M/s. Freewill Sports Pvt. Ltd, Jalandhar V. The Addl. Commissioner of Incomet-ax, Jalandhar

ITA 20/ASR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8784 (ITAT-AMRITSAR)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K ANAND
• Keywords: Business expenditure; Rule of consistency; Commercial expediency
• Section: 10(10D); 37; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER [ I.T.A NO. 20(ASR)/2013 ASSESSMENT YEAR: 2007-08 FREEWILL SPORTS PVT. LTD. S.32, INDUSTRIAL AREA JALANDHAR. PAN:AAACF2160M VS. ACIT, RANGE-II, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P. K. ANAND (CA.) RESPONDENT BY: SH. TARSEM LAL (DR.) DATE OF HEARING: 16.03. 2016 DATE OF PRONO UNCEMENT: 22.03.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LEARNED CIT(A), JALANDHAR, DATED 30.11.2012 FOR ASST. YEAR . 2007-08. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS THE AC TION OF LEARNED CIT(A), BY WHICH HE HAD UPHELD THE ADDITION OF RS.3 ,00,000/- ON ACCOUNT OF PAYMENT OF PREMIUM OF KEYMANS INSURANCE POLICY. 3. AT THE OUTSET, THE LEARNED AR SUBMITTED THAT LEA RNED CIT(A) HAD DISMISSED THE APPEAL OF ASSESSEE BY FOLLOWING THE E ARLIER ORDER OF CIT(A), IN THE CASE OF M/S SURI SONS IN APPEAL NO.407/08-09 /CIT(A)/JALANDHAR. HE FURTHER SUBMITTED THAT THE HONBLE TRIBUNAL IN T HE CASE OF SURI SONS ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 2 VIDE ITS ORDER DATED 31 ST AUGUST, 2015 HAS REVERSED SUCH ORDER OF LEARNED CIT(A) AND DECIDED THE ISSUE IN FAVOUR OF ASSESSEE, THEREFORE, THE CASE OF THE ASSESSEE WHICH WAS DISMISSED BY FOLLOWING THE C ASE OF SURI SONS ALSO NEEDS TO BE DECIDED AS PER THE TRIBUNAL ORDER DATED 31 ST AUGUST, 2015. 4. THE LEARNED DR, HOWEVER, RELIED UPON THE ORDER O F AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ONLY IS SUE TO BE DECIDED BY US IS REGARDING THE ALLOWABILITY OF PREMIUM OF KEYM AN INSURANCE POLICY . WE FURTHER FIND THAT THIS CASE WAS EARLIER DECIDED BY HONBLE TRIBUNAL VIDE ITS ORDER DATED 13.05.2014 IN FAVOUR OF REVENU E WHICH WAS HOWEVER RECALLED VIDE ORDER DATED 29.02.2016. WE FURTHER FI ND THAT LEARNED CIT(A) HAD DISMISSED THE APPEAL OF ASSESSEE BY FOLLOWING H IS ORDER IN THE CASE OF SURI SONS WHICH ITSELF HAS BEEN DECIDED BY THE TRIB UNAL IN ITA 37(ASR)/2010 VIDE ITS ORDER DATED 31.08.2015 IN FAV OUR OF ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL AS CONTAINED IN T HE CASE OF M/S SURI SONS ARE REPRODUCED BELOW. 8. LET US NOW COME BACK TO THE CORE ISSUE BEFORE U S. THE SHORT QUESTION THAT WE HAVE TO REALLY ADJUDICATE IS AS TO WHETHER THE PREMIUM OF RS 1,49,99,922 PAID ON THE KEYMAN INSURANCE POLICIE S CAN BE ALLOWED ON THE FACTS OF THIS CASE. AS TO WHAT CONSTITUTES KEY MAN INSURANCE POLICY, WE FIND GUIDANCE FROM THE EXPLANATION BELOW SECTION 10 (10D), AS IT STOOD AT THE RELEVANT POINT OF TIME, WHICH DEFINED THE KEYMA N INSURANCE POLICY AS FOLLOWS: 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 FI RST- ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 3 MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANN ER WHATSOEVER WITH THE BUSINESS OF THE FIRST-MENTIONED PERSON 9. VIDE FINANCE ACT 2013, THE FOLLOWING WORDS HAVE BEEN ADDED TO THIS DEFINITION- AND INCLUDES SUCH POLICY WHICH HAS BEEN ASSIGNED TO A PERSON, AT ANY TIME DURING THE TERM O F THE POLICY, WITH OR WITHOUT ANY CONSIDERATION . 10. ALL THAT IS REQUIRED FOR AN INSURANCE POLICY TO MEET THE REQUIREMENTS OF SECTION 10(10D), THEREFORE, HAS TO BE (A) IT SHOULD BE A LIFE INSURANCE POLICY; (B) IT SHOULD BE TAKEN BY THE ASSESSEE ON THE LIFE OF ANOTHER PERSON WHO IS, OR WAS, AN EMPLO YEE OF THE ASSESSEE OR IS RELATED TO THE BUSINESS OF THE ASSES SEE IS ANY MANNER. 