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F.C. Sondhi and Company (India) Pvt. Ltd. Versus Dy. Commissioner of Income Tax, Range-I, Jalandhar

2015 (9) TMI 1099 - ITAT AMRITSAR

Rectification proceedings - whether the process of reasoning adopted by the Tribunal, in relying upon the IRDA guidelines which find no mention in the Income Tax Act, and in holding that only pure life insurance policies are covered by Section 10(10D), was a mistake apparent on record or nor? - Held that:- The order passed by the Tribunal did suffer from mistake apparent from record inasmuch as, without adjudicating upon the specific submissions of the assesse, the Tribunal proceeded to decide t .....

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poses of adjudicating upon the plea of the assessee to the effect that, on the facts of this case, the IRDA circulars have no role to play in deciding whether the premium on the insurance policies paid are covered by the scope of ‘keyman insurance policy’ under section 10(10D) of the Act, and for deciding the matter afresh in the light of the said adjudication. We have noted that an earlier decision of this Tribunal, in the case of Shri Nidhi Corporation Vs Additional CIT [2014 (2) TMI 1022 - IT .....

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od Kumar : 1. By way of this rectification petition, the assessee applicant seeks recall of order dated 21st April, 2014 on the ground, inter alia, (i) that the core arguments advanced by the assessee have been simply brushed aside, without adjudicating upon the same, and (ii) that the binding judicial precedents, cited by the assessee, have been distinguished, without any specific reasons and on a wholesale basis, by simply observing that the circular of IRDA has clarified the position and the .....

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n the policy purchased by us which was issued as Keyman Insurance Policy from Insurance Companies including the Life Insurance Corporation of India was an allowable expenditure. The authorities below had mainly relied upon the circular issued by IRDA as well as the fact that the policies were non term assurance policies . To clarify the issue, it was important to understand the meaning of the word term insurance and for this purpose the meaning of the work was mentioned in the first para at page .....

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that the amount received back is to be put to tax under section 17(3)(ii), section 28(iv) or section 56(1)(iv). The argument thus made thus had necessarily to be dealt with while deciding the issue. Further, for interpretation of the term Keyman Insurance and Life Insurance numerous case laws were cited to bring out the principals of interpretation for terms not specifically defined in the Income Tax Act. The paper book filed on 9/12/2011 contained print out of sixteen case laws case which were .....

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uished except for a general observation. It is not at all clear from the order as to why the case cited are not applicable and do not support the case of the assessee. Where case laws have been cited, these have to be considered and distinguished and a general comment will not serve the purpose. The various case laws including many of the Supreme Court which are the law of the land and are binding in nature had to be followed for determining as to how the above referred terms used in the Income .....

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annual accounts, the same cannot be allowed as an expense as the Reserve Bank has nothing to do with computation of taxable income under Income Tax Act. By holding that the IRDA circulars are applicable for determining the correct nature of Keyman Insurance Policies you have ignored the ratio of decision of the Supreme Court in the case of Southern Technologies Ltd. (Supra) without giving any reasoning. It has also been observed that the assessee has himself admitted through letter dated 12/11/ .....

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lanation given to the authorities below was totality unjustified and also constitutes a mistake apparent from record. The reliance placed by CIT(A) on the circular of IRDA has been approved without appreciating that it was pointed out during the hearing that the circular of IRDA being referred are in the context of partnership firms. Why these would be applicable to a company has also not been explained in the impugned order. In view of the arguments made by the departmental representative, the .....

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ars issued by the IRDA has been held to be clarificatory in nature when it circular itself uses the phrase post 10th May . It has also been observed that at page no.33 of the order that only a nominal amount has been charged for mortality charges. This has also been conveyed at page no.30 of the order by referring to the accident benefit premium of ₹ 4,250/-. The explanation that the CIT(A) has failed to appreciate the difference between accident insurance and life insurance has also not b .....

