M/s. Ganga Automobiles, Surat V. The ACIT.,Circle-2, Surat

ITA 532/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60549 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 16-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 10(10D); 263; 10

Judgement Text

1 ITA NO. 532 OF 2010 A.Y. 2006-07 I N THE INCOME TAX APPELLATE TRIBUNALD BENCH,AHMEDA BAD (BEFORE SRI A.K. GARODIA, A.M. AND SRI KUL BHARAT A.M.) I.T.A. NO. 532/AHD/2010 (ASSESSMENT YEAR: 2006-07 ) SHRI GANGA AUTOMOBILE SURAT (APPELLANT) VS. ACIT, CICLE II, SURAT (RESPONDENT) ON BEHALF OF THE ASSESSEE SRI SAPNESH SHETH, AR ON BEHALF OF THE RESPONDENT SRI B.L. YADAV SR. D.R. DATE OF HEARING : 17-05-20 12 DATE OF PRONOUNCEMENT : 22-06-2012 ( )/ ORDER PER: SRI KUL BHARAT, JUDICIAL MEMBER: THE PRESENT APPEAL BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-II SURA T DATED 24 DEC,2009 IN APPEAL NO. CAS/II/300/2008-2009. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT (A)-II, SURAT H AS ERRED IN CONFIRMING THE ADDITION OF RS. 10,83,231/- ON ACCOU NT OF PREMIUM PAID FOR KEY MAN INSURANCE OF THE PARTNERS WITHOUT APPRECIATING THE FACTS OF THE CASE AS WELL AS THE SUBMISSION TENDERE D BY THE APPELLANT. 2 ITA NO. 532 OF 2010 A.Y. 2006-07 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE A S WELL AS A LAW ON THE SUBJECT, THE LEARNED CIT (APPEALS)-II SU RAT WRONGLY REJECTED THE CLAIM WITHOUT APPRECIATING THE FACT TH AT SUCH DISALLOWANCE RESULTED INTO DOUBLE TAXATION IN AS MUCH AS THE APP ELLANT FIRM HAD FULLY PAID TAX BY OFFERING THE INCOME ON SURRENDER OF POLICY IN SUBSEQUENT YEAR AS PER SECTION 28(VI) OF THE I.T. ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR T O AMEND THE PRESENT GROUND OF APPEAL. 3. THE BRIEF FACTS OF THE CASE IS THAT THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS FRAMED UND ER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED A S THE ACT). WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, THE ASSESSING OFFICER MADE DISALLOWANCE OF ADMINISTRATIVE EXPENSE S OF RS. 3,41,480/- AND PREMIUM PAID ON INSURANCE POLICY OF 10,83,231/- AGAINST THE ASSESSMENT ORDER. THE ASSESSEE PREFERRED APPEAL BEF ORE THE LD. CIT(APPEALS), SURAT WHO AFTER CONSIDERING THE SUBMI SSIONS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE, THEREBY CONFIRM ED THE DISALLOWANCE MADE ON ACCOUNT OF THE PREMIUM PAID AS A KEY MANS INSURANCE POLICY AND DELETED THE ADDITION OF SUM OF RS.3.41,480/- MADE ON ACCOUNT OF ADMINISTRATIVE EXPENSES. THE AS SESSEE FEELING AGGRIEVED BY THE ORDER OF LEARNED CIT(APPEALS) FILE D AN APPEAL BEFORE THIS TRIBUNAL. 4. THE GROUND NO. 1 AND 2 ARE INTERCONNECTED THEREF ORE SAME ARE TAKEN TOGETHER AND ARE BEING DISPOSED TOGETHER. T HE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE IS SUE IN THIS APPEAL HAS ALREADY BEEN DECIDED BY THE HONBLE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA N0.3921/A/2008 FOR THE YEAR 2005-20 06 . ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 3 ITA NO. 532 OF 2010 A.Y. 2006-07 5. WE HAVE HEARD RIVAL SUBMISSION PERUSED THE MATER IAL ON RECORD WE FIND THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE HONBLE TRIBUNAL IN ITA NO. 3921/2008. THE HONBLE CO-ORD INATE BENCH HELD AS UNDER: WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE AO DISALLOWED THE CLAIM FOR DEDUCTIO N MERELY ON THE GROUND THERE IS NO EMPLOYER- EMPLOYEE RELATIONSHIP BETWEEN THE PARTNERS AND RELIED UPON THE CIRCULAR NO. 762 DATED 18-02-1998, WHICH READS AS UNDER: TAXATION OF A SUM RECEIVED UNDER THE KEYMAN INSURA NCE POLICY 14.1 KEYMAN INSURANCE POLICY OF THE LIFE INSURANCE CORPORATION OF INDIA, ETC. PROVIDES FOR AN INSURANC E POLICY TAKEN BY A BUSINESS ORGANIZATION OR A PROFESSIONAL ORGANIZATIO N ON THE LIFE OF AN EMPLOYEE, IN ORDER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS, WHICH MAY OCCUR FROM THE EMPLOYEES PREMATURE DEATH . THE KEYMAN IS AN EMPLOYEE OR A DIRECTION WHOSE SERVIC ES ARE PERCEIVED TO HAVE SIGNIFICANT EFFECT ON THE PROFITABILITY OF THE BUSINESSES. THE PREMIUM IS PAID BY THE EMPLOYER. 14.2 THERE WERE SOME DOUBTS ON THE TAXABILITY OF T HE INCOME INCLUDING BONUS, ETC. FROM SUCH POLICY AND ALSO REG ARDING THE TREATMENT OF THE PREMIUM PAID-WHETHER IT SHOULD BE ALLOWED AS CAPITAL EXPENDITURE OR AS REVENUE EXPENDITURE. THE FINANCE (NO. 2) ACT, 1996, THEREFORE, LAYS DOWNS THE TAX TREATMENT OF TH E KEYMAN INSURANCE POLICY. 14.3 CLAUSE (10D) OF S. 10 OF THE IT ACT EXEMPTS C ERTAIN INCOME FROM TAX. THE FINANCE (NO. 2) ACT, 1996, AM ENDS CL. (10D) OF S. 10 TO EXCLUDE ANY SUM RECEIVED UNDER A KEYMAN IN SURANCE POLILCY 4 ITA NO. 532 OF 2010 A.Y. 2006-07 INCLUDING THE SUM ALLOCATED BY WAY OF BONUS ON SUCH POLICY FOR THIS PURPOSE. 14.4 THE FINANCE (NO.2) ACT, 1996, ALSO LAYS DOWN THAT THE SUMS RECEIVED BY THE SAID ORGANIZATION ON SUCH POLI CIES, BE TAXED AS BUSINESS PROFITS; THE SURRENDER VALUE OF THE POLICY , ENDORSED IN FAVOUR OF THE EMPLOYEE(KEYMAN), OR THE SUM RECEIVED BY HIM AT THE TIME OF RETIREMENT BE TAKEN AS PROFITS IN LIEU OF SALARY FOR TAX PURPOSES; AND IN CASE OF OTHER PERSONS HAVING NO EMPLOYER-EMPLOYE E RELATIONSHIP, THE SURRENDER VALUE OF THE POLICY OR THE SUM RECEIVED U NDER THE POLICY BE TAKEN AS INCOME FROM OTHER SOURCES AND TAXED ACCORD INGLY. THE PREMIUM PAID ON THE KEYMAN INSURANCE POLICY IS ALLO WED AS BUSINESS EXPENDITURE. 14.5 THE AMENDMENTS TAKE EFFECT FROM THE 1 ST DAY OF OCTOBER, 1996. A BARE PERUSAL OF THE AFORESAID CIRCULAR REVEALS TH AT THERE IS NOTHING IN THE CIRCULAR WHICH DEBARS THE ALLOWANCE OF DEDUCTION OF PREMIA PAID ON THE LIFE OF PARTNERS BY THE FIRM. I N PARA 14.4 OF THE AFORESAID CIRCULAR IT IS ONLY MENTIONED THAT IN CAS E OF OTHER PERSONS HAVING NO EMPLOYER-EMPLOYEE RELATIONSHIP, THE SURRE NDER VALUE OF THE POLICY OR THE SUM RECEIVED UNDER THE POLICY BE TAKE N AS INCOME FROM OTHER SOURCES AND TAXED ACCORDINGLY. APPARENTLY, O NLY EMPLOYER AND EMPLOYEE RELATIONSHIP IS NOT ENVISAGED TO ALLOW THE PREMIUM PAID ON KEYMAN INSURANCE POLICY AS BUSINESS EXPENDITURE AND THERE CAN EXIST OTHER TYPES RELATIONSHIP. IT IS ALSO PERTINENT TO NOTE THE TERM PERSON OR PERSONS HAVE BEEN USED IN THE EXPLANATION TO S ECTION 10(10D) WHICH MAY REFER TO NATURAL PERSON OR ARTIFICIAL I.E . LEGAL PERSONS OR ENTITIES TREATED AS HAVING LEGAL ENTITY UNDER THE P ROVISIONS OF INCOME TAX ACT, 1961 