TMI Blog2015 (9) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, as long as it is in the nature of life insurance policy, whether pure life cover or term cover or a growth or guaranteed return policy, it is eligible for coverage of Section 10(10D). It is not open to us to infer the words which are not there on the statute and then proceed to give life and effect to the same. When benefit of policy was assigned to the insured, the policy cannot be said to be for the benefit of the assessee firm. We see no merits in these objections to the commercial expediency. As for the fall in turnover, the benefit of an expenditure cannot be, by any stretch of logic, relevant to determine its commercial expediency, and, in any case. Such a benefit of hindsight cannot be available at the point of time when business decisions are made; more often than not, these are the tools of post mortem of events, rather than inputs for the decision making. As for the statement made by the employees of the insurance companies, nothing turns on these statements. What constitutes a keyman insurance policy under section 10(10D) is not dependent on what is it treated even by the insurer; as long as the assesse is allowed to take life insurance policy on its keymen, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of another person (emphasis, by underlining, supplied by the Assessing Officer) . On a separate note, the Assessing Officer also held that a partner of the firm cannot be 'keyman', and, for this reason also, the deduction cannot be allowed. The Assessing Officer also referred to the circular issued in April 2005 by the Insurance Regulatory and Development Authority (IRDA) referring to misuse of keyman insurance policies and warning the insurance companies and their agents of such malpractices. The AO observed that Even as per the IRDA, only term insurance policies can be issued as keyman insurance cover . The AO further examined an employee of the Kotak Mahindra Life Insurance Ltd who stated that the policy in question was in no way keyman insurance policy nor could it be converted into a keyman insurance policy. The AO also examined an employee of the Kotak Mahindra Old Mutual Life Insurance Ltd who stated on oath that the policy was issued as keyman insurance cover under the United Linked Endowment Assurance Plan in accordance with the application made by the policyholder. The Assessing Officer also noted that the turnover of the assesse firm has gone down from 19 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, is it permissible for us, particularly in the light of the Special Bench decision in the case of Tata Communications Ltd. v. JCIT [(2009) 121 ITD SB 384, to deal with questions 'a' and 'b' above and proceed to adjudicate on the same? (d) Whether the decisions of the coordinate benches, in the case of Shri Nidhi Corporation v. ACIT [(2014) 151 ITD 470 (Bom)] and Emdee Apparel Another v. ACIT [(2012) 19 ITR 623 (Bangalore)], in the light of the issues raised above, could not be followed in entirety on the facts and in the circumstances of this case? (e) Whether it is a fit case for being referred to Hon'ble President for the constitution of a special bench, consisting of three or more members, under section 255(4) of the Income Tax Act, 1961? 5. On these issues, learned counsel has submitted that the provisions of Section 14 A do not come into play in this case as the receipts in question are not exempt under section 10(10D) and, therefore, all other related questions are academic. He, however, hastens to add that the decisions in the case of Shri Nidhi Corporation (supra) and Emdee Apparel (supra) are directly on the issue that the insurance policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue and I believe the same has no relevance to the subject matter of these appeals. (e) It is submitted that the Hon'ble bench has already decided the issue in favour of the department in the case of F C Sondhi Co, and it is, therefore, prayed that the said order be followed. Without prejudice to this submission, it is submitted that if the Hon'ble bench is of the opinion that the said order is not to be followed, then it is an ideal situation where the issue should be referred to the President for constituting a special bench to decide the issue. 6. One thing on which there is a consensus between the parties is that the provisions of Section 14A do not apply to the facts of this case, and, accordingly, no disallowance can be made on the ground that the payment of the policy premium results in a tax exempt income. In this view of the matter, the coordinate bench decision in the case of Agarwal Packaging Pvt Ltd v. CIT [(2008) 112 ITD 240 (Pune)] has no application in the matter. As regards the F C Sondhi decision, relied upon by the learned Departmental Representative, we may point out that, while delivering this decision, an earlier decision on the same issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cases on identical matters. Classification of particular goods adopted in earlier decisions must not be lightly disregarded in subsequent decisions, lest such judicial inconsistency would shake public confidence in the administration of justice. It is, however, equally true that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings bring to light what is perceived by them as an erroneous decision in the earlier case. In such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger Bench. 