The DCIT, Circle-6, Surat V. M/s. Ashoka Dyeing & Printing Mills, Surat

ITA 3504/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67910 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BENCH, AHMEDABAD .., ! ! ! ! ' #$, BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER !./ I.T.A.NO.3504/AHD/2010 ( & '& & '& & '& & '& / / / / ASSESSMENT YEAR : 2006-07) DY.CIT CIRCLE-6 MAJURA GATE, SURAT / VS. M/S.ASHOKA DYEING & PRINTING MILLS 261/B, GIDC PANDESARA SURAT ( !./) * !./ PAN/GIR NO. : AAEFA 2678 Q ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : SHRI J.P.JHANGID, SR.D.R. ,-(+ / . / RESPONDENT BY : SHRI UMAIDSINGH BHATI ' 0 / $1 / / / / DATE OF HEARING : 12/11/2013 23' / $1 / DATE OF PRONOUNCEMENT : 15/11/2013 4 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-IV, SURAT (CIT(A) FOR SHORT) DATED 15.09.2010 PERTAINING TO ASSESSMENT YEAR (AY) 2006-07. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE HONBLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13,61,461/ - MADE BY A.O. ON ACCOUNT OF DISALLOWANCE OF PAYMENT OF PREMIUM OF KE YMAN INSURANCE POLICY OF PARTNERS LIFE. ITA NO.3504/AHD /2010 DY.CIT VS.M/S.ASHOKA DYEING & PRINTING MILLS ASST.YEAR 2006-07 - 2 - [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, AND IN LAW, THE LD.CIT(A), SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [3] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.CIT(A)-II/CENTRAL CIRCLE/AHD MAY BE SET-ASIDE AND THAT OF THE ASSESSI NG OFFICER RESTORED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DYEING & PRINTING OF CLOTH ON JOB-WORK BASIS. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME A T RS.23,56,714/- WAS FILED BY THE ASSESSEE ON 30/12/2006. AUDIT REPORT U/S.44AB, COPY OF FINAL ACCOUNTS, BALANCE-SHEET AND RELEVANT ANNEXURE WERE ATTACHED WITH THE SAID RETURN. LATER ON, THE CASE WAS SELECTED F OR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT ,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DAT ED 15/12/2008, THEREBY THE ASSESSING OFFICER(AO) MADE AN ADDITION OF RS.13,61,461/- ON ACCOUNT OF DISALLOWANCE OF PAYMENT OF PREMIUM OF KEYMAN INSURANCE POLICY ON PARTNERS LIFE. 3. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD.CI T(A) AND THE LD.CIT(A) HAS DECIDED THE MATTER IN FAVOUR OF ASSES SEE, BY OBSERVING AS UNDER:- 4. I HAVE GONE THROUGH THE REASONS GIVEN BY THE A .O. FOR NOT ADMITTING INSURANCE PREMIUM IN RESPECT OF KEYMAN INSURANCE PO LICY. I AM NOT ABLE TO SUPPORT HIS CONCLUSION, IN VIEW OF DECISION OF HONBLE ITAT, MUMBAI BENCH IN THE CASE OF MODI MOTORS [2009] 126 TTJ 405 (MUMBAI) WHERE IDENTICAL ISSUE WAS DECIDED AGAINS T THE REVENUE. THE HONBLE MEMBERS OBSERVED THAT MATURITY OR SURRENDER AMOUNT UNDER THE KEYMAN INSURANCE POLICY WAS NOT EXEMPTED BUT TA XABLE AS SALARIES U/S.17(3)(II) OF THE ACT OR AS PROFITS AND GAINS OF