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Hansa Export Corporation Versus Addl. Commissioner of Income Tax, Range-I, Jalandhar

2015 (9) TMI 1114 - ITAT AMRITSAR

Disllowances towards premium of keyman insurance policies - Held that:- 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 assessee is allowed to take life insurance policy on its keymen, as have been undisputedly taken in this case, the same satisfies the requirement of Section 10(10D).

What can be sold as a 'life insurance policy' taken by a business entity for its employee, former employee or .....

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fe and effect to the same. In view of these detailed discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and delete the impugned disallowance. See case of Suri Sons vs. Addl. CIT [2015 (9) TMI 798 - ITAT AMRITSAR ] - Decided in favour of assessee. - I.T. A. Nos.35, 36 & 408/Asr/2010 - Dated:- 31-8-2015 - Pramod Kumar and A.D. Jain, JJ. For The Appellant : Y.K. Sud For The Respondent : Tarsem Lal Per Pramod Kumar : 1. By way of these three appeals, t .....

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assessee is that, on the facts and circumstances of the case, learned CIT(A) erred in upholding the disallowance of ₹ 1,99,99,941/- (for A.Y. 2006-07), ₹ 1,99,99,941/- (for A.Y. 2007-08) and ₹ 2,00,00,000/-(for the A.Y. 2005-06) towards premium of keyman insurance policies. 2. Learned Representatives have fairly agreed that the material facts and circumstances with regard to these appeals are the same as in the case of assessee s own case (i.e. Hansa Export Corporation vs. Addl .....

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erial on record and duly considered facts of the case in the light of the applicable legal position. 4. During the course of this hearing, we asked the parties to address us on, inter alia, the following aspects: (a) Whether the disallowance under section 14A, in respect of expenses in relation to an income which does not form part of the total income, would come into play in this case and whether expense on keyman insurance policy, to the extent it relates to an income not chargeable to tax und .....

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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 Vs ACIT [(2014) 151 ITD 470 (Bom)] and Emdee Apparel & Another Vs 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 be .....

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policy premium even on the policy which are not pure life insurance policies or term policies, are to be allowed as deduction as premium on keyman insurance policies. That precisely is the issue in this appeal, and, therefore, these decisions must be followed. As for the reference being made for special bench, learned counsel submits that the decision in the case of F C Sondhi & Co Vs DCIT [(2014) 49 taxmann.com 180 (Amritsar - Trib.)], is per incurium inasmuch as it does not follow earlier .....

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g judicial precedents, there is no occasion for reference to the special bench. We are thus urged to follow the Shri Nidhi Corp decision and uphold the grievance of the assesse. On the other hand, however, in response to our query, learned Departmental Representative has submitted the following written note: (a) It is submitted that section 14A would not come into play inn this case, as in the year when deduction is claimed, no income is claimed exempt and the proceeds of insurance policy is not .....

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e of Shri Nidhi Corporation (supra). The assessee being allowed an option to choose its investment divests the very policy of its being nature of keyman insurance policy as such the same, being not the keyman insurance policy, is no eligible for exemption. It is further submitted that the issue involved in the case of Emdee Apparel & Another Vs ACIT, reported in 19 ITR Trib 623, is on different issue and I believe the same has no relevance to the subject matter of these appeals. (e) It is su .....

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sensus 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 Vs 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 m .....

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e of such a mistake, we find guidance from a coordinate bench decision in the case of J K T Fabrics (supra), wherein, the coordinate bench has inter alia observed as follows: 5. As far as Tribunal s decision in the case of Prince SWR Systems (P) Ltd. (supra) is concerned, we have noted that the Tribunal has not followed the co-ordinate Bench decision in Plastiblends India Ltd. s case (supra), and has decided the case against the assessee by following the Bombay High Court judgment in the case of .....

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any other conclusion on that issue. This is so held by the Hon ble Supreme Court in the case of Union of India vs. Paras Laminates (P) Ltd. (1990) 87 CTR (SC) 180. To that extent, Tribunal s decision in the case of Prince SWR Systems (P) Ltd. (supra) appears to be in our humble understanding, per incuriam. In the case of Paras Laminates (P) Ltd. (supra), Hon ble Supreme Court has, inter alia, observed as follows : It is true that a Bench of two Members must not lightly disregard the decision of .....

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articular 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 t .....

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What is held in Vijay Industries case (supra) is the same thing as held in Indian Rayon Corpn. Ltd. s case (supra) but then Plastiblends India Ltd. s case (supra) having considered the school of thought emerging from these materially similar decisions, has come to the conclusion that where the assessee has not claimed the depreciation in its books of account, the same cannot be thrust upon the assessee for the purpose of computing the deduction under s. 80-IA. Following the Hon ble Supreme Court .....