11. DEALING WITH BOTH THE LIMBS OF THE ABOVE REQUIR EMENST, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF S HRI NIDHI CORPORATION (SUPRA), HAS OBSERVED AS FOLLOWS: IT APPEARS THAT AFTER THE ASSESSEE HAS PURCHASED TH ESE POLICIES, IRDA CAME UP WITH CIRCULAR DATED 27TH APRIL 2005 TH AT PARTNERSHIP INSURANCE IN THE NAME OF PARTNER WILL NOT BE COVERE D UNDER KEYMAN INSURANCE BUT AS A TERM INSURANCE COVER. THUS, SUCH IRDA CIRCULAR CANNOT BE ADVERSELY VIEWED IN CASE OF THE ASSESSEE AS WHEN THE ASSESSEE HAS TAKEN THE POLICY UNDER KEYMAN INSURANC E SCHEME FROM TWO REPUTED INSURANCE COMPANIES THERE WAS NO S UCH REGULATION. THE OTHER OBJECTIONS OF THE REVENUE ARE THAT THE DEDUCTION OF THE PREMIUM UNDER KEYMAN INSURANCE CAN NOT BE ALLOWED IN THE CASE OF PARTNERSHIP FIRM, IS NOT TEN ABLE IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N B.N. EXPORTS (SUPRA), WHEREIN, IT HAS BEEN HELD THAT IF THE KEYM AN INSURANCE POLICY IS OBTAINED ON A LIFE OF A PARTNER, TO SAFEG UARD THE FIRM AGAINST A DISRUPTION OF BUSINESS, THEN THE PAYMENT FOR PREMIUM ON SUCH POLICY IS LIABLE FOR DEDUCTION AS BUSINESS EXP ENDITURE. THUS, EVEN IF A KEYMAN INSURANCE HAS BEEN TAKEN IN THE NA ME OF A PARTNER BY THE PARTNERSHIP FIRM, THEN ALSO THE DEDU CTION HAS TO BE ALLOWED ON THE PAYMENT OF PREMIUM . THE OTHER MAIN OBJECTIONS OF THE LEARNED COMMISSIONER (APPEALS) HA S BEEN THAT FIRSTLY, THESE ARE NOT INSURANCE POLICY AS SUCH BUT ARE MAINLY FOR CAPITAL APPRECIATION UNDER THE INVESTMENT SCHEME AN D SECONDLY, THE ASSESSEE HAS NOT RECEIVED THE MATURITY SUM BUT IT H AS BEEN ASSIGNED TO THE PARTNERS, THEREFORE, THE ASSESSEE C ANNOT BE GIVEN DEDUCTION FOR ANY PREMIUM PAID. INSOFAR AS THE FIRS T OBJECTION OF THE LEARNED COMMISSIONER (APPEALS) IS CONCERNED, WE DEC LINED TO AGREE WITH THIS CONCLUSION, BECAUSE ONCE THE ASSESSEE HAS BOUGHT A POLICY UNDER A LIFE INSURANCE SCHEME, THEN WHETHER THE INSURANCE COMPANY IS MAKING INVESTMENT IN MUTUAL FU NDS FOR CAPITAL APPRECIATION OR UNDER ANY OTHER INVESTM ENT SCHEME, WILL NOT MAKE ANY MATERIAL DIFFERENCE. ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 4 (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 12. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS S O EXPRESSED BY OUR DISTINGUISHED COLLEAGUES. AS LONG AS A POLI CY IS AN INSURANCE POLICY, WHETHER IT INVOLVES A CAPITAL APPRECIATION OR IS UNDER ANY OTHER INVESTMENT SCHEME, IT MEETS THE TESTS LAID DO WN UNDER SECTION 10(10D). 13. THE REQUIREMENT OF PURE INSURANCE POLICY IS SOM ETHING WHICH IS NOT LAID DOWN BY THE STATUTE. YET, IT IS THIS WH ICH HAS BEEN INFERRED BY THE AUTHORITIES BELOW. 14. EVEN IF SUCH AN INFERENCE IS DESIRABLE, AS LONG AS IT DOES NOT EMERGE FROM THE PLAIN WORDS OF THE STATUTE, IT CANN OT BE OPEN TO SUPPLY THE SAME. THE CONCEPTS OF TERM POLICY, PURE LIFE POLICY AND THE IRDA GUIDELINES FIND NO MENTION IN THE STATUTOR Y PROVISIONS. BUT EVEN IF THESE CONCEPTS OUGHT TO BE INCORPORATED IN THIS STATUTORY PROVISION OF THE INCOME TAX ACT TO MAKE IT MORE MEA NINGFUL AND WORKABLE, IT CANNOT BE OPEN TO ANY JUDICIAL FORUM T O SUPPLY THESE OMISSIONS. RELYING UPON HONBLE SUPREME COURTS JUD GMENT IN THE CASE OF TARULATA SHYAM VS CIT [(1977) 108 ITR 245 (SC)], A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF TATA TEA LIMITED VS JCIT [(2003) 87 ITD 351 (CAL)] , HAS EXPLAINED THIS PRINCIPLE AS FOLLOWS: 8. CASUS OMISSUS, WHICH BROADLY REFERS TO THE PRINC IPLE THAT A MATTER WHICH HAS NOT BEEN PROVIDED IN THE STATUTE BUT SHOULD HAVE BEEN THERE, CANNOT BE SUPPL IED BY US, AS, TO DO SO WILL BE CLEARLY BEYOND THE CALL AND SCOPE OF OUR DUTY WHICH IS ONLY TO INTERPRET THE LA W AS IT EXISTS. HONBLE SUPREME COURT, IN THE CASE OF SMT. TARULATA SHYAM VS. CIT 1977 CTR (SC) 275 : (1977) 1 08 ITR 345 (SC) AT P 356 HAS OBSERVED : 'WE HAVE GIVEN ANXIOUS THOUGHT TO THE PERSUASIVE ARGUMENTS..... (WHICH) IF ACCEPTED, WILL CERTAINLY SOFTEN THE RIGOUR OF THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CONFORMITY WITH LOGIC AND EQUITY. BUT TH E LANGUAGE OF SECTIONS........ IS CLEAR AND UNAMBIGUO US. THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE TH E WORDS WHICH ARE NOT THERE. SUCH INTERPRETATION WOUL D BE, NOT TO CONSTRUE, BUT TO AMEND THE STATUTE. EVEN IF THERE BE A CASUS OMISSUS, THE DEFECT CAN BE REMEDIE D ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION......TO US, THERE APPEARS NO JUSTIFI CATION TO DEPART FROM NORMAL RULE OF CONSTRUCTION ACCORDIN G TO WHICH THE INTENTION OF LEGISLATURE IS PRIMARILY TO BE GATHERED FROM THE WORDS USED IN THE STATUTE. IT WIL L BE WELL TO RECALL THE WORDS OF ROWLATT. J. IN CAPE BRA NDY SYNDICATE VS. IRC (1921) 1 KB 64 (KB) AT P. 71, THA T : ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 5 '........... IN A TAXING ACT ONE HAS TO LOOK AT MER ELY WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMEN T. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMP TION AS TO A TAX. NOTHING IS TO BE READ IN, NOTHING IS T O BE IMPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE U SED.' ONCE IT IS SHOWN THAT THE CASE OF THE ASSESSEE COME S WITHIN THE LETTER OF LAW, HE MUST BE TAXED, HOWEVER GREAT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE.' EVEN IN THE CASE OF CIT VS. NATIONAL TAJ TRADERS (S UPRA), RELIED UPON BY THE ASSESSEE, THEIR LORDSHIPS OF HON BLE SUPREME COURT HAVE REFERRED TO, WITH APPROVAL, MAXW ELL ON INTERPRETATION OF STATUTES OBSERVATION THAT 'A CASE NOT PROVIDED FOR IN A STATUTE IS NOT TO BE DEALT WI TH MERELY BECAUSE THERE SEEMS NO GOOD REASON WHY IT SHOULD HAVE BEEN OMITTED, AND THAT THE OMISSION APPEARS IN CONSEQUENCE TO HAVE BEEN UNINTENTIONAL'. THEIR LORDSHIPS THEN OBSERVED THAT 'IN OTHER WORDS, UNDER THE FIRST PRINCIPLE, A CASUS OMISSUS CANNOT B E SUPPLIED BY THE COURT EXCEPT WHEN REASON FOR IT IS FOUND TO BE IN THE FOUR CORNERS OF THE STATUTE ITSELF BUT AT THE SAME TIME A CASUS OMISSUS SHOULD NOT BE READILY INFERRED AND FOR THAT PURPOSE ALL THE PARTS OF A ST ATUTE OR SECTION MUST BE CONSTRUED TOGETHER AND EVERY CLA USE OF A SECTION SHOULD BE CONSTRUED WITH REFERENCE TO THE CONTEXT AND OTHER CLAUSES THEREOF SO THAT THE CONSTRUCTION TO BE PUT ON A PARTICULAR PROVISION MA KES A CONSISTENT ENACTMENT OF THE WHOLE STATUTE'. 15. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT THE IRDA GUIDELINES, NO MATTER HOW RELEVANT AS THESE GUIDELI NES MAY BE, HAVE NO ROLE TO PLAY IN THE INTERPRETATION OF THE STATUT ORY PROVISIONS. IRDA IS A BODY CONTROLLING THE INSURANCE COMPANIES AND I TS GUIDANCE IS RELEVANT ON HOW THE INSURANCE COMPANIES SHOULD COND UCT THEIR BUSINESS. BEYOND THIS LIMITED ROLE, THESE GUIDELINE S DO NOT AFFECT HOW THE PROVISIONS OF THE INCOME TAX ACT ARE TO BE CONSTRUED. WHENEVER THE PROVISIONS OF THE OTHER STATUTUTES ARE TO BE TAKEN INTO ACCOUNT, FOR INTERPRETING THE PROVISIONS OF THE INC OME TAX ACT, THE INCOME TAX ACT SPECIFICALLY PROVIDES SO, SUCH AS IN THE CASE OF EXPLANATION 2 TO SECTION 2 (42A) WHICH PROVIDES THA T THE EXPRESSION 'SECURITY' SHALL HAVE THE MEANING ASSIGN ED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956 )]. IT CANNOT, THEREFORE, BE OPEN TO US TO TURN TO THE