BSUINESS U/S.28(VI) OR AS INCOME FROM OTHER SOURCE S U/S.56(2)(IV) OF THE ACT IN THE HANDS OF THE RECIPIENT. THEY FURTHE R OBSERVED THAT THE LEGISLATURE DID NTO INTEND THAT SUCH PREMIUM BE ALL OWED ONLY WHERE ITA NO.3504/AHD /2010 DY.CIT VS.M/S.ASHOKA DYEING & PRINTING MILLS ASST.YEAR 2006-07 - 3 - EMPLOYER EMPLOYEE RELATIONSHIP EXISTED. HUMBLY F OLLOWING THE DECISION OF THE HONBLE ITAT, MUMBAI BENCH IN THE A BOVE CASE, THE DISALLOWANCE MADE ON ACCOUNT OF PREMIUM PAID TOWARD S KEYMAN INSURANCE POLICY IN RESPECT OF PARTNER OF THE APPEL LANT FIRM IS DELETED. 4. THE LD.SR.DR SUPPORTED THE ORDER OF THE ASSESSIN G OFFICER, WHEREAS LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF LD.CIT(A). THE LD.COUNSEL FOR THE ASSESSEE ALSO RELIED UPON TH E DECISION OF HONBLE ITAT C BENCH AHMEDABAD RENDERED IN ASSESSEES OWN CASE (ITO VS. M/S.ASHOKA DYEING & PRINTING MILLS) IN ITA NO.3691/ AHD/2008 FOR AY 2005-06, DATED 30/09/2010. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THE INSTANT CASE, THE AO HAS DISALLOWED THE CLAI M OF THE ASSESSEE FOR DEDUCTION OF PREMIUM OF RS.13,61,461/- UNDER KEYMA N INSURANCE POLICY FOR THE REASON THAT THE EXPENSES WERE INCUR RED ON THE LIFE OF THE PARTNER AND THERE WAS NO EMPLOYER-EMPLOYEE RELATION SHIP AND ABSENCE OF DISTINCT SEPARATION BETWEEN THE FIRM AND THE PARTNE RS. IN APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE. WE FIND THAT TH E HONBLE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2005-06(SUPRA) DECIDE D THE ISSUE VIDE ORDER DATED 30/09/2010, BY OBSERVING AS UNDER:- 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE A.O. H AS DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF PREMIUM OF R S.L4,38,100/-UNDER KEYMAN INSURANCE POLICY FOR THE REASON THAT THE EXP ENSES WERE INCURRED ON THE LIFE OF THE PARTNER AND THERE WAS N O EMPLOYER-EMPLOYEE RELATIONSHIP AND ABSENCE OF DISTINCT SEPARATION BET WEEN THE FIRM AND THE PARTNERS. IN APPEAL, THE CIT (A) CONFIRMED THE DISA LLOWANCE. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF B .N. EXPORTS (SUPRA) IN SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE HELD THAT WHERE KEYMAN ITA NO.3504/AHD /2010 DY.CIT VS.M/S.ASHOKA DYEING & PRINTING MILLS ASST.YEAR 2006-07 - 4 - INSURANCE POLICY WAS TAKEN NOT FOR THE PERSONAL BEN EFIT OF THE PARTNER BUT FOR THE BENEFIT OF THE FIRM IN ORDER TO PROTECT ITSELF AGAINST THE SET- BACK THAT MAY BE CAUSED ON ACCOUNT OF THE DEATH OF THE PARTNER, THE INSURANCE PREMIUM WAS DEDUCTIBLE. THE RELEVANT PORTION OF THE BOMBAY HIGH COURT DECIS ION IS EXTRACTED HEREUNDER : 'IN THIS APPEAL, THE COURT HAS TO DETERMINE THE QUE STION OF EXPENDITURE INCURRED TOWARDS THE PAYMENT OF INSURAN CE PREMIUM ON A KEYMAN INSURANCE POLICY. THE CIRCULAR WHICH HA S BEEN ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES CLARIFI ES THE POSITION BY STIPULATING