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TMI Blog2010 (1) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... e and in law, the ld. CIT(A) erred in deleting the disallowance of keyman insurance premium of ₹ 40,43,906/-m ignoring the fact the Director was drawing a meager salary of ₹ 96,000/- per annum only and therefore, was not a key business person of the assessee having specialized skills to link with the profitability of the company" 3. The facts of the case are that the assessee is in the business of dealing in shares and securities of listed companies and Government Securities funds. During the year under consideration the company has taken keyman insurance policy on life of Shri Rakesh N Shah, who is holding key position as a whole time director in the company from Kotak Life Insurance Co. The term of the policy is 30 years and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icy, including the sum allocated by way of bonus on such policy. Up to 1.10.1996 even the sum received by the company under Keyman insurance policy was exempt from tax. However by Finance (No.2) Act, 1996, w.e.f 1.10.1996, any sum received under a key man insurance policy was excluded from the ambit of section 10(10D) and simultaneously included in the profits and gains of business or profession by introduction of clause (vi) in section 28. Such sums therefore became chargeable to tax as income of the assessee. TheCBDT, vide is 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 insurance policy has been explained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits in lieu of salary" for tax purposes; and in case of other persons having no employer-employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly. The premium paid on the Keyman Insurance Policy is allowed as business expenditure. 4.2.1 The Board has clarified in para 1.4.4 of the Circular 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designed. The premium under such policy has been categorically declared by the Board to e allowable as deduction, specifically in view of the fact that the maturity amount receivable under the policy is no longer exempt from 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. Accordingly, I am of the opinion that the AO was not justified in making the disallowance of Keyman insurance policy premium of ₹ 40,43,906/-" 5. We have considered the rival submissions. We find that Section 10(10D) of the Act exempt from the charge of tax any sum received under a life insurance policy, including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such matter. He was the only person handling all the affairs of the company and was solely responsible for generating profits of approximately ₹ 55 lacs during the year. We find that key man policy was taken and three installments were paid. During the course of hearing he learned AR submitted a copy of assessment order passed under section 143(3) for the assessment year 2006-07, wherein the similar insurance premium was accepted by the revenue as business expenses and it was treated as business expenses. We find that the department has accepted u/s 143(3) of the Act, 1961. Therefore, we are of the view that the learned CIT(A) is justified in deleting the same and our interference is not called. 6. The appeal of the revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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