Escorts Heart Institute & Research Centre Ltd. v. ACIT (Delhi High Court)
(2011) 128 ITD 108/ (2010) 8 taxmann.com 209 (Delhi)
Delhi High Court has recently in a batch of appeals filed by the Income Tax Department against Escorts Heart Institute & Research Centre Ltd and their employee directors held, inter alia, that the assignment of the Keyman insurance policies taken by the Company in respect of the Directors, at the surrender value fixed by the insurer did not give rise to a taxable benefit in the hands of the Directors. Hence the difference between the premium paid by the Company and the surrender value was not taxable in the hands of the Directors.
The assessee was a super-specialty hospital dealing with cardiac and cardio vascular diseases. It had taken insurance policies on life of its key personnel — Chief Surgeon, Chairman and Managing Director, the premium on which was claimed as deduction.
The Assessing Officer disallowed the deduction on grounds that the benefit of policy was assigned to key personnel and therefore was not incurred wholly for business purpose.
On appeal, the learned CIT(A) held that since the surgeon had the requisite skill and knowledge of the field, therefore he was responsible for the turnover of the company and accordingly only the premium paid on his policy is deductible and that on the policy of the Chairman and the Managing Director is not.
(1) The assessee’s activity cannot be said to be solely depending on the surgeon. Though, he may be responsible for the turnover of the company, he may not be responsible for the profits of the company, due to lack of competence necessary for a businessman.
(2) Further, since the business is carried on with the ultimate motive of earning profits, it cannot be said that profits could not be taken as guiding factor to analyse the business.
(3) It was also not argued that the salaries paid to these persons were not allowable.
(4) Further, on their resignation in the subsequent year, the profits of the assessee reduced substantially.
(5) All the above factors led to the conclusion that the Chairman and the Managing Director were key personnel and accordingly the premium paid on their policy is allowed.