THAT THE PREMIUM PAID FOR A KEYMAN I NSURANCE POLICY IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE PRESENT CASE, ON THE QUESTION WHETHER THE PREMIUM WHICH WAS PAID BY THE FIRM COULD HAVE BEEN ALLOWED AS BUSINESS EXPENDITURE. TH ERE IS A FINDING OF FACT BY THE TRIBUNAL THAT THE FIRM HAD N OT TAKEN INSURANCE FOR THE PERSONAL BENEFIT OF THE PARTNER, BUT FOR THE BENEFIT OF THE FIRM, IN ORDER TO PROTECT ITSELF AGA INST THE SET BACK THAT MAY BE CAUSED ON ACCOUNT OF THE DEATH OF A PAR TNER. THE OBJECT AND PURPOSE OF A KEYMAN INSURANCE POLICY IS TO PROTECT THE BUSINESS AGAINST A FINANCIAL SET BACK WHICH MAY OCCUR, AS A RESULT OF A PREMATURE DEATH, TO THE BUSINESS OR PRO FESSIONAL ORGANIZATION. THERE IS NO RATIONAL BASIS TO CONFINE THE ALLOWABILITY OF THE EXPENDITURE INCURRED ON THE PRE MIUM PAID TOWARDS SUCH A POLICY ONLY TO A SITUATION WHERE THE POLICY IS IN RESPECT OF THE LIFE OF AN EMPLOYEE. A KEYMAN INSURA NCE POLICY IS OBTAINED ON THE LIFE OF A PARTNER TO SAFEGUARD THE FIRM AGAINST A DISRUPTION OF THE BUSINESS THAT MAY RESULT DUE TO T HE PREMATURE DEATH OF A PARTNER. THEREFORE, THE EXPENDITURE WHIC H IS LAID OUT FOR THE PAYMENT OF PREMIUM ON SUCH A POLICY IS INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS.' 18. WE FIND THAT BOTH THE PARTIES BEFORE US HAS NOT BROUGHT ANY MATERIAL WHICH COULD SHOW THAT THE KEYMAN INSURANCE POLICY W AS TAKEN FOR THE BENEFIT OF THE BUSINESS OF THE PARTNERSHIP FIRM TO PROTECT IT FROM DISRUPTION OF BUSINESS ON THE DEATH OF THE PERSON O N WHOSE LIFE KEYMAN'S INSURANCE WAS TAKEN OR THE SAME WAS TAKEN FOR THE BENEFIT OF THE INDIVIDUAL PARTNER ON WHOSE LIFE SUCH INSURANCE WAS TAKEN. IN THE CIRCUMSTANCES IN OUR CONSIDERED OPINION IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF T HE LEARNED ASSESSING OFFICER FOR PROPER VERIFICATION. THE LEARNED ASSESS ING OFFICER IS ITA NO.3504/AHD /2010 DY.CIT VS.M/S.ASHOKA DYEING & PRINTING MILLS ASST.YEAR 2006-07 - 5 - DIRECTED TO RECONSIDER THE ISSUE IN LIGHT OF THE D ECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF B.N. EXPORTS (SUPR A) AS PER LAW AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE. 19. BEFORE PARTING WITH THE ISSUE WE WOULD ALSO LIK E TO OBSERVE THAT THE LEARNED ASSESSING OFFICER HAS RELIED UPON THE DECIS ION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF KHODIDAS MOTIRAM, PANCHAL (SUPRA) FOR DISALLOWING THE CLAIM OF THE ASSESSEE FIRM. WE FIND THAT IN THE AFORESAID DECISION THE HON'BLE HIGH COURT HAS DISAL LOWED THE CLAIM OF THE ASSESSEE BY TREATING THE AMOUNT OF PREMIUM PAID IN RESPECT OF KEYMAN'S INSURANCE POLICY AS CAPITAL EXPENDITURE. H OWEVER, IN VIEW OF THE SUBSEQUENT POSITION ADMITTED BY THE HON'BLE C.B .D.T. WHICH IS THE HIGHEST BODY FOR TAX ADMINISTRATION IN THE COUNTRY THAT KEYMAN'S INSURANCE PREMIUM CAN BE TREATED AS AN ALLOWABLE EX PENDITURE THE BENEFIT GIVEN BY THE CIRCULAR TO THE ASSESSEE CANNO T BE TAKEN AWAY ON THE BASIS OF EARLIER LEGAL PRONOUNCEMENT. IT IS AN ESTABLISHED POSITION OF LAW THAT BENEVOLENT CIRCULAR ARE BINDING AND THE DE PARTMENT IS EXPECTED TO FOLLOW THE SAME IN THE SPIRIT IN WHICH THE SAME IS ISSUED BY THE C.B.D.T. THEREFORE, THIS GROUND OF THE APPEAL IS AL LOWED FOR STATISTICAL PURPOSES. 