Case Law Details
ITO Vs Creation Publicity Limited (ITAT Mumbai)
ITAT Mumbai held that a Keyman Insurance Policy provides for an insurance policy taken by a business organisation on the life of an employee and hence allowable as business expenditure.
Facts- The assessee had paid insurance premium for policies taken life of keyman of the company. The assessee had paid 6,79,007/- which according to AO is not allowable expenses as insurance paid was not purely life insurance policies.
AO has mainly disallowed the claim stating that the word, ‘Keyman’ was not written by the insurance company on the receipt issued for payment of premium.
Conclusion- The Hon’ble Bombay High Court in the case of CIT 20 V/s M/s B.N. Exports has held that 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.
Thus, there can be no doubt that it was a keyman insurance taken by the assessee company.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeals have been filed by the revenue against the separate impugned order of even date 20.05.20 19, passed by Ld. CIT (A)-4, Mumbai for the quantum of assessment passed u/s 143(3) /147 for the AY 2010-11, 2011-12 & 2012-13.
2. The only ground raised in all the 3 appeals are that Ld. CIT(A) has erred in law and on facts in allowing the claim of Keyman Insurance Premium paid without examining whether the directors were Keyman for the company.
3. The facts in brief qua the ground raised in the appeal for AY 2010-11 are that, the assessee had paid insurance premium for policies taken life of keyman of the company. The assessee had paid 6,79,007/- which according to AO is not allowable expenses as insurance paid was not purely life insurance policies. The relevant observations of the AO are as under:-
6. Keyman Insurance Premium of Rs.6, 79,007/-:
6.1 It is seen from the Profit & Loss Account that the assessee has debited Rs. 6,79,007/- being Keyman Insurance Premium paid towards the Directors Shri Paresh T. Vora, Shri Ashok T. Vora, Shri Sukesh T. Vora and Shri Kalpesh T. Vora. On going through the copies of Renewal Premium receipts submitted by the assessee, it is obvious that the insurance premium paid was a pure life insurance policy and not keyman insurance premium since the word ‘Keyman Insurance’ is no-where specifically mentioned in the said receipts. Hence it is inferred that the assessee has failed to establish that the said premium paid pertains to Keyman Insurance Policy. In view of the same, Rs. 6,79,007/- is treated as the income of the assessee for A. Y.201 0-11 and added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the Act, 1961 are initiated separately for filing concealment of income.
4. CIT(A) had allowed the claim after following the decision of Hon’ble Bombay High Court in the case of CIT vs. M/s B. N. Exports (ITA No. 2714 of 2009) and decision of the Tribunal in the case of M/s Shri Nidhi Corporation vs. ACIT (ITA No. 961/Mum/2012).
5. After having heard both the parties and on perusal of the material placed on record, we find that assessee company had paid insurance premium for policies taken on life of keyman of the company which were 4 whole time directors of the company who are actively involved in the business of the company and also paid salary of Rs. 1.39 crores during the year. The AO has mainly disallowed the claim stating that the word, ‘Keyman’ was not written by the insurance company on the receipt issued for payment of premium. We find that LIC of India has given following definition of keyman insurance:-
“Keyman Insurance is taken by a business firm on the life of key employee(s) to protect the firm against financial losses, which may occur due to the premature demise of the Keyman”
6. The Hon’ble Bombay High Court in the case of CIT 20 V/s M/s B.N. Exports in ITA No. 2714 of 2009 has held as under:-
“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 is paid by the employer.”
7. Thus, there can be no doubt that it was a keyman insurance taken by the assessee company.
8. Now before us, Ld. Counsel for the assessee submitted a letter issued by LIC of India. The scan copy of the same is reproduced as under:-
9. From the above letter, there cannot be any doubt that it was a Keyman Insurance of LIC and therefore, the same could not have been disallowed on the reason given by the AO. Accordingly, the order of Ld. CIT(A) is confirmed and the appeal of the revenue is dismissed.
10. Since, we have already decided the similar issue in appeal filed for AY 2010-11, therefore the same will apply mutatis mutandis in appeals filed for AY 2011-12 and 20 12-13 also.
5. In the result, all the appeals filed by the assessee are dismissed.
Orders pronounced in the open court on 31st October, 2022.
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