TMI Blog2005 (10) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... icy, 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 fact that the policy is a Keyman Insurance Policy, as can be seen from para 2 of the order of the CIT. Therefore, the order of the CIT cannot be sustained as it runs counter to the amendments made to the Act as clarified by the circular issued by the CBDT. It is well-settled that circulars issued by the CBDT regarding the execution of the Act are binding on the IT authorities. The amended law is applicable to the year under consideration, The CIT was, therefore, not justified in assuming jurisdiction to revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial to the interest of the Revenue. He, therefore took proceedings for revising the assessment under s. 263 and invited the assessee's objections. The assessee seems to have started (supported) the allowance of the expenditure with reference to an order of the Bombay Bench of the Tribunal in ITA No. 1747/D/81 (sic). The CIT, however. observed that the decision would apply only to certain situation, that it cannot be held that all premia paid by the firm in respect of the insurance of the lives of the partners irrespective of the other facts and circumstances are allowable as a deduction and proceeded to distinguish the facts of the assessee's case form the facts in the case before the Tribunal. He noted that in the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been executed reflecting the clause relating to keyman insurance. In ground No 7, it is stated that supplementary deed shows that the partners have agreed to pay commission on insurance premium on the life of Anurag Gupta. 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 s. 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-s. (10D) to S. 10 was inserted to exempt any sum received under a life insurance policy, including the sum allocated by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by a business organization or a professional organization on the life of an employee, in order to protect the business against the financial loss, which may occur from the employee's premature death. The Keyman is an employee or a director, whose services are perceived to have a significant effect on the profitability of the business. The premium is paid by the employer. 14.2 There were some doubts on the taxability of the income including bonus, etc., from such policy and also regarding the treatment of the premium paid whether it should be allowed as a capital expenditure or as a revenue expenditure. The Finance (No.2) Act, 1996, therefore, lays down the tax treatment of the Keyman Insurance Policy. 14.3 Clause (10D) of s. 10 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 fact that the policy is a Keyman Insurance Policy, as can be seen from para 2 of the order of the CIT. Therefore, the order of the CIT cannot be sustained as it runs counter to the amendments made to the Act as clarified by the circular issued by the CBDT. It is well-settled that circulars issued by the CBDT regarding the execution of the Act are binding on the IT authorities. The amended law is applicable to the year under consideration, The CIT was, therefore, not justified in assuming jurisdiction to revise the assessment under s. 263, contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X
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