GUIDELINES OF THE IRDA TO INTERPRET THE PROV ISIONS OF THE INCOME TAX ACT, 1961. IN THIS VIEW OF THE MATTER, L EARNED ASSESSING OFFICERS OBSERVATIONS TO THE EFFECT THAT, THAT THE POLICY TAKEN IS KEYMAN AS PER DEFINITION GIVEN IN THE INCOME TAX AC T, I.E. POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON AND ALSO FULFILLING ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 6 THE TERMS AND CONDITIONS LAID DOWN BY IRDA IN THIS REGARD , NECESSITY AND EXPEDIENCY OF THE PERSON BEING KEYMAN AND THE POLICY TAKEN FOR THE BENEFIT OF THE ASSESSEE FIRM (EMPHASIS, BY UNDERLING, SUPPLIED BY THE AO) ARE DEVOID OF ANY L EGALLY SUSTAINABLE MERITS. THE FULFILMENT OF IRDA TERMS AND CONDITIONS IS WHOLLY ALIEN TO THE PRESENT CONTEXT. AS FOR THE POLICY BEING TAKEN FOR THE BENEFIT OF THE ASSESSEE FIRM, AS LONG AS IT IS FOR THE PURPOSE OF TAKING AN INSURANCE POLICY ON THE LIFE OF A PERSON WHO IS RELATED TO THE FIRM, THE SAME CANNOT BE CALLED INTO QUESTION EITHER. WE HAVE ALSO NOTED THAT THE A UTHORITIES BELOW HAVE PAID A LOT OF EMPHASIS ON THE CONTENTION THAT THE I NSURANCE POLICIES IN QUESTION WERE NOT TERMED AS KEYMAN INSURANCE POLICI ES BUT NOTHING TURNS ON THAT ASPECT, EVEN IF THAT BE SO, EITHER. THE KEY MAN INSURANCE POLICY IS A DEFINED CONCEPT AND AS LONG AS IT MEETS THE REQUIRE MENTS OF THIS DEFINITION, THE TERMINOLOGY GIVEN BY THE INSURERS HAVE NO RELEV ANCE FOR THE PURPOSES OF THE INCOME TAX ACT. ALL THAT IS NECESSARY IS THAT I T SHOULD BE A LIFE INSURANCE POLICY, WHETHER PURE LIFE INSURANCE POLIC Y OR NOT- AS SUCH CRITERION IS NOT SET OUT ANYWHERE IN THE STATURE, A ND IT SHOULD BE TAKEN ON THE LIFE OF A PERSON WHO IS, OR HAS BEEN, AN EMPLOY EE OF THE ASSESSEE OR ANY OTHER PERSON WHO IS OR WAS CONNECTED IN ANY MAN NER WHATSOEVER WITH THE BUSINESS OF THE ASSESSEE. THESE CONDITIONS ARE CLEARLY SATISFIED ON THE FACTS OF THE CASE BEFORE US. 16. A LOT OF EMPHASIS HAS BEEN PLACED BY THE AUTHOR ITIES BELOW ON THE CIRCULARS ISSUED BY THE IRDA. IT MAY, THEREFORE, B E APPROPRIATE TO BRIEFLY DEAL WITH THE IRDA AND THE IMPACT OF THE CIRCULARS ISSUED BY THE IRDA. IRDA, I.E. INSURANCE REGULATORY AND DEVELOPMENT AUT HORITY, IS SET UP UNDER THE INSURANCE REGULATORY AND DEVELOPMENT ACT 1999. SECTION 14 OF THE INSURANCE REGULATORY AND DEVELOPMENT ACT, 1999, DESCRIBES THE DUTIES, POWERS AND FUNCTIONS OF THE IRDA AS FOLLOWS : 14. DUTIES, POWERS AND FUNCTIONS OF AUTHORITY. (1) SUBJECT TO THE PROVISIONS OF THIS ACT AND ANY O THER LAW FOR THE TIME BEING IN FORCE, THE AUTHORITY SHALL HAVE THE DUTY T O REGULATE, PROMOTE AND ENSURE ORDERLY GROWTH OF THE INSURANCE BUSINESS AND RE-INSURANCE BUSINESS. (2) WITHOUT PREJUDICE TO THE GENERALITY OF THE PROV ISIONS CONTAINED IN SUB-SECTION (1), THE POWERS AND FUNCTIONS OF THE AU THORITY SHALL INCLUDE, - (A) ISSUE TO THE APPLICANT A CERTIFICATE OF REGIST RATION, RENEW, MODIFY, WITHDRAW, SUSPEND OR CANCEL SUCH REGISTRATION; (B) PROTECTION OF THE INTERESTS OF THE POLICY HOLD ERS IN MATTERS CONCERNING ASSIGNING OF POLICY, NOMINATION BY POLIC Y HOLDERS, INSURABLE INTEREST, SETTLEMENT OF INSURANCE CLAIM, SURRENDER VALUE OF POLICY AND OTHER TERMS AND CONDITIONS OF CONTRACTS OF INSURANCE; (C) SPECIFYING REQUISITE QUALIFICATIONS, CODE OF C ONDUCT AND PRACTICAL TRAINING FOR INTERMEDIARY OR INSURANCE INTERMEDIARI ES AND AGENTS; (D) SPECIFYING THE CODE OF CONDUCT FOR SURVEYORS A ND LOSS ASSESSORS; (E) PROMOTING EFFICIENCY IN THE CONDUCT OF INSURAN CE BUSINESS; (F) PROMOTING AND REGULATING PROFESSIONAL ORGANISA TIONS CONNECTED WITH THE INSURANCE AND RE-INSURANCE BUSINESS; ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 