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constitution of larger Bench was already been turned down. We see no necessity to make yet another request considering that Hon ble President has, in a considered decision, turned down earlier request to that effect. In our opinion, the issue does not call for a reconsideration at this stage. 8. As to what should be the binding effect of a per incurium decision, we can do no better than to quote the Hon ble Andhra High Court in the case of CIT vs. B.R. Constructions (1993) 113 CTR (AP)(FB) 1 : .....

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lowering from the same principle, converge to the conclusion that a decision once rendered must later bind like cases. In this concurring judgment in State of U.P. vs. Synthetics & Chemicals Ltd. (1991) 4 SCC 139, 163, the observation of Sahai, J. on this aspect is : Uniformity and consistency are the core of judicial discipline. That is why the doctrine of stare decisis is part of our judicial system. This doctrine means to abide by former precedents . Blackstone elucidated the doctrine thu .....

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... 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 a .....

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to Courts in India were laid down by Subba Rao, J. (as he then was) in Dr. K. C. Nambiar vs. State of Madras AIR 1953 Mad 351, which were approved by a Full Bench of our High Court in Subbarayudu vs. State AIR 1955 AP 87 (FB) : (1955) 11 ALT (Cri.) 53. They are as follows : A single Judge is bound by a decision of a Division Bench exercising appellate jurisdiction. If there is a conflict of Bench decisions, he should refer the case to a Bench of two Judges who may refer it to a Full Bench. A si .....

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ed to a Full Bench. This procedure would avoid unnecessary conflict and confusion that otherwise would prevail. The effect of binding precedents in India is that the decisions of the Supreme Court are binding on all the Courts. Indeed, Art. 141 of the Constitution embodies the rule of precedent. All the subordinate Courts are bound by the judgments of the High Court. A single Judge of a High Court is bound by the judgment of another single Judge and a fortiori judgments of Benches consisting of .....

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fest 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 prec .....

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ous decision of its own or of a Court of co-ordinate jurisdiction which covered the case before it, in which case it must be decided which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force. In Punjab Land Development & Reclamation Corpn. Ltd. vs. Presiding Officer, Labour Court (1990) 3 SCC 682 : (1990) 77 FJR 17 (SC), t .....

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having statutory force or a binding authority. But, if the provision of the Act was noticed and considered before the conclusion arrived at, on the ground that it has erroneously reached the conclusion the judgment cannot be ignored as being per incuriam. In Salmond on Jurisprudence, Twelfth Edition, at p. 151, the rule is stated as follows : The mere fact that (as is contended) the earlier Court misconstrued a statute, or ignored a rule of construction, is no ground for impugning the authority .....

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y the omission of the words or the partners of the firm or the members of the association individually . In our view, this cannot be a ground to treat an earlier judgment as per incuriam. The change in the provisions of the Act was present in the mind of the Court which decided Ch. Atchaiah s case (supra). Merely because the conclusion arrived at on construing the provisions of the charging section under the old Act as well as under the new Act did not have the concurrence of the latter Bench, t .....

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e 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 .....

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sion is to refer the matter for constitution of a larger Bench. A decision ignoring this rule of precedent, which is duly approved by the Hon ble Courts from time to time, cannot but be viewed as per incuriam. Therefore, following the Hon ble Andhra Pradesh High Court Full Bench decision in the case of B.R. Constructions (supra), such a decision of the co-ordinate Bench has no precedence value 7. The coordinate bench decision in the case of F C Sondhi & Co (supra), for the reasons set out ab .....

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77; 1,49,99,922 paid on the keyman insurance policies can be allowed on the facts of this case. As to what constitutes keyman insurance policy , we find guidance from the Explanation below Section 10(10D), as it stood at the relevant point of time, which defined the keyman insurance policy as follows: For the purposes of this clause, Keyman 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 .....

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e 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 un .....

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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 business, then the payment for premium on such policy is liable for deduction as business expenditure. Thus, even if a Keyman insurance has been taken in the name of a partner by the partnership firm, then also the deduction has to be allowed on the payment of premium. The other main objections of the learned Commissioner (Appeals) ha .....

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heme, then whether the insurance company is making investment in mutual funds for capital appreciation or under any other investment scheme, will not make any material difference. (Emphasis, by underlining, supplied by us) 12. We are in considered agreement with the views so expressed by our distinguished colleagues. As long as a policy is an insurance policy, whether it involves a capital appreciation or is under any other investment scheme, it meets the tests laid down under section 10(10D). 1 .....