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oposition, he invited our attention to the following observations made by Hon ble Bombay High Court, in the case of R.W. Promotions Pvt. Ltd. vs. ITAT [WP No.2238 of 2014, judgement dated 8th April, 2015; now reported as 277 CTR 401 (Bom)]; 9. After hearing both sides and perusing the two legal provisions, namely under section 254 as reproduced above, and section 260A of the Income Tax Act, 1961 we are of the view that the Tribunal s order and impugned in the Writ Petition cannot be sustained. T .....

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the above nature but what orders ought to be passed on such an application depends upon the facts and circumstances of each case. No general rule can be laid down in that behalf. The Tribunal can rectify any mistake apparent from the record and amend its order passed under section (1) of section 254. If the amendment has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, then, such an amendment shall not be made under this sub-sectio .....

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The least that can be said about the understanding of the legal provision by the Tribunal is that it is ex facie incorrect and erroneous. Merely because the assessee has challenged the order of the Tribunal in an Appeal under section 260A of the Income Tax Act, 1961 before the High Court does not mean that the power under section (2) of section 254 cannot be invoked either by the assessee or by the revenue/Assessing Officer. Such a power enables the Tribunal to rectify any mistake apparent from .....

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nal had passed an order after considering the application made by the petitioner-assessee on its merits and in accordance with law. However, the refusal of the Tribunal to go ahead and reject the application only on the ground that the petitioner-assessee has invoked the appellate powers of higher Court cannot be sustained. That is contrary to the plain language of the two statutory provisions and which have been brought to our notice. Nothing contrary having been pointed out and such a view of .....

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peditiously as possible and, in any event, within a period of six weeks from the date of receipt of the copy of this order. We clarify that beyond the issue of maintainability and jurisdiction of the Tribunal to deal with the application of the above nature, we have observed nothing on the merits or demerits of this application. All contention of both sides on the merits of the rectification application are kept open. They can be raised before the Tribunal. 4. We were thus urged to take up the r .....

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os.12 & 13 of the Assessment Order, the following reasoning:- (i) The assessee firm has taken policy, the type of which is Unit Linked Insurance Plan an Investment Plan. The purpose is Guaranteed Returns on the premium amount through investment in Units. It was claimed as Keyman Policy and amount of premium of ₹ 59,96,355/- per annum has been claimed as deduction. (ii) The policy taken is Unit Linked Insurance Plan an Investment Plan of ICICI Prudential & Jeevan Shree-I of LIC of G .....

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itions mentioned therein established that the plan is Unit Linked Insurance Plan & Plan with Guaranteed Return and not Tem Assurance Plan i.e. Policy of life s per definition of the I.T. Act as well as Circular issued by the IRDA. Only a fraction of the total premium is meant for risk premium, the balance is for the deployment of purchase of units i.e. Investment in Units which cannot be taken for business expenditure. The assessee did not reply to this vital specific issue of nominal mortal .....

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fulfil the condition of policy taken by a person on the life of another person as per definition of Keyman in the I.T. Act, i.e. pure life insurance as also admitted by the assessee in its submission. The IRDA was aware of manipulation by the Insurance Agencies of selling Unit Linked Insurance Plan under Keyman Insurance Policy instead of Term Assurance Plan under Keyman as per Income Tax Act and the assessee thereby wrongly depriving the revenue of its rightful taxes by naming the policy as Ke .....

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assessee. Even the brochure of the Insurance Company says regarding tax benefit under 80C only and section 10(10D) of the I.T. Act for receipts to be exempted if conditions fulfilled. Thus, the claim of deduction of such expenditure on account of payment of this premium of ₹ 59,96,365/- which has been invested in Unit as per assessee s option in ICICI Prudential Fund and Jeevan Shree-I policy of guaranteed addition could not be said to have incurred for the purpose of the business and is .....