7 (G) LEVYING FEES AND OTHER CHARGES FOR CARRYING OU T THE PURPOSES OF THIS ACT; (H) CALLING FOR INFORMATION FROM, UNDERTAKING INSP ECTION OF, CONDUCTING ENQUIRIES AND INVESTIGATIONS INCLUDING A UDIT OF THE INSURERS, INTERMEDIARIES, INSURANCE INTERMEDIARIES AND OTHER ORGANISATIONS CONNECTED WITH THE INSURANCE BUSINESS; (I) CONTROL AND REGULATION OF THE RATES, ADVANTAGE S, TERMS AND CONDITIONS THAT MAY BE OFFERED BY INSURERS IN RESPE CT OF GENERAL INSURANCE BUSINESS NOT SO CONTROLLED AND REGULATED BY THE TAR IFF ADVISORY COMMITTEE UNDER SECTION 64U OF THE INSURANCE ACT, 1938 (4 OF 1938); (J) SPECIFYING THE FORM AND MANNER IN WHICH BOOKS OF ACCOUNT SHALL BE MAINTAINED AND STATEMENT OF ACCOUNTS SHALL BE RE NDERED BY INSURERS AND OTHER INSURANCE INTERMEDIARIES; (K) REGULATING INVESTMENT OF FUNDS BY INSURANCE CO MPANIES; (L) REGULATING MAINTENANCE OF MARGIN OF SOLVENCY; (M) ADJUDICATION OF DISPUTES BETWEEN INSURERS AND INTERMEDIARIES OR INSURANCE INTERMEDIARIES; (N) SUPERVISING THE FUNCTIONING OF THE TARIFF ADVI SORY COMMITTEE; (O) SPECIFYING THE PERCENTAGE OF PREMIUM INCOME OF THE INSURER TO FINANCE SCHEMES FOR PROMOTING AND REGULATING PROFES SIONAL ORGANISATIONS REFERRED TO IN CLAUSE (F); (P) SPECIFYING THE PERCENTAGE OF LIFE INSURANCE BU SINESS AND GENERAL INSURANCE BUSINESS TO BE UNDERTAKEN BY THE INSURER IN THE RURAL OR SOCIAL SECTOR; AND (Q) EXERCISING SUCH OTHER POWERS AS MAY BE PRESCRI BED. 17. CLEARLY, THEREFORE, IRDA IS PRIMARILY TO REGUL ATE, PROMOTE AND ENSURE ORDERLY GROWTH OF THE INSURANCE BUSINESS AND RE-INSURANCE BUSINESS. IN DOING SO, AS EVIDENT FROM SECTION 14( 2)(A) TO (Q) ABOVE, IT REGULATES THE CONDUCT OF THE SERVICE PROVIDERS I N THE BUSINESS OF THE INSURANCE. IT DOES NOT, AND CANNOT, REGULATE TH E CONDUCT OF THE POLICY HOLDERS. AS IN SECTION 14(2)(B), IF AT ALL I T HAS ANYTHING TO DO WITH THE POLICYHOLDERS, IT IS PROTECTION OF INTERES T OF THE POLICYHOLDERS. IT IS IN THIS BACKGROUND THAT WE HA VE TO SEE THE CIRCULARS ISSUED BY THE IRDA. IN THE CIRCULAR DATED 27 TH APRIL, 2005, THE IRDA STATES AS FOLLOWS: THE AUTHORITY IS AWARE THAT SOME OF THE ABERRATIONS HAVE TAKEN PLACE IN THE MONTH OF MARCH 2005 IN THE MATTE R OF SALE OF KEYMAN INSURANCE . WE SHALL CONDUCT A DETAILED EXAMINATION OF THE POLI CIES MARKETED IN MARCH 2005 AND SHALL COME UP WITH DETAI LED GUIDELINES ON THE SALE OF KEYMAN INSURANCE AT THE A PPROPRIATE TIME. IN THE MEANTIME, IT HAS BEEN DECIDED THAT ONL Y TERM INSURANCE POLICY WILL HENCEFORTH BE ISSUED AS KEYM AN INSURANCE COVER . YOUR COMPANY IS REQUESTED TO ENSURE THAT YOUR COMPA NY FOLLOWS THIS CIRCULAR TILL FRESH GUIDELINES ARE ISS UED. ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 8 18. A PLAIN LOOK AT THE ABOVE CIRCULAR SHOWS THAT I T DEALS WITH ABERRATIONS IN SALE OF KEYMAN INSURANCE POLICIES AN D IT IS WAS A DIRECTION TO THE INSURANCE COMPANIES THAT EFFECT 27 TH APRIL 2005 ONLY TERM INSURANCE POLICIES SHOULD BE ISSUED AS KEYMAN INSURANCE COVER. THAT IS BETWEEN THE REGULATORY AUTHORITY AND THE INSURANCE COMPANIES AS TO WHAT SHOULD BE ALLOWED TO BE MARKET ED AS KEYMAN INSURANCE COVER. HOWEVER, IT DOES NOT ALTER THE REQ UIREMENTS OF SECTION 10(10D) WHICH IS FOR LIFE INSURANCE POLICY . WHAT CAN BE SOLD AS A LIFE INSURANCE POLICY TAKEN BY A BUSINESS EN TITY FOR ITS EMPLOYEE, FORMER EMPLOYEE OR ANY OTHER PERSON IMPOR TANT FOR BUSINESS OF SUCH AN ENTITY IS BETWEEN THE INSURANCE REGULATOR AND INSURANCE SERVICE PROVIDER. HOWEVER, ONCE IT HAS BE EN SOLD AS A LIFE INSURANCE POLICY ON THE KEYMAN TO THE BUSINESS, AS LONG AS IT IS IN THE NATURE OF LIFE INSURANCE POLICY, WHETHER PURE L IFE COVER OR TERM COVER OR A GROWTH OR GUARANTEED RETURN POLICY, IT I S ELIGIBLE FOR COVERAGE OF SECTION 10(10D). IT IS NOT OPEN TO US T O INFER THE WORDS WHICH ARE NOT THERE ON THE STATUTE AND THEN PROCEED TO GIVE LIFE AND EFFECT TO THE SAME. WE HAD DETAILED DISCUSSIONS ABO UT THIS ASPECT OF THE MATTER IN PARAGRAPH NUMBERS 10 TO 15 ABOVE, AND , AS WE HAVE HELD THERE, SUCH AN EXERCISE IS NOT PERMISSIBLE UND ER THE SCHEME OF THE ACT. 19. WHAT IRDA REGULATES IS ISSUANCE OF LIFE INSURAN CE POLICIES BY THE INSURANCE COMPANIES TO THE POLICYHOLDERS ON THE LIVES OF ITS EMPLOYEES, FORMER EMPLOYEES AND KEY PERSONNEL BUT O NCE SUCH A POLICY IS ISSUED IT CANNOT BUT BE TREATED AS A KEY MAN INSURANCE COVER AS IT ESSENTIALLY MEETS THE REQUIREMENT OF S ECTION 10(10D) BECAUSE IT IS A A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE O F THE FIRST- MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANN ER WHATSOEVER WITH THE BUSINESS OF THE FIRST-MENTIONED PERSON. THE MANDATE OF SECTION 10(10D) DOES NOT PUT ANY FUR THER TESTS, NOR CAN WE INFER THE SAME. 20. THE ASSESSING OFFICER HAS QUESTIONED COMMERCIAL EXPEDIENCY OF TAKING THE KEYMAN INSURANCE POLICIES ON THE SHOR T GROUNDS THAT (A) THE FALL IN TURNOVER, APPARENTLY ACCORDING TO T HE ASSESSING OFFICER, SHOWS THAT THERE WAS NO COMMERCIAL BENEFIT FROM TAK ING THE KEYMAN INSURANCE COVER; (B) THE INSURANCE POLICY WAS TAKEN FOR THE BENEFIT OF THE PARTNER RATHER THAN THE FIRM; AND (C) NO NECESSITY OR EXPEDIENCY OF THE PERSON BEING KEYMAN AND THE POLICY BEING TAKEN FOR THE BENEFIT OF THE FIRM WAS ESTABLISHED. WHEN BENEFIT OF POLICY WAS ASSIGNE D TO THE INSURED, THE POLICY CANNOT BE SAID TO BE FOR THE BENEFIT OF THE ASSESSEE FIRM. WE SEE NO MERITS IN THESE OBJECTIONS TO THE COMMERCIAL EXPEDI ENCY. AS FOR THE FALL IN TURNOVER, THE BENEFIT OF AN EXPENDITURE CANNOT BE, BY ANY STRETCH OF LOGIC, RELEVANT TO DETERMINE ITS COMMERCIAL EXPEDIENCY, AN D, IN ANY CASE. SUCH A BENEFIT OF HINDSIGHT CANNOT BE AVAILABLE AT THE POI NT OF TIME WHEN BUSINESS DECISIONS ARE MADE; MORE OFTEN THAN NOT, THESE ARE THE TOOLS OF POST MORTEM OF EVENTS, RATHER THAN INPUTS FOR THE DECISION MAKI NG. AS FOR THE OTHER ISSUES RAISED BY THE ASSESSING OFFICER AS SUCH, WE MAY REFER TO THE ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 9 FOLLOWING OBSERVATIONS MADE, IN THIS CONTEXT, BY HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS RAJAN NANDA ETC. [(2012) 349 ITR 8 (DEL)] : 25. AFTER GIVING OUR DUE AND THOUGHTFUL CONSIDERATI ON TO THE SUBMISSIONS OF THE PARTIES OF BOTH SIDES, WE FEEL T HAT THE ASSESSEE HAS BEEN ABLE TO MAKE OUT A CASE IN ITS FA VOUR AND ORDER OF THE TRIBUNAL DOES NOT CALL FOR ANY INTERFE RENCE. WE ARE PERSUADED BY THE FOLLOWING REASONS IN SUPPORT O F THIS VIEW OF OURS: (I) THE DEPARTMENT HAS ITSELF ALLOWED THE EXPENDITU RE INCURRED ON THE PREMIUM PAID FOR KEYMAN INSURANCE P OLICIES IN PREVIOUS YEARS AS BUSINESS EXPENDITURE UNDER SEC TION 37 OF THE ACT. RIGHT FROM 1991-92 UPTO 1993-94 AND THE REAFTER EVEN IN RESPECT OF ASSESSMENT YEAR 1997-98, THE EXP ENDITURE WAS ALLOWED. THOUGH THEREAFTER, THE EXPENDITURE WAS DISALLOWED, BUT AGAIN THE CLAIM WAS ACCEPTED FOR TH E ASSESSMENT YEARS 2001-02 AND 2002-03. PRINCIPLE OF CONSISTENCY WOULD, THEREFORE, BY APPLICABLE IN SUCH A CASE. (II) THE TRIBUNAL HAS RIGHTLY REFERRED TO AND RELIE D UPON THE CBDT'S CIRCULAR DATED 18.2.1998. THIS CIRCULAR IS B INDING ON THE INCOME TAX DEPARTMENT, WHICH CATEGORICALLY STIP ULATES THAT PREMIUM ON KEYMAN POLICY SHOULD BE ALLOWED AS BUSINESS EXPENSES. THE ASSESSEE WOULD, NATURALLY, T AKE INTO CONSIDERATION SUCH CLARIFICATIONS ISSUED BY THE CBD T AND WOULD ACT ON THE BASIS THEREOF. WHEN THE ASSESSEE W AS GIVEN THE IMPRESSION, BY MEANS OF THE AFORESAID CIRCULAR, THAT IF EXPENDITURE IS INCURRED ON THE KEYMAN POLICY, IT WO ULD BE TREATED AS BUSINESS EXPENDITURE . THERE IS NO REASON FOR THE DEPARTMENT TO DEVIATE THEREFROM WHEN IT COMES TO TH E ASSESSMENT. (III) THE NATURE OF EXPENDITURE INCURRED ON KEYMAN INSURANCE POLICY HAS EVEN BEEN JUDICIALLY CONSIDERED AND BOMB AY HIGH COURT HAS HELD IN B.N. EXPORTS (SUPRA) THAT THIS EX PENDITURE IS TO BE ALLOWED AS BUSINESS EXPENDITURE, IN THE FO LLOWING WORDS: 'THE EFFECT OF SECTION 10(10D) IS THAT MONIES WHICH ARE RECEIVED UNDER A LIFE INSURANCE POLICY ARE NOT INCL UDED IN THE COMPUTATION OF THE TOTAL INCOME OF A PERSON FOR A P REVIOUS YEAR. HOWEVER, ANY SUM RECEIVED UNDER A KEYMAN INSU RANCE POLICY IS TO BE RECKONED WHILE COMPUTING THE TOTAL INCOME. FOR THAT PURPOSE, A KEYMAN INSURANCE POLICY MEANS A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF A NOTHER PERSON WHO IS OR WAS IN EMPLOYMENT AS WELL AS ON A PERSON ON WHO IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE SUBSCRIBER. THE WORDS 'IS OR WA S CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINES S OF ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 10 THE SUBSCRIBER' ARE WIDER THAN WHAT WOULD BE SUBSUM ED UNDER A CONTRACT OF EMPLOYMENT . THE LATTER PART MAKES IT CLEAR THAT A KEYMAN INSURANCE POLICY FOR THE PURPOS ES OF CLAUSE (10D) IS NOT CONFINED TO A SITUATION WHERE T HERE IS A CONTRACT OF EMPLOYMENT. CLAUSE (10D) RELATES TO THE TREATMENT FOR THE PURPOSE OF TAXATION OF MONEYS REC EIVED UNDER AN INSURANCE POLICY. IN THIS APPEAL, THE COUR T HAS TO DETERMINE THE QUESTION OF EXPENDITURE INCURRED TOWA RDS THE PAYMENT OF INSURANCE PREMIUM ON A KEYMAN INSURANCE POLICY. THE CIRCULAR WHICH HAS BEEN ISSUED BY THE C ENTRAL BOARD OF DIRECT TAXES CLARIFIES THE POSITION BY STI PULATING THAT THE PREMIUM PAID FOR A KEYMAN INSURANCE POLICY IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE PRESENT C ASE, ON THE QUESTION WHETHER THE PREMIUM WHICH WAS PAID BY THE FIRM COULD HAVE BEEN ALLOWED AS BUSINESS EXPENDITUR E, THERE IS A FINDING OF FACT BY THE TRIBUNAL THAT THE FIRM HAD NOT TAKEN INSURANCE FOR THE PERSONAL BENEFIT OF THE PAR TNER, BUT FOR THE BENEFIT OF THE FIRM, IN ORDER TO PROTECT IT SELF AGAINST THE SET BACK THAT MAY BE CAUSED ON ACCOUNT OF THE D EATH OF A PARTNER. THE OBJECT AND PURPOSE OF A KEYMAN INSURAN CE POLICY IS TO PROTECT THE BUSINESS AGAINST A FINANCI AL SET BACK WHICH MAY OCCUR, AS A RESULT OF A PREMATURE DEATH, TO THE BUSINESS OR PROFESSIONAL ORGANIZATION. THERE IS NO RATIONAL BASIS TO CONFINE THE ALLOWABILITY OF THE EXPENDITUR E INCURRED ON THE PREMIUM PAID TOWARDS SUCH A POLICY ONLY TO A SITUATION WHERE THE POLICY IS IN RESPECT OF THE LIF E OF AN EMPLOYEE. A KEYMAN INSURANCE POLICY IS OBTAINED ON THE LIFE OF A PARTNER TO SAFEGUARD THE FIRM AGAINST A DISRUP TION OF THE BUSINESS THAT MAY RESULT DUE TO THE PREMATURE D EATH OF A PARTNER. THEREFORE, THE EXPENDITURE WHICH IS LAID O UT FOR THE PAYMENT OF PREMIUM ON SUCH A POLICY IS INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS .' (IV) THE ARGUMENT OF MR. N.P. SAHNI, LEARNED COUNSE L FOR THE REVENUE THAT TAKING SUCH KEYMAN INSURANCE POLICY EV ERY YEAR AND THEREAFTER ASSIGNING THE SAME TO THE BENEF ICIARIES MAY BE TREATED AS COLOURABLE DEVICE, MAY NOT BE COR RECT. THOUGH THIS ARGUMENT APPEARS TO BE ATTRACTIVE WHEN WE LOOK INTO THE FACT THAT THE ASSESSEE HAD BEEN TAKING THE POLICIES AND THEREAFTER ASSIGNING THE SAME