TMI Blog2016 (4) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. It is a cardinal principle that where any income is subject to tax, the expenditure incurred on earning of such income would be allowable. The Board has merely reiterated this principle. We uphold the action of the ld. CIT(A) in holding that on redemption/withdrawal of the amount under the above policy will have to be taken as income in the hands of the company as business income u/s 28(vi) in the relevant year and as such there will be double taxation if the said amount is disallowed ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain [2017 (2) TMI 1106 - MADHYA PRADESH HIGH COURT] and added to the income under present assessment year. Our interference is not required. Disallowance of commission u/s 40A(2)(a) and 40A(2)(b) - Held that:- AO has not given emphasis on the nature and scope of the work and the services rendered. Section 40A(2) itself makes it apparent that regard must be had to the 'fair market value' of the services, as well as to the 'legitimate needs of the business'. These two criteria are satisfied and hence no disallowance is warranted. Tribunal was not correct in law in upholding the disallowance out of the remuneration paid by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the Insurance Company. In the absence of any documentary evidence i.e. copy of insurance policy and relevant authenticated documents proving Smt. Shweta Jajoo and Shri Arpit Bangur, Directors of the Company as keyman, the claim of the assessee that the premium amounting to ₹ 49,75,054/- paid towards Keyman ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain Insurance Policy was rejected and added to the total income of the assessee. 4. The matter carried to the ld. CIT(A) and the ld. CIT(A) deleted this addition of ₹ 49,75,054/-. 5. The Ld. DR relied upon the order of the AO. 6. The ld. Authorized Representative contended that the assessee could not furnish the copy of insurance policy as the same was not available at that time. However, the assessee submitted the copy of insurance policy alongwith relevant documents in support of the fact that Directors were keypersons. The ld. Authorized Representative further contended that the CBDT vide its circular no. 762 dated 18.2.1998 has provided Explanatory Notes on the provisions relating to Direct Taxes contained in Finance (No.2) Act, 1996. The matter relating to Keyman Insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at that time, but it was submitted afterwards before the CIT(A). We have perused the CBDT Circular no. 762 dated 18.2.1998, which has provided Explanatory Notes on the provisions relating to Direct Taxes contained in Finance (No.2) Act, 1996. The matter relating to Keyman insurance ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain policy has been explained in para 14.4 of the circular. We find that in the case of DelT vs. M/s Navinchandra Securities Pvt. Ltd. ITA No. 2564/Ahd/2008, it was held that the premium paid on the keyman insurance policy is to be allowed as business expenditure. The only thing to be seen is whether the Keyman falls within the definition laid down in the Explanation below section 10(10D). The Explanation states that Explanation: For the purposes of this clause, Keyman insurance policy means a life insurance policy taken by a person on the life of another person 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;. As per the Explanation, the only requirement is that Keyman should be an employee or a director and/or should be connected in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, commission payment made to these parties was restricted to 4% of sales realized through them. The AO made addition of ₹ 23,23,241/- out of commission on sale paid to above two parties invoking provisions of Section 40A(2)(a) and 40A(2)(b) of the Act. 10. The matter carried to the ld. CIT(A) and the ld. CIT(A) deleted this addition holding that the AO has not given ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain emphasis on the nature and scope of the work and the services rendered and as per Section 40A(2), which made it apparent that regard must be had to the fair market value of the services, as well as to the legitimate needs of the business . The assessee has proved that these two criteria were satisfied and hence no disallowance was warranted and the ld. CIT(A) deleted the addition amounting to ₹ 23,23,241/- . 11. The Ld. DR relied upon the order of the AO. 12. The ld. Authorized Representative contended that the addition has been made on irrelevant fact, hypothetical ground and on conjunctures. During the year the assessee has paid commission of ₹ 71,02,500/- on sale to M/s Padma Polytex Pvt. Ltd and ₹ 35,98,604 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an enquiry, as contemplated by the provisions of section 40A(2), no disallowance can be made. The onus is on the Assessing Officer to bring the material on record to prove that the payment made by the assessee is excessive or unreasonable having regard to the fair market value of the services rendered or goods supplied. The ld. Authorized Representative further contended that the Id. AO. concentrated on the quantum of payment involved in order to make out a case for excessive or unreasonable payment, ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain without reference to the nature of work involved. The Id. AO has not given emphasis on the nature and scope of the work and the services rendered. In fact, section 40A(2) itself makes it apparent that regard must be had to the 'fair market value' of the services, as well as to the 'legitimate needs of the business'. The assessee has proved that these two criteria are satisfied and hence no disallowance was warranted. The ld. Authorized Representative further relied on the decision in the case of Hive Communication (P.) Ltd. v. CIT [2011) 201 Taxman 99/12 taxmann.com 287, in which the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that, in the process, the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee from such services was also to be kept in mind. The Hon'ble High Court also cited reference to the decision of the Calcutta High Court in the case of CIT v. Edward Keventer (P.) Ltd. [1972] 86 ITR 370 , later affirmed by ACIT,2(1), Ujjain vs. M/s. Shriji Polymers Private Limited, Ujjain the Supreme Court in CIT v. Edward Keventer (P.) Ltd. [1978] 115 ITR 149. We find that in this case, the Hon'ble Court had held that (i) the legitimate business needs of a company must be judged from the view point of the company itself and must be viewed from the point of view of a prudent businessman, (ii) it is not for the Assessing Officer to dictate what the business need of the company should be and he is only to judge the legitimacy of the business needs from the angle of a prudent businessman, and (iii) the benefit derived or accruing to the company must also be considered from the angle of a prudent businessman. The Hon'ble Court also observed that 'the term 'benefit' to a company in relation to its business has a ver ..... X X X X Extracts X X X X X X X X Extracts X X X X
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