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e upholding the disallowance, the Tribunal, in the order which is subject matter of this rectification petition, has held as follows:- 6.1 There is no dispute as argued by the Ld. Counsel for the assessee that meaning to Keyman Insurance Policy is taken from the Explanation to the clause(c) of section 10(10D) of the Act, which has been reproduced hereinabove. As per definition of Keyman Insurance Policy , a person purchasing life insurance can only do so to the extent of his insurable interest i .....

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nsurance Policy as defined under explanation to clause (c) of section 10(10D) of the Act. The findings of the ld. CIT(A) and that of the A.O. in this regard are reasoned one and we find no infirmity in the orders of both the authorities below, in particular, the findings of the A.O. which have been confirmed by the ld. CIT(A) i.e. the findings of the AO in paras 6.1, 6.2 & 6.3, with reference to the Circular of IRDA and the order of the A.O. in para 11, which are well reasoned one and we con .....

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the premium, paid. But at the same time, the assessee has admitted vide letter dated 12.11.2008 and on perusal of record, it is found that these policies are not in the nature of Life Insurance Policies exactly. 6.1 On perusal of facts on record and arguments of both the parties and legal position and interpretation of the Act, we are of the view that the arguments made by the Ld. DR are found to be convincing and findings of the Ld. CIT(A), who has rightly confirmed the action of the A.O. that .....

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ar is clarificatory in nature. In the facts and circumstances of the case, it is not a term Assurance Policy Plan as per IRDA guidelines. A nominal amount is being charged for mortality charges for life cover and balance amount has been deployed to purchase Units as per assessee s choice. Only a fraction of the total premium is meant for risk premium, the balance is for the deployment of purchase of units i.e. Investment in Units which in fact, cannot be claimed as business expenditure, which qu .....

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ssessee for the reasons mentioned hereinabove. Accordingly, we find no infirmity in the order of the Ld. CIT(A) who has rightly upheld the order of AO. Thus, the solitary ground raised by the assessee is dismissed. (Emphasis, by underlining, supplied by us now) 7. Learned Counsel s short contention is that the Tribunal had not dealt with his core contention that so far as deduction for premium paid on Keyman Insurance is concerned, all that is required to be seen is whether it is for life insura .....

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raised in page nos. 1 and 3 of the written submissions filed by the assessee, the order should be recalled for the purpose of deciding these issues. Learned Counsel for the assessee also raised several other connected issues but, for the reasons we will set out in a short while, it is not really necessary to go into those issues. 8. Learned Departmental Representative vehemently opposes the rectification petition. He submits that it is considered decision of the Tribunal that insurance policies .....

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Departmental Representative submits that even if it be a mistake, though it is not, it cannot be termed as a mistake apparent on records which alone can be rectified at present. He submits that the policy premium paid by the assesse being ineligible for deduction under section 10(10D) is the main point decided by the Tribunal, and that decision, being a conscious and considered decision, cannot at all be termed as a mistake apparent on record. Learned Departmental Representative then invites ou .....

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into account a full bench decision of Hon ble jurisdictional High Court, by a coordinate bench of this Tribunal in the case of Plaza Investments Pvt Ltd Vs Income Tax Officer [(2006) 108 ITD 239 (Bom)]:- ………….while adjudicating upon this rectification petition, we are not really influenced by complexity of the issue in appeal; we are only concerned about simplicity of the error which is said to have been committed. Once we come to the conclusion that Tribunal did err .....

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A. Boga vs. AAC (1977) 110 ITR 1 (P&H)(FB), has observed : "The basic principle is thus clear. A mistake apparent from record means an obvious or patent mistake or a glaring and obvious mistake . Hotly debatable issues are excluded; hardly debatable issues are included. The issue may be complicated, yet the mistake may be simple. It is a mistake apparent from record. The test is not complexity of the issue but simplicity of the mistake." The question whether dividend income can be .....

