E.V. LOKHANDWALLA & ASSOCIATES, MUMBAI V. DCIT 12(2), MUMBAI

ITA 26/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8259 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 07-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Opportunity of being heard; Rule 8D; Set aside
• Section: 14A; 10(10D)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.26/MUM/2010 : ASST.YEAR 2006-2007 M/S.E.V.LOKHANDWALA & ASSOCIATES 2-D COURT CHAMBERS, 35 SIR V.THACKERSEY MARG, NEW MARINE LINES, MUMBAI 400 020. PAN : AAAFE1445K. VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 12(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK TRALSHAWALA RESPONDENT BY : SHRI SURENDRA KUMAR O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 29.10.2009 IN RELATION TO ASSESSMENT YEAR 2006-2007 . 2. FIRST GROUND IS AGAINST THE DEDUCTION CLAIMED BY THE ASSESSEE ON KEYMAN INSURANCE POLICY. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION FOR PREMIUM PAID ON KEYMAN INSURA NCE TAKEN ON THE LIFE OF THE MAIN PARTNER SHRI ARIF LOKHANDWALLA FROM ICICI PRUD ENTIAL LIFE INSURANCE OF RS.10 LAKHS ON THE POLICY AMOUNT OF RS.50 LAKHS. TH IS AMOUNT WAS CLAIMED AS DEDUCTION U/S.37 OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THIS DEDUCTION ON THE GROUND THAT THE POLICY WAS TAKEN IN THE NAME OF THE PARTNER. WHEN THE MATTER CAME UP BEFORE THE LEARNED CIT(A), THE ASSESSEE CLA IMED THAT THE ENTIRE AMOUNT WAS DEDUCTIBLE IN VIEW OF THE ORDER OF THE TRIBUNAL IN ITO VS. MODI MOTORS [(2009) 27 SOT 476 (MUM.)]. THE LEARNED CIT(A), ON THE PERUSAL OF THE FACTS O F THE CASE, CAME TO HOLD THAT THE DEDUCTION WAS ALLO WED BY THE TRIBUNAL FOR THE REASON THAT KEYMAN INSURANCE POLICY WAS TAKEN IN R ESPECT OF TWO WORKING PARTNERS OF THE FIRM CONSISTING OF FOUR PARTNERS. HE, THEREF ORE, OPINED THAT ONLY IF THE PARTNERS ON WHOSE LIFE POLICY WAS TAKEN HAD CAPITAL EQUAL TO OR LESS THAN 50%, THE DEDUCTION COULD BE ALLOWED. HE RESTORED THE MATTER TO THE FILE OF A.O. WITH THE ITA NO.26/MUM/2010 M/S.E.V.LOKHANDWALA & ASSOCIATES. 2 DIRECTION TO FIND OUT WHETHER SHRI ARIF LOKHANDWALL A WAS HOLDING 50% OR LESS OF THE SHARE CAPITAL OF THE FIRM AND IF HIS CAPITAL CO NTRIBUTION WAS AS PER HIS DIRECTION, THEN THE DEDUCTION BE ALLOWED. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. `KEYMAN INSURANCE POLICY HAS BEEN DEFINED IN SECTION 10(10D) TO MEAN 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. THERE IS NO REQUIREMENT OF HOLDING LESS THAN 50% OF THE SHARE C APITAL BY THE PERSON IN WHOSE NAME THE POLICY WAS TAKEN. THE DECISION IN THE CASE OF MODIMOTORS (SUPRA) UNEQUIVOCALLY PROVIDES THAT PREMIUM PAID ON KEYMAN INSURANCE POLICY ON THE LIFE OF ONE PARTNER IS ALLOWABLE AS EXPENSE AND FURTHER THE EMPLOYER EMPLOYEE RELATIONSHIP IS NOT ESSENTIAL FOR ALLOWING DEDUCTIO N OF PREMIUM PAID ON KEYMAN INSURANCE POLICY. SIMILAR VIEW HAS BEEN TAKEN BY TH E DELHI BENCH OF THE TRIBUNAL IN P.G.ELECTRICALS VS. ITO [(2005) 98 TTJ (DEL.) 896] HOLDING THAT THE DEDUCTION OF INSURANCE PREMIUM PAID BY THE ASSESSEE FIRM ON THE KEYMAN INSURANCE POLICY IN RESPECT OF LIFE OF ONE PARTNER WAS DEDUCTIBLE AS PE R CIRCULAR NO.762 DATED 18.02.1998. IN VIEW OF THESE PRECEDENTS IT BECOMES APPARENT THAT THE PREMIUM PAID BY THE ASSESSEE-FIRM TOWARDS KEYMAN INSURANCE POLIC Y ON THE LIFE OF ONE OF ITS PARTNERS IS DEDUCTIBLE IN FULL AND THERE IS NO REQU IREMENT TO MATCH THE CAPITAL CONTRIBUTION OF SUCH PARTNER WITH THE OVERALL CAPI TAL OF THE FIRM. THIS GROUND IS ALLOWED. 4. GROUND NO.2 IS AGAINST THE CONFIRMATION OF DISAL LOWANCE MADE BY THE ASSESSING OFFICER U/S.14A. THE A.O. HAS COMPUTED TH E DISALLOWANCE U/S.14A AT RS.24,750. WHEN THE MATTER CAME UP BEFORE THE LEARN ED CIT(A), HE DIRECTED THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE U/S.1 4A AS PER RULE 8D, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.26/MUM/2010 M/S.E.V.LOKHANDWALA & ASSOCIATES. 3 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE QUESTION OF MAKING DIS ALLOWANCE U/S 14A IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT DATED 12.08.2010 OF THE HONBLE BOMBAY HIGH COURT IN GODREJ& BOYCE LIMITED VS. ACIT HOLDING THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN CIRCUMSTANCES AS ARE PREVAILING PRESENTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME `REASONABLE BASIS AND NOT RULE 8D. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE Q UANTUM OF DISALLOWANCE, IF ANY, AS PER THE AFORE NOTED JUDGMENT, AFTER ALLOWING A REA SONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 11 TH DAY OF MARCH, 2011 . SD/- SD/- (VIJAY PAL RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI :11 TH MARCH, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) XXIII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.