing director for life and accident, with the premium to be paid out of the company's funds. However, the director had not assigned the policy to the company. The court emphasized the need for a direct nexus between the expenditure and the business to qualify for deduction under section 10(2)(xv). It highlighted that the expenditure must be wholly and exclusively laid out for the purpose of the business, and mere connection with the trade is not sufficient for deductibility.

The court referred to the Supreme Court's stance that the allowance of expenditure must be decided based on the facts and circumstances of each case. It stressed the importance of considering various factors such as the nature of services, industry practices, qualifications of the individual, and abnormal circumstances in determining deductibility under section 10(2)(xv). The court noted the absence of evidence regarding the director's exceptional qualifications or industry practices permitting such investments, further supporting its decision against deductibility.

In analyzing precedents cited by the assessee, the court found them inapplicable to the current case. The court distinguished the cases referred to, emphasizing the need for a direct relevance to the issue at hand. It particularly highlighted that the decisions did not provide a basis for allowing the expenditure in question under section 10(2)(xv). Ultimately, the court ruled in favor of the department, denying the deductibility of the sum paid as a premium under the policy. The assessee was directed to bear the costs of the reference, including the advocate's fee.