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e Tribunal cannot be unsettled as it would amount to reviewing the order of the Tribunal. We are not persuaded by this line of reasoning. Undoubtedly, all mistakes cannot be rectified under s. 254(2). The rectifiable mistakes are the mistakes which are obvious, patent, and glaring mistakes on which no two views are possible. Once a mistake fits in this category, as is the case before us, it is immaterial whether it is a conscious mistake or unconscious mistake. If a judicial body like this Tribu .....

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udgment. The difference between an error of judgment vis-à-vis an error apparent from record leading to an erroneous judgment may be thin but is too subtle to be ignored by a judicial body. The question of error of judgment can only arise when two views are possible and one of the views is adopted. That is not the case before us. It is a simple case of omission to take note of the context in which Hon ble Supreme Court made certain observations and then interpreting those observations as .....

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laid down by the Hon ble Supreme Court, is impermissible in law. That cannot but be a glaring, obvious and patent error and, accordingly, liable to be rectified under s. 254(2) of the Act. To suggest that a conscious mistake, even if that be a mistake apparent from record, cannot be rectified under s. 254(2) is somewhat devoid of logic and rationale. If a conscious mistake is a mistake apparent from record, there is no reason for not rectifying the same under the provisions of law. To err is hu .....

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w that he is fallible, and, therefore, ever ready to learn; great and honest enough to discard all mere pride of opinion and follow the truth wherever it may lead; and courageous enough to acknowledge his errors. " We are, therefore, unable to accept Revenue s contention that a considered opinion expressed by the Tribunal, after applying its mind to an issue in appeal, cannot be unsettled even if the mistake in the process of reasoning is a simple mistake apparent from record on which no tw .....

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insurance policy means 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 . 11. All that entitles a policy to be covered by Section 10(10D) therefore is that it should be a life insurance policy on the life of an eligible person. 12. The concept of term policy, pure life policy and IRDA guidelines find no mention in the stat .....

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he principle that a matter which has not been provided in the statute but should have been there, cannot be supplied 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 vs. 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 .....

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uction 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 vs. IRC (1921) 1 KB 64 (KB) at p. 71, that : "........... in a taxing Act one has to look at merely what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fa .....

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there seems no good reason why it should have been omitted, and that the omission appears in consequence to have been unintentional". Their Lordships then observed that "In other words, under the first principle, a casus omissus cannot be supplied by the Court except when reason for it is found to be in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed t .....

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ctified under section 254(2) of the Act. 14. As we have noted earlier in this order, the Tribunal has, at one place, observed that, As per definition of Keyman Insurance Policy , a person purchasing life insurance can only do so to the extent of his insurable interest in the assured but then, in our considered view, this observation is clearly a mistake apparent on record. The Explanation below Section 10(10D), which is the only relevant factor for deciding as to what is keyman insurance policy .....

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ance policies but then such an interpretation may perhaps be wrong because even after the IRDA circulars, the only curative amendment that has been made in the statute, by inserting clause (d) to Section 10(10D), is a restriction of 10% of the sum assured having been imposed on the policy premium. Whether an insurance policy is pure insurance policy, which does not entitle the insured or insurer to anything at the end of the policy term, or whether it is a saving or investment oriented insurance .....

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the first mentioned person or was connected, in any manner whatsoever, with the business of the first mentioned person It is clear from the definition that keyman insurance policy is on the life of another person. In other words, the payments under policy becomes due on the death of the concerned person. No further tests have been prescribed and nothing more can be read into or inferred except being an employee or ex - employee or in connection with business. (Page 1 of written submission) Befo .....

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the relevant section of the Income Tax Act itself. Some examples are as under: -Section 2(25A): Refers to Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act 1976 -Section 2(29D): Refers to National Tax Tribunal Act, 2005 -Section 2 (38): Refers to Employees Provident Fund Acct, 1952 -Section 2(42A)-Expl 2 : Refers to Securities Contracts (Regulations) Act 1956 -Section 2(47): Refers to Transfer of Property Act, 1882 Since IRDA 1999 has not been referred t .....

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