Case Law Details
Brief of the case:
ITAT held in M/s F.C Sondhi & Co.(India) P Ltd Vs The DCIT that the premium paid on the keyman Insurance Policy would be allowed as a business expense because the same had been paid for the growth and stability of business and it was irrespective of the fact that the funds had been invested in the mutual funds or in capital appreciation scheme. Keyman insurance policy was a policy on the life of another person who is an employee of the assessee or is connected with the business of the assessee. ITAT relied on the decision given in case of M/s Suri Son Vs ACITin ITA No 37(Asr)/2010 where in it was decided that the keyman insurance policy was to safeguard the business from mishappening.
Facts of the case:
The assessee had taken keyman insurance policy on the life of Marketing director and claimed premium as a business deduction but AO disallowed the same on the basis that as per IRDA keyman Insurance policy was term assurance policy which was upheld by CIT(A). Revenue was also of the view that the policy could not be taken of that person who had not yet born.
Contention of the assessee:
Assessee was of the view that the keyman insurance policy should be treated as per income tax act and not as per IRDA guidelines. IRDA had no relevance regarding the allow ability of premium under Income Tax act. He submitted that in Income Tax Act the help of another act could not be taken for the purposes of interpretation and wherever it is required it is mentioned in the relevant section of the Income Tax Act itself. The word Life Insurance should be understood in common parlance and not as per IRDA guidelines.
Moreover the Keyman Insurance policy had been taken on the life of marketing person so the contention of the revenue that the policy could not be taken on non-born person did not hold any ground.
Moreover the policy had been taken for the smooth functioning of business.
Contention of revenue:
Revenue was of the view that the Keyman Insurance Policy could be taken on the life of a person falling in the age group of 0 to 65 years and therefore, he argued that how a person not yet born could be eligible to become a Keyman.
Held by ITAT:
ITAT relied on the case of M/s Suri Son Vs ACITin ITA No 37(Asr)/2010 and on the decision given in Sh. Nidhi Corporation vs ACIT 151 ITD 470 in which it was held that wherever insurance company was making investment in mutual funds for capital appreciation or under any other investment scheme would not make any material difference in respect of allowance of premium. Moreover ITAT after considering the sec 10(10D) ‘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.” ITAT found that Keyman Insurance Policy was a policy on the life of another person who is an employee of the assessee or is connected with the business of assessee and there was no such restriction as to whether the assessee was given liberty to decide investment plans of insurance companies or not. Therefore, the argument raised by revenue was wrong.
Appeal of the assessee was allowed.
