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TMI Blog2024 (5) TMI 1257X X X X Extracts X X X X X X X X Extracts X X X X ..... rather than the appellant. On the facts and in the circumstances of the case and in law, the disallowance made ought to be deleted. 2. Without prejudice to ground No. 1 above, if it is held that premium paid on Keyman Insurance Policy is not deductible expenditure u/s 37(1) of the Act, then in the year of maturity or surrender of the said policy, the difference between premium paid and amount received on maturity/surrender ought to be considered while computing the taxable income." 3. Similarly in A.Y. 2018-19 exactly similar ground has been raised for disallowing premium of Rs. 1,00,00,000/- paid on premium insurance policy; whereas Revenue in 2018-19 had challenged the addition in respect of commission paid to foreign entities amounting to Rs. 1,82,66,691/-. 4. As a lead case we are taking the appeal for A.Y. 2017-18 and our finding given therein will apply mutatis mutandis in the assessee's appeal for A.Y. 2018-19 also. 5. The brief facts are that assessee is a partnership firm and is engaged in the business of exporting embroidered fabrics and allied products. The ld. AO from the perusal of the profit and loss account noted that assessee has claimed expenses of Rs. 1,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision cannot be misused to make large scale investments in the garb of life insurance and then claim deduction on it. 4. Further, as per section 10(10D) explanation 1. "for the purpose 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 mention person. Here, it is clear that the insurance policy should be taken by the employer, In this case, the assessee has not taken the policy. Hence does not qualify the requirements of the Income Tax Act 1 Further assessee has claimed that the partner Mr. Chelan Desai has endorsed the said policy in the name of the firm hence all the rights have been transferred to the firm, Assessee's submission has been considered but not found to be acceptable. As per the said endorsement policy there are certain terms and conditions which make it clear that rights are not fully transferred to the firm. As per clause 'o' of the said endorsement document it is written that the policy will be absolutely assigned in my (Mr. Chetan Desai) favor upon completion of the said minimum lock in clause 2. It is further to be seen that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,30,65,992/- from HDFC Insurance policy (claimed as keyman insurance in P&L). However, on the other hand, the assessee has also debited expenditure of Rs. 2,60,00,000/- for this keyman policy in the same AY No cogent explanation or rationale has been provided to explain the purpose for which these expenses were claimed. Assessee has not submitted any policy document in support of his claim that expenditure shown in AY 2016-17 was valid and if at all any parallel can be drawn from it for AY 2017-18 1 In keyman insurance policy, nomination can be done only in favour of the company/employer. Here the employer is the assessee (the firm) However, in both the policies for this year, as per Policy Schedule, proposer of the policy is Mr Chetan Desai, Name of the Policyholder, is mentioned as Mr. Chetan K Desai, Name of the life insured on both policies is Mr. Chetan K Desai and in the Nominee Schedule, Name of Nominee is mentioned as Sonali Desai at 100% nomination 2. Technically, in a Keyman Policy, firstly the employer is proposer who then can assign the policy to the Keyman employee. Only after such assignment the Keyman can nominate his family dependents in the policy Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een offered to tax in terms of Section 2(24)(xi) and therefore disallowing the premium amounts to double addition. 7. Regarding allegation of the ld. AO, he submitted that once the endorsement was made to the firm and also accepted by the insurance company and thereafter, the insurance company has acknowledged the said endorsement, then all these allegations of the AO does not stand. It was for this reason alone the amount was finally credited in the account of partnership firm on the surrender of the policy which has been offered to tax. He also drew our attention to Section 38, 39 & 40 of the Insurance Act wherein it has been clearly provided in subsection (4) of Section 39 that a transfer/ assignment of a policy would be made in accordance with Section 38 and any nomination in the policy will automatically cancel the nomination. Even if assessee's wife was a nominee in the original insurance policy but that stood cancelled once there was an assignment of the policy in the name of the firm. He further submitted that even in terms of Section 10(10d) r.w. Explanation 1 of the Act, there is no provision that the policy should not be in the in the name of Keyman and it also includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in response to the notice issued by him. 11. Section 10(10d) which gives exemption or deduction of any sum received under life insurance policy including Keyman insurance policy, Explanation-1 to Section 10(10d) defines the Keyman Insurance in the following manner:- Explanation 1. 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 or was connected in any manner whatsoever with the business of the first-mentioned person [and includes such policy which has been assigned to a person, at any time during the term of the policy, with or without any consideration]." 12. Ergo, Keyman Insurance policy is a life insurance policy taken by a person on the life of a person who was an employee and also imputed such policy which has been assigned to a person at any time during the term of policy with or without any consideration. Thus, even if the policy was taken in the name of key person and has been assigned to the firm, then also same falls in the definition of said explanation. Apart from that, another allegation by the ld. AO was that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction is allowed and the grounds raised by the assessee are allowed. 14. In so far as Revenue's appeal for A.Y. 2018-19 on account of commission paid to foreign entities, it has been admitted by both the parties that this issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case for A.Y. 2016-17. The relevant observation and finding of the Tribunal in this regard reads as under:- 5. We have heard both the parties and perused the record. We note that the assessee firm is engaged in the business of manufacturing and exporting of embroidered fabrics and allied products. The assessee, after receiving export orders from the agents stationed outside the territory of India, exports its products outside India, for which services of agents, the assessee paid commission. The AO noted that the assessee had made payment of Rs. 1,61,90,101/- to four (4) agents outside India. The AO further noted that assessee paid commission to those parties, who were the residents of country where the India had entered into Double Taxation Avoidance Agreement (DTAA). The assessee was show-caused as to why the provision of section 195 of the Act should not be made applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r procuring export order of products of assessee and the payments made by assessee to them are in the nature of commission which was specifically mentioned in the agreement. In the light of the aforesaid facts/agreement between assessee and foreign agents for earlier years i.e. AY. 2010-11 & AY. 2011-12 in assessee's own case, on this issue Tribunal upheld the action of Ld. CIT(A) by holding as under: - "8. We have considered the submission of both the parties and have gone through the orders of authorities below. There is no dispute that the assessee appointed commission agent outside India. The Assessing Officer failed to bring any material on record to show that the services provider has any business place in India or the services were not rendered outside India by those commission agents. The Hon'ble Bombay High Court in CIT vs. Gujarat Reclaim and Rubber Products Ltd. (supra) held that commission earned by non-resident agent who carried on the business of selling Indian goods outside India cannot be said to have deemed to be income which has accrued or arise in India. The Hon'ble jurisdictional High Court followed the decision of Hon'ble Supreme Court in CIT vs. Toshoku Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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