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Pr. Commissioner of Income Tax-I, Ludhiana Versus M/s Ramesh Steels, Ludhiana

2016 (5) TMI 1155 - PUNJAB & HARYANA HIGH COURT

Premium paid for securing “Keyman Insurance Policy” - Addition of premium paid on the life of partners and debited to the profit and loss account as Keyman Insurance Premium of the assessee firm - Held that:- The Bombay High Court delving into identical issue in Commissioner of Income Tax v. B.N. Exports [2010 (3) TMI 186 - BOMBAY HIGH COURT ] after noticing the relevant statutory provisions and the Board Circular No. 762 dated 18th February, 1998 issued by the Central Board of Direct Taxes on t .....

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ation where the policy is in respect of the life of an employee. The said policy when obtained to secure the life of a partner against a disruption of the business is equally for the benefit of the partnership business which may be affected as a result of premature death of a partner. Thus, the premium on the 'Keyman Insurance Policy' of partner of the firm is wholly and exclusively for the purposes of business and is allowable as business expenditure - Decided in favour of assessee - ITA No. 43 .....

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ssessment year 2008-09, claiming the following substantial question of law:- Whether upon facts and circumstances of the case, the Hon'ble ITAT was right in law, in upholding the decision of the Ld. CIT(A) in deleting the addition of ₹ 1,27,49,983/- made by the Assessing Officer on account of premium paid on the life of partners and debited to the profit and loss account as Keyman Insurance Premium of the assessee firm? 2. Put shortly, the facts necessary for adjudication of the instan .....

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42(1) of the Act along with detailed questionnaire was issued. The Assessing Officer vide order dated 3.12.2010 (Annexure A-1) framed the assessment under Section 143(3) of the Act at nil income and made the additions of ₹ 21,52,812/- and ₹ 1,27,49,983/- on account of disallowance of excess depreciation and disallowance of premium paid on 'Keyman Insurance Policy' taken on life of the partners. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income .....

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in this appeal is whether the premium paid for securing Keyman Insurance Policy whereby the premium had been paid to secure the life of a partner against disruption of the business that may result due to the premature death of a partner would be admissible expenditure under Section 37 of the Act. 5. The issue is no longer res integra. The Bombay High Court delving into identical issue in Commissioner of Income Tax v. B.N. Exports (2010) 323 ITR 178 after noticing the relevant statutory provisio .....

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sis 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. The said policy when obtained to secure the life of a partner against a disruption of the business is equally for the benefit of the partnership business which may be affected as a result of premature death of a partner. Thus, the premium on the 'Keyman Insurance Policy' of partner of the firm is wholly and ex .....

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n, not falling within the previous sub clauses. Consequently, for the purposes of taxation, a firm is regarded as a distinct assessable entity. Section 10 provides that in computing the total income of any person for the previous year, income falling within any of the clauses of the provision shall not be included. Clause (10D) specifies to any sum received under a life insurance policy, including a sum allocated by way of bonus on such a policy other than, inter alia, "any sum received und .....

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uded in computing the total income of any person. However, a sum received under a Keyman Insurance Policy forms a part of the total income and is liable to be offered to tax. For the purposes of Clause (10D), a Keyman Insurance Policy is a life insurance policy taken by a person on the life of another person who is or was the employee of the person who subscribes to the policy of insurance or is or was connected in any manner whatsoever with the business of the subscriber to the policy. In other .....

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thus : "14.1 A Keyman Insurance Policy of the Life Insurance Corporation of India, etc., provides for an insurance policy taken by a business organisation or a professional organisation 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 i .....

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is quoted as under:- 9. 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 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 .....

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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 the firm could have been allowed as business e .....

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