AND IN THIS VIEW OF THE MATTER, THE A .OS CONCLUSION IN DISALLOWING THE CLAIM IS NEITHER IN ACCORDANCE WITH THE AFORESAID CIRCULAR NOR IN ACCORDANCE WITH LAW. 5 ITA NO. 532 OF 2010 A.Y. 2006-07 5.1NOW ADVERTING TO THE DECISION IN THE CASE OF P.G ELECTRONICS (SUPRA) RELIED UPON BY THE ID. AR, WHER EIN IT WAS HELD AS UNDER: IT MAY BE SEEN FROM PARA 14.2 OF THE CIRCULAR THAT HE BOARD WAS AWARE OF THE DOUBTS RELATING TO THE TREA TMENT OF THE PREMIUM PAID IN RESPECT OF A KEYMAN INSURANCE POLIC Y ISSUED BY THE LIC OF INDIA AND HAS ACCORDINGLY CLARIFIED, TO PUT THE DOUBTS AT REST, IN THE LAST SENTENCE OF PARA 14.4 T HAT THE PREMIUM PAID ON THE KEYMAN INSURANCE POLICY IS ALLO WED AS BUSINESS EXPENDITURE. IN THE LIGHT OF THE ABOVE AMENDMENTS AND THE CIRCUL AR CLARIFYING THE POSITION RELATING TO THE ALLOWABILITY OF THE PR EMIUM PAID ON KEYMAN INSURANCE POLICY, THE CIT, IN MY VIEW, WAS N OT JUSTIFIED IN DIRECTING THE AO TO DISALLOW THE PREMI UM PAID BY THE ASSESSEE FIRM IN RESPECT OF THE LIFE OF PARTNER ANURAG GUPTA, ASSURED UNDER THE KEYMAN INSURANCE POLICY AS CAN BE SEEN FROM PARA 2 OF THE ORDER OF THE CIT. THEREFORE, TH E ORDER OF THE CIT CANNOT BE SUSTAINED AS IT RUNS COUNTER TO THE A MENDMENTS MADE TO THE ACT AS CLARIFIED BY THE CIRCULAR ISSUED BY THE CBDT. IT IS WELL SETTLED THAT CIRCULAR ISSUED BY CBDT REG ARDING THE EXECUTION OF THE ACT ARE BINDING ON THE IT AUTHORIT IES. THE AMENDED LAW IS APPLICABLE TO THE YEAR UNDER CONSIDE RATION. THE CIT WAS, THEREFORE, NOT JUSTIFIED IN ASSUMING JURIS DICTION TO REVISE THE ASSESSMENT UNDER S. 263, CONTRARY TO THE LAW AND CIRCULAR ISSUED BY THE BOARD. HE COULD NOT HAVE CO NSIDERED THE ASSESSMENT ERRONEOUS SINCE THE ALLOWANCE OF THE PRE MIUM AS A DEDUCTION AS BUSINESS EXPENDITURE WAS IN CONFORMITY WITH THE CIRCULAR OF THE BOARD WHICH WAS BINDING ON THE AO. EVEN ON MERITS, HIS VIEW THAT THE PREMIUM PAID ON KEYMAN IN SURANCE POLICY SHOULD BE DISALLOWED IS NOT TENABLE, ALSO BE CAUSE OF THE CIRCULAR CITED ABOVE. I THEREFORE CANCEL THE ORDER UNDER S. 263 ON BOTH COUNTS AND ALLOW THE APPEAL. 6 ITA NO. 532 OF 2010 A.Y. 2006-07 5.2 IN THE LIGHT OF THE AFORESAID DECISION, CIRCUL AR DATED 18-02-1998 AND EXPLANATION TO SECTION 10(10D) OF TH E ACT, WE ARE OF THE OPINION THAT THE PREMIUM PAID UNDER THE KEYMAN INSURANCE POLICY ON THE LIFE OF PARTNERS CANNOT BE DISALLOWED. THEREFORE, THERE IS NO GROUND FOR INTERFERENCE WITH THE FINDINGS OF THE LEARNED CIT(A). ACCORDINGLY, GROUND NO. 1 I S DISMISSED. 6. RESPECTFULLY FOLLOWING THE DECISION OF THE HOBBLE CO-ORDINATE IN ITA NO. 3921/AHD/2008, THIS GROUND OF THE ASSESSEE S APPEAL IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. SD/- SD/- ( A.K. GARODIA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL ME MBER A.KUMAR COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDED 3. THE CIT(APPEALS)-II, BARODA 4. THE CIT CONCERNED. 5. THE DR, ITAT, AHEMEDABAD 6. GUARD FILE BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD 7 ITA NO. 532 OF 2010 A.Y. 2006-07 1.DATE OF DICTATION 18/06/2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 19/06/2012 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..