6. In the case of Venus Jewels (supra), the co-ordinate Bench held the issue in favour of the Revenue on the basis of Hon'ble Bombay High Court's judgment in the case of Indian Rayon Corpn. Ltd. (supra) and on the basis of the Hon'ble Rajasthan High Court's judgment in the case of Vijay Industries v. CIT [2004] 190 CTR (Raj) 90 : [2004] 270 ITR 175 (Raj). What is held in Vijay Industries' case (supra) is the same thing as held in Indian Rayon Corpn. Ltd.'s case (supra) but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to abide by former precedents'. Blackstone elucidated the doctrine thus : 'For it is an established rule to abide by former precedents, where the same points come again in litigation : as well as to keep the scale of justice even and steady and not liable to waiver with every new Judge's opinion, as also because the law in that case being solemnly declared and determined, what before was uncertain, and perhaps indifferent, is now become a permanent rule, which it is not in the breast of any subsequent Judge to alter or vary from, according to his private sentiment. . . .' The ratio decidendi of a judgment is a binding precedent. The hierarchy of authority with regard to binding precedent is summed up in para 28 at p. 158 of 'Salmond on Jurisprudence', Twelfth Edition, as follows : 'The general rule is that a Court is bound by the decision of all Courts higher than itself. A High Court Judge cannot question a decision of the Court of Appeal, nor can the Court of Appeal refuse to follow judgments of the House of Lords. A corollary of the rule is that the Courts are bound only by decisions of higher Courts and not by those of lower or equal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to the rule of precedents results in manifest injustice, differing from the earlier judgment will be permissible. When a Division Bench differs from the judgment of another Division Bench, it has to refer the case to a Full Bench. A single Judge cannot differ from a decision of a Division Bench except when that decision or a judgment relied upon in that decision is overruled by a Full Bench or the Supreme Court, or when the law laid down by a Full Bench or the Supreme Court is inconsistent with the decision. It may be noticed that precedent ceases to be a binding precedent : (i) if it is reversed or overruled by a higher Court, (ii) when it is affirmed or reversed on a different ground, (iii) when it is inconsistent with the earlier decisions of the same rank, (iv) when it is sub silentio, and (v) when it is rendered per incuriam. In para 578 at p. 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows : 'A decision is given per incuriam when the Court has acted in ignorance of a previous decision of its own or of a Court of co-ordinate jurisdiction which covered the case before it, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new Act did not have the concurrence of the latter Bench, the earlier judgment cannot be called per incuriam. Though a judgment rendered per incuriam can be ignored even by a lower Court, yet it appears that such a course of action was not approved by the House of Lords in Cassell Co. Ltd. v. Broome [1972] 1 All ER 801, wherein the House of Lords disapproved the judgment of the Court of Appeal treating an earlier judgment of the House of Lords as per incurium. Lord Hailsham observed : 'It is not open to the Court of Appeal to give gratuitous advice to Judges of first instance to ignore decisions of the House of Lords in this way'. It is recognised that the rule of per incuriam is of limited application and will be applicable only in the rarest of rare cases. Therefore, when a learned single Judge or a Division Bench doubts the correctness of an otherwise binding precedent, the appropriate course would be to refer the case to a Division Bench or Full Bench, as the case may be, for an authoritative pronouncement on the question involved as indicated above. The abovesaid two questions are answered as indicated above. 9. It is thus beyond dispute that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should be taken by the assessee on the life of another person who is, or was, an employee of the assessee or is related to the business of the assessee is any manner. 11. Dealing with both the limbs of the above requiremenst, a coordinate bench of this Tribunal, in the case of Shri Nidhi Corporation (supra), has observed as follows: It appears that after the assessee has purchased these policies, IRDA came up with circular dated 27th April 2005 that partnership insurance in the name of partner will not be covered under Keyman insurance but as a term insurance cover. Thus, such IRDA circular cannot be adversely viewed in case of the assessee as when the assessee has taken the policy under Keyman Insurance Scheme from two reputed insurance companies there was no such regulation. The other objections of the Revenue are that the deduction of the premium under Keyman insurance cannot be allowed in the case of partnership firm, is not tenable in view of the decision of the Hon'ble Jurisdictional High Court in B.N. Exports (supra), wherein, it has been held that if the Keyman Insurance Policy is obtained on a life of a partner, to safeguard the firm against a disruption of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied by us, as, to do so will be clearly beyond the call and scope of our duty which is only to interpret the law as it exists. Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam v. CIT 1977 CTR (SC) 275 : [1977] 108 ITR 345 (SC) at p 356 has observed : We have given anxious thought to the persuasive arguments .....