5.1. THIS DIRECTION OF THE HONBLE CO-ORDINATE BENC H WAS COMPLIED WITH VIDE ORDER DATED 24/10/2011. THE AO HAS RECOR DED HIS FINDINGS IN PARAGRAPH NO.4, WHICH READS AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE ASSESSES. THE CONTENTION OF THE ASSESSEE IS APPLICABLE IN ITS CAS E. THUS IN VIEW OF THE ABOVE FACTS, IT IS VERY CLEAR T HAT THE KEYMAN INSURANCE POLICY WAS NOT TAKEN FOR THE INDIVIDUAL B ENEFIT OF THE PARTNERS BUT IT WAS TAKEN FOR THE BENEFIT OF THE FIRM AS THE INVOLVEMENT OF AIL THE PARTNERS IN RUNNING THE DAY TO DAY BUSINESS WAS CO MMENDABLE AND IF ANYTHING HAPPENED TO ANY OF THEM, THE BUSINESS OF T HE FIRM WOULD HAVE SUFFERED. THE PARTNERSHIP DEED HAVE ALSO CALLED FOR RELEVANT FOR A.Y. 2008-09. FURTHER, AN AMENDMENT HAS BEEN MADE IN SECTION 2(24 )(XI) W.E.F. 01-10- 1996 THAT ANY SUM RECEIVED UNDER A KEYMAN INSURANCE POLICY IS TAXABLE INCOME. AT THE MATURITY OF DOUBLE TAXATION. THE MAT URE VALUE OF THE POLICY WILL BE TAXABLE IN THE YEAR OF MATURITY IN T HE HAND OF THE FIRM. ON PERUSAL OF THE SAME IT IS FOUND THAT ALL THE PARTNE RS IN WHOSE NAME ITA NO.3504/AHD /2010 DY.CIT VS.M/S.ASHOKA DYEING & PRINTING MILLS ASST.YEAR 2006-07 - 6 - KEYMAN INSURANCE POLICY WERE TAKEN IS WORKING PARTN ERS AND THEY ARE VERY MUCH INVOLVED IN THE BUSINESS OF THE FIRM. ON THE BASIS OF ABOVE FACTS AND JUDICIAL PRONOUNCEM ENTS, THE CLAIM OF KEYMAN INSURANCE PAYMENT MAY BE TREATED AS BUSINESS EXPENDITURE. THEREFORE, THE ASSESSEE FIRM HAD ALLOWED TO DEDUCTI ON FOR EXPENDITURE OF RS.14,38,100/- MADE AS KEYMAN INSURANCE POLICY PREM IUM IN THE NAME OF PARTNERS AS REVENUE EXPENDITURE. HENCE, THE CLAI M OF DEDUCTION OF RS. 14,38,100/- WITH REGARD TO KEYMAN INSURANCE POLICY ON LIFE OF PARTNERS IS ALLOWED. 6. SINCE NO CHANGE IN THE FACTS AND CIRCUMSTA NCES IS POINTED OUT BY THE LD.SR.DR, THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF HONBLE COORDINATE BENCH RENDERED IN ASSESSEES CAS E IN A.Y. 2005- 2006, WE DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISS ED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) (' #$) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15/ 11 /2013 71.., .../ T.C. NAIR, SR. PS 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. !! $ ': / CONCERNED CIT 4. ':() / THE CIT(A)-IV, SURAT 5. 8 #; ,$ , , / DR, ITAT, AHMEDABAD 6. ;<& =0 / GUARD FILE. 4' 4' 4' 4' / BY ORDER, -8$ ,$ //TRUE COPY/ / > >> >/ // / !) !) !) !) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD