2024 (5) TMI 1257 - AT - Income Tax

Disallowing premium paid on premium insurance policy - deductible expenditure u/s 37(1) or not? - Whether it is an investment plan and for the benefit of the partners rather than the appellant? - whether if it is held that premium paid on Keyman Insurance Policy is not deductible expenditure u/s 37(1) then in the year of maturity or surrender of the said policy the difference between premium paid and amount received on maturity/surrender ought to be considered while computing the taxable income? HELD THAT - First of all there is no dispute that Shri Chetan K Desai was working partner of the firm and the insurance policy was taken in the name of Shri Chetan K Desai and the nominee in the said insurance policy was his wife - It is also not in dispute that it is a Life Insurance policy and even if Keyman Insurance has been taken in the name of the partner of the partnership firm then also there is no provision that the deduction cannot be allowed on the payment of premium. It is also not in dispute that later on this policy was assigned to the firm and there is a due acknowledgement of endorsement on the policy document wherein the policy has been assigned to the firm and such endorsement has also been accepted by the insurance company and firm s name on the same policy has been assigned. There is another letter written to the insurance company by wife who has given an undertaking and a letter to the insurance company that any amount to be paid by the insurance company on account of unfortunate death of Shri Chetan K Desai the same shall be paid to M/s Creation By Shanagar i.e. the partnership firm. All these letters were filed before the ld. AO during the course of assessment proceedings in response to the notice issued by him. Ergo Keyman Insurance policy is a life insurance policy taken by a person on the life of a person who was an employee and also imputed such policy which has been assigned to a person at any time during the term of policy with or without any consideration. Thus even if the policy was taken in the name of key person and has been assigned to the firm then also same falls in the definition of said explanation. Apart from that another allegation by the AO was that the policy was in the nature of investment plan and not pure life insurance policy. In so far as assessee is concerned it has brought the life insurance policy under Keyman insurance policy on which premium has been paid. Further even as per the Explanation 1 to Section 10(10d) there are only two conditions which has been mentioned to get deduction firstly it should be a life insurance policy; and secondly it should be taken by the assessee on the life of another person who is or was an employee of the assessee. Here in this case both these conditions are fulfilled. Now whether IRDA has issued any guidelines as to what should be termed as insurance policy is not relevant as long as policy which has been issued by the insurance company is a life insurance policy and whether the insurance company has invested that insurance money to any wealth plan does not change the colour of the policy. Other allegation made by the ld. AO that insurance was not in the name of firm and was taken by the partner in his own name and his wife was nominee has no relevance once the insurance company has allowed the assignment of the policy to the firm and the money paid as a premium has ultimately been paid by the firm and after the surrender of the policy the insurance company did paid the money to the firm which has been offered to tax in the subsequent year. All these facts fully endorsed the contention of the assessee that these insurance policies were in the name of the firm even though insurance initially was taken in the name of the partner. Now it has been brought on record that in the income tax return for A.Y. 2023-24 the amount received on surrender of policy same has been offered to tax by the firm as per the provisions of 2(24)(xi) of the Act. In light of these facts the premium paid by the assessee firm in A.Y. 2017-18 and 2018-19 is eligible for deduction u/s. 37(1). Thus in view of decision of Hon ble Bombay High Court in the case of B.N. Exports 2010 (3) TMI 186 - BOMBAY HIGH COURT accordingly the claim of deduction is allowed and the grounds raised by the assessee are allowed. TDS u/s 195 - Addition of Commission paid to foreign entities - HELD THAT - We find that even the CIT (A) has followed the decision of the Tribunal in assessee s own case 2024 (2) TMI 1384 - ITAT MUMBAI A.Y. 2016-17 wherein as held there is no dispute that the assessee appointed commission agent outside India. The Assessing Officer failed to bring any material on record to show that the services provider has any business place in India or the services were not rendered outside India by those commission agents. As decided in Gujarat Reclaim and Rubber Products Ltd. 2015 (12) TMI 1078 - BOMBAY HIGH COURT held that commission earned by non-resident agent who carried on the business of selling Indian goods outside India cannot be said to have deemed to be income which has accrued or arise in India. The Hon ble jurisdictional High Court followed the decision of Hon ble Supreme Court in CIT vs. Toshoku Ltd. ( 1980 (8) TMI 2 - SUPREME COURT on identical facts held that commission earned by non-resident who carried business of selling Indian goods outside India cannot be said to have deemed income which has accrued or arising in India Thus in view of the earlier precedents in the case of the assessee by the Tribunal wherein the Tribunal has relied upon the decision in the case of Gujarat Reclaim and Rubber Products Ltd 2015 (12) TMI 1078 - BOMBAY HIGH COURT and other decisions of the Hon ble High Court including the decision of GE India Technology Cen. P. Ltd. 2010 (9) TMI 7 - SUPREME COURT we don t find any infirmity in the said order and the same is confirmed.

Summary

Issues Involved:
1. Disallowance of premium paid on Keyman Insurance Policy.
2. Addition in respect of commission paid to foreign entities.

Summary:

Issue 1: Disallowance of premium paid on Keyman Insurance Policy

The assessee challenged the disallowance of Rs. 1,00,00,000/- paid as a premium on Keyman Insurance Policy for A.Y. 2017-18 and 2018-19. The AO disallowed the expense u/s 37(1), arguing that the policies were not Keyman Insurance Policies and were instead investment plans for the partners' benefit. The AO's observations included:
- The policies did not explicitly state they were Keyman Insurance Policies.
- The proposer was not the employer but the partner, Mr. Chetan K Desai.
- The policies were endowment plans, not term insurance policies as required by IRDAI guidelines.
- The policy rights were not fully transferred to the firm, and the nominee was Mrs. Sonal Desai, not the firm.

The Tribunal found that:
- The policies were indeed life insurance policies and were assigned to the firm.
- The insurance company acknowledged the assignment, and the amount received upon surrender of the policies was offered to tax by the firm.
- The policies met the conditions of Section 10(10D) and Explanation 1, which allows deduction for Keyman Insurance Policies assigned to a firm.
- The Hon'ble Bombay High Court's decision in B.N. Exports supported the claim that such expenses are incurred wholly and exclusively for business purposes.

Thus, the Tribunal allowed the deduction of the premium paid on Keyman Insurance Policies for both assessment years.

Issue 2: Addition in respect of commission paid to foreign entities

For A.Y. 2018-19, the Revenue challenged the addition of Rs. 1,82,66,691/- paid as commission to foreign entities. The AO disallowed the commission payments, citing non-deduction of tax at source u/s 195, as the services were deemed to accrue in India. The CIT(A) deleted the addition, relying on the Tribunal's decision in the assessee's own case for earlier years.

The Tribunal upheld the CIT(A)'s decision, noting:
- The services were rendered outside India by non-resident agents without any Permanent Establishment in India.
- The payments were made outside India for procuring export orders, and the agreements specified the nature of services as commission-based.
- The Tribunal's earlier decisions and the Hon'ble Bombay High Court's ruling in Gujarat Reclaim and Rubber Products Ltd supported the non-applicability of TDS on such payments.

Therefore, the Tribunal dismissed the Revenue's appeal and confirmed the deletion of the addition for commission payments to foreign entities.

Conclusion:

The Tribunal allowed the assessee's appeals regarding the Keyman Insurance Policy premium disallowance and dismissed the Revenue's appeal concerning the commission payments to foreign entities. The decisions were based on established legal principles and precedents, ensuring compliance with relevant sections of the Income Tax Act.