YEAR AFTER YEAR I N FAVOUR OF THE BENEFICIARIES, WHAT CANNOT BE IGNORED THAT T HIS COURSE OF ACTION IS PERMITTED BY THE DEPARTMENT ITSELF AS STATED IN CBDT'S CIRCULAR DATED 18.2.1998. (V) THE EXPENDITURE INCURRED HAS TO BE TESTED ON TH E TOUCHSTONE OF SECTION 37 OF THE ACT AND TO SEE AS T O WHETHER SUCH EXPENDITURE IS PERMISSIBLE OR NOT. NO DOUBT, T HE OBJECT OF A KEYMAN INSURANCE POLICY IS TO ENABLE BUSINESS ORGANIZATIONS TO INSURE THE LIFE OF A KEYMAN IN ORD ER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS WHI CH MAY ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 11 OCCUR IN THE LIKELY EVENTUALITY OF PREMATURE DEATH. SUCH AN EXPENDITURE IS TREATED AS BUSINESS EXPENDITURE BY T HE DEPARTMENT ITSELF AND RECOGNIZED AS SUCH IN CIRCULA R DATED 18.2.1998. THE EXPENDITURE IS TO BE SEEN AT THE TIM E IT IS INCURRED. MERELY BECAUSE THE POLICY WAS ASSIGNED AF TER SOMETIME WOULD NOT MEAN THAT THE EXPENDITURE INCURR ED IN THE FIRST INSTANCE WOULD LOSE THE FLAVOUR OF IT BEI NG BUSINESS EXPENDITURE' . (VI) ONCE THE LEGAL PROVISIONS AND THE OUTLOOK OF D EPARTMENT ITSELF BASED ON SUCH LEGAL PROVISIONS PERMIT THE AS SESSEE TO HAVE THE TAX PLANNING OF THIS NATURE, AND THE COURS E OF ACTION TAKEN BY THE ASSESSEE IS PERMISSIBLE UNDER L AW, THE ARGUMENT OF COLOURABLE DEVICE CANNOT BE ADVANCED BY THE REVENUE. WHEN EXPENDITURE OF THIS NATURE IS TREATED BUSINESS EXPENDITURE' PER SE BY THE DEPARTMENT ITS ELF, THERE CANNOT BE ANY QUESTION OF RAISING THE ISSUE OF WANT OF BUSINESS EXPEDIENCY. THE LEARNED COUNSEL FOR THE RE SPONDENT IS RIGHT IN HIS SUBMISSION THAT THE DEPARTMENT COUL D NOT SIT ON THE ARMCHAIR OF THE ASSESSEE AND DECIDE AS TO WH ETHER IT WAS APPROPRIATE ON BUSINESS EXPEDIENCY FOR THE ASSE SSEE TO INCUR SUCH AN EXPENDITURE OR NOT. IF THE TRANSACTIO N IS OTHERWISE VALID IN LAW AND IS A PART OF TAX PLANNIN G, MERELY BECAUSE IT HAS RESULTED IN REDUCTION OF TAX, SUCH E XPENDITURE CANNOT BE IGNORED RAISING THE ISSUE OF UNDERLYING M OTIVE OF ENTERING INTO THIS TYPE OF TRANSACTION . VARIOUS JUDGMENTS CITED BY THE LEARNED COUNSEL FOR THE RESPONDENTS CL EARLY GET ATTRACTED TO THIS COURT. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 21. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF H ONBLE DELHI HIGH COURT, WE REJECT THE STAND OF THE AUTHORITIES BELOW ON THIS ASPECT OF THE MATTER AS WELL. AS FOR THE STATEMENT MADE BY T HE EMPLOYEES OF THE INSURANCE COMPANIES, NOTHING TURNS ON THESE STA TEMENTS. WHAT CONSTITUTES A KEYMAN INSURANCE POLICY UNDER SECTION 10(10D) IS NOT DEPENDENT ON WHAT IS IT TREATED EVEN BY THE INSURER ; AS LONG AS THE ASSESSEE IS ALLOWED TO TAKE LIFE INSURANCE POLICY O N ITS KEYMEN, AS HAVE BEEN UNDISPUTEDLY TAKEN IN THIS CASE, THE SAME SATISFIES THE REQUIREMENT OF SECTION 10(10D). IN VIEW OF THESE DE TAILED DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF TH E CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DELETE THE IMPUGN ED DISALLOWANCE OF RS.1,49,99,922. THE ASSESSEE GETS THE RELIEF ACC ORDINGLY. WE FIND THAT FACTS & CIRCUMSTANCES OF GROUND NO.5 I N THE PRESENT APPEAL ARE SIMILAR, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE TRIBUNAL ORDERS, WE ALLOW GROUND NO.5. ITA NO.20 (ASR)/2013 ASST. YEAR:2007-08 12 WE FIND THAT THE FACTS AND CIRCUMSTANCES IN THE PRE SENT CASE ARE SIMILAR TO THAT OF FACTS AND CIRCUMSTANCES IN THE CASE OF S URI SONS, THEREFORE, THE APPEAL FILED BY ASSESSEE IS ALLOWED. 6. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MARCH, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED:22.03.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.