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ision of the Income Tax Act to make it more meaningful and workable, it cannot be open to any judicial forum to supply these omissions. Relying upon Hon ble Supreme Court s judgmen t in the case of Tarulata Shyam Vs CIT [(1977) 108 ITR 245 (SC)], a coordinate bench of this Tribunal, in the case of Tata Tea Limited Vs JCIT [(2003) 87 ITD 351 (Cal)], has explained this principle as follows: 8. Casus omissus, which broadly refers to the principle that a matter which has not been provided in the sta .....

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ogic 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 .....

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es within the letter of law, he must be taxed, however great the hardship may appear to the judicial mind to be. Even in the case of CIT vs. National Taj Traders (supra), relied upon by the assessee, Their Lordships of Hon ble Supreme Court have referred to, with approval, Maxwell on Interpretation of Statutes observation that A case not provided for in a statute is not to be dealt with merely because there seems no good reason why it should have been omitted, and that the omission appears in co .....

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thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute . 15. It is also important to bear in mind the fact that the IRDA guidelines, no matter how relevant as these guidelines may be, have no role to play in the interpretation of the statutory provisions. IRDA is a body controlling the insurance companies and its guidance is relevant on how the insurance companies should conduct their business. Beyond this limited role, these guidel .....

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, therefore, be open to us to turn to the guidelines of the IRDA to interpret the provisions of the Income tax 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 take .....

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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 terminology given by the insurers have no relevance for the purposes of the Income Tax Act. All that is necessary is that it should be a life insurance policy, whether pure life insurance policy or not- .....

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d the impact of the circulars issued by the IRDA. IRDA, i.e. Insurance Regulatory and Development Authority, is set up under the Insurance Regulatory and Development Act 1999. Section 14 of the Insurance Regulatory and Development Act, 1999, describes the duties, powers and functions of the IRDA as follows: 14. DUTIES, POWERS AND FUNCTIONS OF AUTHORITY. (1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote .....

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nt of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; (c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; (d) specifying the code of conduct for surveyors and loss assessors; (e) promoting efficiency in the conduct of insurance business; (f) promoting and regulating professional organisations connected with the insurance and re-insurance business; (g) levying .....

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isory 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 Advi .....

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iness and re-insurance business . In doing so, as evident from Section 14(2)(a) to (q) above, it regulates the conduct of the service providers in the business of the insurance. It does not, and cannot, regulate the conduct of the policy holders. As in Section 14(2)(b), if at all it has anything to do with the policyholders, it is protection of interest of the policyholders. It is in this background that we have to see the circulars issued by the IRDA. In the circular dated 27th April, 2005, the .....

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e that your company follows this circular till fresh guidelines are issued. 17. A plain look at the above circular shows that it deals with aberrations in sale of keyman insurance policies and it is was a direction to the insurance companies that effect 27th April 2005 only term insurance policies should be issued as keyman insurance cover. That is between the regulatory authority and the insurance companies as to what should be allowed to be marketed as keyman insurance cover. However, it does .....

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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. 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 .....

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0D) 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 taken for the benefit of the partner rather than the firm; and (c) no necessity or expediency of the person being keyman an .....

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ess 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 other issues raised by the Assessing Officer as such, we may refer to the following observations made, in this context, by Hon ble Delhi High Court in the case of CIT Vs Rajan Nanda etc. [(2012) 349 ITR 8 (Del)]: 25. After giving our due and thoughtful consideration to the submissions of the parties of both sides, we feel that the assessee has been abl .....

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xpenditure was disallowed, but again the claim was accepted for the Assessment Years 2001-02 and 2002-03. Principle of consistency would, therefore, by applicable in such a case. (ii) The Tribunal has rightly referred to and relied upon the CBDT s Circular dated 18.2.1998. This Circular is binding on the Income Tax Department, which categorically stipulates that premium on keyman policy should be allowed as business expenses. The assessee would, naturally, take into consideration such clarificat .....

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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 .....

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or the purpose of taxation of moneys received under an insurance policy. In this appeal, the court has to determine the question of expenditure incurred towards the payment of insurance premium on a Keyman insurance policy. The circular which has been issued by the Central Board of Direct Taxes clarifies the position by stipulating that the premium paid for a Keyman insurance policy is allowable as business expenditure. In the present case, on the question whether the premium which was paid by t .....

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ssional organization. There is no rational basis to confine the allowability of the expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. A Keyman insurance policy is obtained on the life of a partner to safeguard the firm against a disruption of the business that may result due to the premature death of a partner. Therefore, the expenditure which is laid out for the payment of premium on such a policy is inc .....

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annot be ignored that this course of action is permitted by the Department itself as stated in CBDT s Circular dated 18.2.1998. (v) The expenditure incurred has to be tested on the touchstone of Section 37 of the Act and to see as to whether such expenditure is permissible or not. No doubt, the object of a keyman insurance 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 .....

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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 asse .....

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