(which) if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of sections .....is clear and unambiguous. There is no scope for importing into the statute the words which are not there. Such interpretation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation ..... To us, there appears no justification to depart from normal rule of construction according to which the intention of legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt. J. in Cape Brandy Syndicate v. IRC (1921) 1 KB 64 (KB) at p. 71, that : ............... in a taxing Act one has to look at merely what is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961. In this view of the matter, learned Assessing Officer's observations to the effect that, that the policy taken is keyman as per definition given in the Income Tax Act, i.e. policy taken by a person on the life of another person and also fulfilling the terms and conditions laid down by IRDA in this regard, necessity and expediency of the person being keyman and the policy taken for the benefit of the assessee firm (emphasis, by underling, supplied by the AO) are devoid of any legally sustainable merits. The fulfilment of IRDA terms and conditions is wholly alien to the present context. As for the policy being taken for the benefit of the assessee firm, as long as it is for the purpose of taking an insurance policy on the life of a person who is related to the firm, the same cannot be called into question either. We have also noted that the authorities below have paid a lot of emphasis on the contention that the insurance policies in question were not termed as keyman insurance policies but nothing turns on that aspect, even if that be so, either. The keyman insurance policy is a defined concept and as long as it meets the requirements of this definition, the termi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business; (i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938); (j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries; (k) regulating investment of funds by insurance companies; (l) regulating maintenance of margin of solvency; (m) adjudication of disputes between insurers and intermediaries or insurance intermediaries; (n) supervising the functioning of the Tariff Advisory Committee; (o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f); (p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and effect to the same. We had detailed discussions about this aspect of the matter in paragraph numbers 10 to 15 above, and, as we have held there, such an exercise is not permissible under the scheme of the Act. 18. What IRDA regulates is issuance of life insurance policies by the insurance companies to the policyholders on the lives of its employees, former employees and key personnel but once such a policy is issued it cannot but be treated as a 'keyman insurance cover' as it essentially meets the requirement of Section 10(10D) because it is a 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 or is or was connected in any manner whatsoever with the business of the first-mentioned person . The mandate of Section 10(10D) does not put any further tests, nor can we infer the same. 19. The Assessing Officer has questioned commercial expediency of taking the keyman insurance policies on the short grounds that (a) the fall in turnover, apparently according to the Assessing Officer, shows that there was no commercial benefit from taking the keyman insurance cover; (b) the insurance policy was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son for the Department to deviate therefrom when it comes to the assessment. (iii) The nature of expenditure incurred on keyman insurance policy has even been judicially considered and Bombay High Court has held in B.N. Exports (supra) that this expenditure is to be allowed as business expenditure, in the following words: The effect of Section 10(10D) is that monies which are received under a life insurance policy are not included in the computation of the total income of a person for a previous year. However, any sum received 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 subscriber 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policy is to enable business organizations to insure the life of a keyman in order to protect the business against the financial loss which may occur in the likely eventuality of premature death. Such an expenditure is treated as business expenditure by the Department itself and recognized as such in Circular dated 18.2.1998. The expenditure is to be seen at the time it is incurred. Merely because the policy was assigned after sometime would not mean that the expenditure incurred in the first instance would lose the flavour of it being 'business expenditure'. (vi) Once the legal provisions and the outlook of Department itself based on such legal provisions permit the assessee to have the tax planning of this nature, and the course of action taken by the assessee is permissible under law, the argument of colourable device cannot be advanced by the Revenue. When expenditure of this nature is treated ^business expenditure' per se by the Department itself, there cannot be any question of raising the issue of want of business expediency. The learned counsel for the respondent is right in his submission that the Department could not sit on the armchair of the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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