Orio Sanghai Colours Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-5(2), Ahmedabad

ITA 2559/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0549 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 29-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y K BATRA
• Section: 5(2); 10(10D)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.2559/AHD/2011 / ASSTT. YEAR: 2007-2008 ORIO SANGHAI COLOURS PVT.LTD. 306/B, PHASE-I, GIDC NARODA, AHMEDABAD 382 330. PAN : AAACO 5144 Q VS ITO, WARD - 5(2) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI Y.K. BATRA, AR REVENUE BY : SHRI SATISH SOLANKI, SR.DR / DATE OF HEARING : 29/07/2016 / DATE OF PRONOUNCEMENT: 08/09/2016 $%/ O R D E R ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD.C IT(A)-XI, AHMEDABAD DATED 24.8.2011 PASSED FOR THE ASTT.YEAR 2007-08. 2. THOUGH ASSESSEE HAS TAKEN SEVEN GROUNDS OF APPEA L, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ. THE LD.CIT(A) H AS ERRED IN UPHOLDING DISALLOWANCE OF RS.10,00,129/- WHICH WAS CLAIMED BY THE ASSESSEE ON THE GROUND THAT IT HAS PURCHASED A KEYMAN INSURANCE POL ICY (KIP FOR SHORT) FOR MANAGING DIRECTOR. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME AT RS.6,26,902 /-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) ITA NO.2559/AHD/2011 2 WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTI NY OF THE ACCOUNTS IT REVEALED TO THE AO THAT THE ASSESSEE HAS DEBITED A SUM OF RS.10,00,129/- IN THE PROFIT & LOSS ACCOUNT. IT HAS INCURRED THIS EX PENDITURE ON PURCHASE OF KIP FOR SMT.TARULATA MAHESH AGRAWAL, WHO IS DIRECTOR OF THE COMPANY. THE LD.AO HAS DISALLOWED THIS CLAIM OF THE ASSESSEE ON THE GROUND THAT INSURANCE COMPANIES ARE CONTROLLED BY THE GUIDELINES OF IRDA AND IRDA HAS ADVISED FOR PROVIDING KIP TO THE COMPANIES. POLICY TO COVE R SMT.TARULATA MAHESH AGRAWAL HAS BEEN GRANTED BY THE INSURANCE COMPANY I N VIOLATION TO THIS GUIDELINES, HENCE THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION OF THE EXPENDITURE. APPEAL TO THE LD.CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. THE LD.COUNSEL FOR THE ASSESSEE, WHILE IMPUGNING ORDER OF THE LD.REVENUE AUTHORITIES CONTENDED THAT SECTION 10(10 D) CONTEMPLATES MAINLY TWO REQUIREMENTS FOR THE PURPOSE OF KIP VIZ. (A) IT SHOULD BE A LIFE INSURANCE POLICY, (B) IT SHOULD BE TAKEN BY THE ASSESSEE ON L IFE OF ANY PERSONS WHO IS OR WAS AN EMPLOYEE OF THE ASSESSEE OR IS RELATED TO TH E BUSINESS OF THE ASSESSEE IN ANY MANNER. THE ASSESSEE FULFILLS BOTH THESE CONDI TIONS. ON THE STRENGTH OF ITAT DECISION IN THE CASE OF SURI SONS VS. ACIT, 61 TAXMANN.COM 141 (AMRISTAR-TRIB.), HE CONTENDED THAT ITAT HAS CONSID ERED THIS ASPECT AND OBSERVED THAT GUIDELINES ISSUED BY IRDA WOULD NOT B E A RELEVANT FACTOR FOR INTERPRETING THE INCOME-TAX PROVISIONS. HE PLACED COPY OF THIS JUDGMENT ON RECORD. ON THE OTHER HAND, THE LD.DR RELIED UPON T HE ORDERS OF THE REVENUE AUTHORITIES BELOW. 5. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. AS FAR AS FULFILLMENT OF CONDITIONS CON TEMPLATED UNDER SECTION 10(10D) IS CONCERNED, THE ASSESSEE HAS DULY COMPLIE D WITH. OBJECTION OF THE AO IS THAT INSURANCE COMPANY HAS ISSUED POLICY IN V IOLATION TO IRDA ITA NO.2559/AHD/2011 3 GUIDELINES. THIS ASPECT HAS BEEN CONSIDERED BY THE ITAT, AMRISTAR BENCH IN THE ORDER IN THE CASE OF SURI SONS (SUPRA), AND FOL LOWING FINDING IS WORTH TO NOTE: 15. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE IRDA GUIDELINES, NO MATTER HOW RELEVANT AS THESE GUIDELI NES MAY BE, HAVE NO ROLE TO PLAY IN THE INTERPRETATION OF THE STATUTORY PROVISIONS. IRDA IS A BODY CONTROLLING THE INSURANCE COMPANIES AND ITS GU IDANCE IS RELEVANT ON HOW THE INSURANCE COMPANIES SHOULD CONDUCT THEIR BUSINESS. BEYOND THIS LIMITED ROLE, THESE GUIDELINES DONOT AFFECT HO W THE PROVISIONS OF THE INCOME TAX ACT ARE TO BE CONSTRUED. WHENEVER THE PR OVISIONS OF THE OTHER STATUTES ARE TO BE TAKEN INTO ACCOUNT, FOR IN TERPRETING THE PROVISIONS OF THE INCOME TAX ACT, THE INCOME TAX AC T SPECIFICALLY PROVIDES SO, SUCH AS IN THE CASE OF EXPLANATION 2 T O SECTION 2 (42A) WHICH PROVIDES THAT THE EXPRESSION 'SECURITY' SHAL L HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SE CURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956)]. IT CANNOT, T HEREFORE, BE OPEN TO US TO TURN TO THE GUIDELINES OF THE IRDA TO INTERPR ET THE PROVISIONS OF THE INCOME TAX ACT, 1961. IN THIS VIEW OF THE MATTE R, LEARNED ASSESSING OFFICERS OBSERVATIONS TO THE EFFECT THAT, THAT T HE 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 THE TERMS AND CONDITIONS LAID DOWN BY IRDA IN THIS REGARD, NE CESSITY AND EXPEDIENCY OF THE PERSON BEING KEYMAN AND THE POLIC Y TAKEN FOR THE BENEFIT OF THE ASSESSEE FIRM (EMPHASIS, BY UNDERLIN G, SUPPLIED BY THE AO) ARE DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. THE FULFILMENT OF IRDA TERMS AND CONDITIONS IS WHOLLY ALIEN TO THE PR ESENT CONTEXT. AS FOR THE POLICY BEING TAKEN FOR THE BENEFIT OF THE ASSES SEE 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 CALL ED INTO QUESTION EITHER. WE HAVE ALSO NOTED THAT THE AUTHORITIES BEL OW HAVE PAID A LOT OF EMPHASIS ON THE CONTENTION THAT THE INSURANCE POLIC IES IN QUESTION WERE NOT TERMED AS KEYMAN INSURANCE POLICIES BUT NOTHING TURNS ON THAT ASPECT, EVEN IF THAT BE SO, EITHER. THE KEYMAN INSU RANCE POLICY IS A DEFINED CONCEPT AND AS LONG AS IT MEETS THE REQUIRE MENTS OF THIS DEFINITION, THE TERMINOLOGY GIVEN BY THE INSURERS H AVE NO RELEVANCE FOR THE PURPOSES OF THE INCOME TAX ACT. ALL THAT IS NEC ESSARY IS THAT IT SHOULD BE A LIFE INSURANCE POLICY, WHETHER PURE LIF E INSURANCE POLICY OR NOT- AS SUCH CRITERION IS NOT SET OUT ANYWHERE IN T HE STATURE, AND IT SHOULD BE TAKEN ON THE LIFE OF A PERSON WHO IS, OR HAS BEEN, AN EMPLOYEE ITA NO.2559/AHD/2011 4 OF THE ASSESSEE OR ANY OTHER PERSON WHO IS OR WAS C ONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE ASSESSEE . THESE CONDITIONS ARE CLEARLY SATISFIED ON THE FACTS OF THE CASE BEFO RE US. 6. THE TRIBUNAL HAS ALSO CONSIDERED THE CIRCULAR IS SUED BY IRDA CONTEMPLATING DUTIES, POWERS AND FUNCTIONS OF THE A UTHORITIES. AFTER REPRODUCING THE CIRCULAR, THE TRIBUNAL HAS MADE THE FOLLOWING OBSERVATIONS: 17A. A PLAIN LOOK AT THE ABOVE CIRCULAR SHOWS THAT IT 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 IN SURANCE COMPANIES AS TO WHAT SHOULD BE ALLOWED TO BE MARKETED AS KEYM AN INSURANCE COVER. HOWEVER, IT DOES NOT ALTER THE REQUIREMENTS OF SECTION 10(10D) WHICH IS FOR LIFE INSURANCE POLICY. WHAT CAN BE S OLD AS A LIFE INSURANCE POLICY TAKEN BY A BUSINESS ENTITY FOR IT S EMPLOYEE, FORMER EMPLOYEE OR ANY OTHER PERSON IMPORTANT FOR BUSINESS OF SUCH AN ENTITY IS BETWEEN THE INSURANCE REGULATOR AND INSURANCE SE RVICE PROVIDER. HOWEVER, ONCE IT HAS BEEN SOLD AS A LIFE INSURANCE POLICY ON THE KEYMAN TO THE BUSINESS, AS LONG AS IT IS IN THE NAT URE OF LIFE INSURANCE POLICY, WHETHER PURE LIFE COVER OR TERM COVER OR A GROWTH OR GUARANTEED RETURN POLICY, IT IS ELIGIBLE FOR COVERA GE OF SECTION 10(10D). IT IS NOT OPEN TO US TO INFER THE WORDS WHICH ARE N OT THERE ON THE STATUTE AND THEN PROCEED TO GIVE LIFE AND EFFECT TO THE SAM E. WE HAD DETAILED DISCUSSIONS ABOUT THIS ASPECT OF THE MATTER IN PARA GRAPH NUMBERS 10 TO 15 ABOVE, AND, AS WE HAVE HELD THERE, SUCH AN EXERC ISE IS NOT PERMISSIBLE UNDER THE SCHEME OF THE ACT. 18. WHAT I RDA REGULATES IS ISSUANCE OF LIFE INSURANCE POLICIES BY THE INSURANC E COMPANIES TO THE POLICYHOLDERS ON THE LIVES OF ITS EMPLOYEES, FORMER EMPLOYEES AND KEY PERSONNEL BUT ONCE SUCH A POLICY IS ISSUED IT CANNO T BUT BE TREATED AS A KEYMAN INSURANCE COVER AS IT ESSENTIALLY MEETS TH E REQUIREMENT OF SECTION 10(10D) BECAUSE IT IS A A LIFE INSURANCE P OLICY 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 AN Y MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRST-MENTIONED PERSON. THE MANDATE OF SECTION 10(10D) DOES NOT PUT ANY FURTHER TESTS, NOR CAN WE INFER THE SAME. ITA NO.2559/AHD/2011 5 7. THE AO CANNOT DENY THE CLAIM OF EXPENDITURE SIMP LY ON THE BASIS OF IRDA GUIDELINES. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE DIVISION BENCH OF ITAT, AMRISTAR BENCH, I ALLOW THIS APPEAL AND DELETE DISALLOWANCE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 8 TH SEPTEMBER, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER