FOUR DIMENSIONS SECURITIES (I) LTD, MUMBAI V. ADDL CIT RG 4(1), MUMBAI

ITA 9085/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1968 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 26-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIDHAR
• Keywords: Business expenditure; Opportunity of being heard; Rule of consistency; Revenue expenditure
• Section: 14A; 37

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.9085/MUM/2010 ASSESSMENT YEAR: 2007-08 M/S FOUR DIMENSIONS SECURITIES (INDIA) LTD. 209-ARCADIA BUILDING 2 ND FLOOR NARIMAN POINT, MUMBAI-400021 / VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-4(1), 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO. AAA C F 1734F ITA NO.406/MUM/2011 ASSESSMENT YEAR: 2007-08 ADDL. COMMISSIONER OF INCOME TAX, RANGE-4(1), 6 TH FLOOR,AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S FOUR DIMENSIONS SECURITIES (INDIA) LTD. 209-ARCADIA BUILDING 2 ND FLOOR NARIMAN POINT, MUMBAI-400021 ( # / REVENUE) ( ! ' /ASSESSEE) PAN. NO.AAACF1734F ! ' / ASSESSEE BY SHRI ANUJ KISHNADWALA # / REVENUE BY MR. SHRIDHAR -DR $ #% & ' ' / DATE OF HEARING : 23/12/2015 & ' ' / DATE OF ORDER: 01/01/2016 FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE IS IN CROSS AP PEAL FOR ASSESSMENT YEAR 2007-08 CHALLENGING THE ORDER D ATED 28/10/210 OF THE LD. FIRST APPELLATE AUTHORITY, MUM BAI. 2. FIRST, WE SHALL TAKE UP APPEAL OF THE ASSESSEE (ITA NO.9085/MUM/2010), WHEREIN, FIRST GROUND PERTAINS T O CONFIRMING THE DISALLOWANCE U/S 14A OF THE INCOME T AX ACT, 1961 (HEREINAFTER THE ACT) TO THE EXTENT OF RS.31,1 8,078/-. DURING HEARING OF THIS APPEAL, THE CRUX OF ARGUMENT S ADVANCED BY SHRI ANUJ KISHNADWALA, LD. COUNSEL FOR THE ASSESSEE, IS THAT RULE-8D OF THE RULES IS NOT APPL ICABLE TO THE PRESENT APPEAL BEING THE ASSESSMENT YEAR INVOLVED I S 2007- 08 BY FURTHER ARGUING THAT A REASONABLE DISALLOWANC E MAY BE MADE BY INVITING OUR ATTENTION TO ORDER IN ITA NO.6711/MUM/2011 (2008-09) WHICH WAS AFFIRMED BY HONBLE JURISDICTIONAL HIGH COURT IN ITA NO.1131 OF 2013, ORDER DATED 13/04/2015. THIS FACTUAL MATRIX WAS CON SENTED TO BE CORRECT BY LD. DR, MR. SHRIDHAR. OUR ATTENTIO N WAS ALSO INVITED TO PAGE-5 OF THE BALANCE SHEET. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A CORPORATE MEMBER OF NSE, ENGAGED IN THE BUSINESS OF BROKING IN SHARES AND SECURITIES AND TRADING IN SHARES AND SECURITIES AS WELL AS FUTURES AND OPTIONS SEGMENTS. THE LD. ASSESSING OFFICER DETERMI NED THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 3 DISALLOWANCE OF EXPENSES U/S 14A R.W.R.8D OF THE RU LES TO THE TUNE OF RS.1,20,18,526/- WITH RESPECT TO CLAIMED EX EMPT DIVIDEND INCOME OF RS.87,33,208/-, EARNED DURING TH E YEAR. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TA X (APPEALS), THE DISALLOWANCE U/S 14A WAS CONFIRMED T O THE EXTENT OF RS.31,18,078/-. THE ASSESSEE IS IN FURTH ER APPEAL BEFORE THIS TRIBUNAL. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LE ADING TO ADDITION MADE TO THE TOTAL INCOME, CONCLUSION DR AWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSER TIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXT APOSITION AND ANALYZED, UNDER THE FACTS NARRATED HEREINABOVE, SO FAR AS, APPLICATION OF RULE-8D IS CONCERNED, WE ARE OF THE VIEW, THAT RULE-8D IS NOT APPLICABLE BEING THE ASSESSMENT YEAR INVOLVED IS 2007-08. WE HAVE ALSO PERUSED THE BALA NCE SHEET AVAILABLE AT PAGE-5 OF THE PAPER BOOK AS ON 31/03/2 007 (SCHEDULE-F) WITH RESPECT TO INVESTMENT AND FURTHER THE SCHEDULE FORMING PART OF THE BALANCE SHEET (PAGE-3 OF THE PAPER BOOK) AS ON 31/03/2007. WITHOUT GOING INTO MU CH DELIBERATION, WE NOTE THAT THE TRIBUNAL VIDE ORDER DATED 14/09/2012 IN THE CASE OF DCIT VS M/S INDIA ADVANTA GE SECURITIES LTD. (ITA NO.6711/MUM/2011) FOR A.Y. 200 8-09 HAS DULY DELIBERATED UPON THE DECISION IN M/S AMERI CAN EXPRESS BANK LTD. (ITA NO.5904 & 6022/MUM/2000), HONBLE KARNATAKA HIGH COURT IN CCL LTD. VS JCIT (2 50 CTR 291), GANJAM TREADING COMPANY LTD. (ITA NO.3724/MUM/2005) ORDER DATED 20/07/2012 ALONG WITH FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 4 THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DA GA CAPITAL MANAGEMENT PVT. LTD., ETC. BY HOLDING THAT THE DISA LLOWANCE OF INTEREST IN RELATION TO DIVIDEND RECEIVED FROM T READING SHARES CANNOT BE MADE. IT IS ALSO NOTED THAT THE AS SESSEE HAS CLAIMED THAT NO EXPENSES WERE INCURRED FOR EARNING DIVIDEND INCOME, DURING THE YEAR AS THE INVESTMENT IN SHARES WAS MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND NOT OUT OF BORROWED FUNDS. WITHOUT GOING INTO M UCH DELIBERATION, WE DIRECT THE ASSESSING OFFICER TO EX AMINE THE CLAIM OF THE ASSESSEE AND AFTER ASCERTAINING THE TR UE FACT DECIDE IN ACCORDANCE WITH LAW BY KEEPING IN VIEW TH E RATIO LAID DOWN IN THE CASES CITED BY THE LD. COUNSEL FOR THE ASSESSEE AND ANY OTHER CASE LAW, IF ANY, CITED DURI NG REMAND PROCEEDINGS. THE ASSESSEE BE GIVEN OPPORTUNITY OF B EING HEARD WITH FURTHER LIBERTY TO FURNISH EVIDENCE, IF ANY, TO SUBSTANTIATE ITS CLAIM. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 3. THE NEXT GROUND, RAISED BY THE ASSESSEE PERTAI NS TO CONFIRMATION OF DISALLOWANCE ON ACCOUNT OF KEYMAN INSURANCE PREMIUM AMOUNTING TO RS.60,000/-. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, CONTENDED THAT TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL DATED 28/10/2015, IN THE CASE OF ASSESSEE ITSELF FOR A.Y. 2005-06 AND 2006-07. THIS FACTUAL MATRIX WAS CONSENTED TO BE CORRECT BY THE LD. DR. FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 5 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT IDENTICALLY, THE TRIBUNAL IN THE CASE OF ASSESSEE I TSELF VIDE AFORESAID ORDER DATED 28/10/2015 HELD AS UNDER:- 5. THE LAST GROUND, IN THIS APPEAL, PERTAINS TO CONFIRMING THE DISALLOWANCE OF RS.84,88,660/- MADE ON ACCOUNT OF KEYMAN INSURANCE PREMIUM. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT IMPUGNED ISS UE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NO.3694/MUM/2009 AND ITA NO.6016/MUM/2008. OUR ATTENTION WAS INVITED TO THE RESOLUTION PASSED BY THE SHAREHOLDERS ON 29/03/2003, RESOLUTION WAS PASSED BY THE BOARD OF DIRECTORS ON 11/03/2005, INVITING OUR ATTENTION TO PARA 10 (PAGE 18) OF THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LD. DR, DEFENDED THE CONCLUSION ARRIVED AT BY THE LD. ASSESSING OFFICER AS WELL AS COMMISSIONER OF INCOME TAX (APPEALS) BY CONTENDING T HAT THE PAYMENT WAS MADE ON ACCOUNT OF INSURANCE COVER TAKEN FOR MR. ROHIT KOTHARI, AN EMPLOYEE, DRAWING SALA RY OF RS.80,000 PER MONTH. 5.1. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPE CTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, THE UNDISPUTED FACT IS THAT MR. ROHIT KOTHARI IS AN EMPLOYEE OF THE ASSESSEE AND THE SHARE HOLDERS PASSED A RESOLUTION ON 29/03/2003 APPOINTED MR. ROHIT KOTHARI, RELATIVE OF THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 6 DIRECTOR OF THE COMPANY TO HOLD AND CONTINUE AS CHIEF EXECUTIVE OFFICER IN TERMS OF CONDITIONS CONTAINED IN SERVICE AGREEMENT AND THE BOARD IN ITS MEETING HELD ON 11/03/2005 RECTIFIED AND TO TAKE KEYMAN INSURANCE COVER FOR SHRI ROHIT KOTHARI, CEO OF THE ASSESSEE COMPANY. WITHOUT GOING INTO MUCH DELIBERATION, WE NO TE THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF T HE TRIBUNAL IN THE CASE OF ACIT VS M/S BAADER SCHULZ LABORATORIES SHANTIVILLA SHANTIVAN CO-OP. HSG. SOC. ( ITA NO. 6224/MUM /2011), ORDER DATED 01/07/2015, WHICH IS REPRODUCED HEREUNDER FOR READY REFERENCE AND ANALYS IS:- THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 20/06/2011 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND, DELETING THE ADDITION OF RS.31,25,00 0/- MADE ON ACCOUNT OF PAYMENT TOWARDS KEYMAN INSURANCE PREMIUM, TAKEN ON THE LIFE OF THE PARTNERS. 2. DURING HEARING OF THE APPEAL, DR. YOGESH KAMAT, LD. DR, CONTENDED THAT THE PARTNERS, IN RESPECT OF WHOM, THE INSURANCE PREMIUM WAS PAID, WERE NEITHER MANAGING PARTNERS NOR WORKING PARTNERS AS THEY DID NOT RECEI VE ANY PREMIUM FROM THE ASSESSEE FIRM, IGNORING THE FACT T HAT THE BENEFIT WOULD NOT ACCRUE TO THE ASSESSEE FIRM. ON T HE OTHER HAND, SHRI PRADEEP D. SHAH, LD. COUNSEL FOR THE ASS ESSEE, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 7 BUSINESS OF MANUFACTURING OF POULTRY AND CATTLE FEE DS, FILED ITS RETURN DATED 30/09/2008. THE ASSESSEE COMPANY T OOK INSURANCE POLICY ON THE LIFE OF THE PARTNERS AND CL AIMED DEDUCTION ON THE PREMIUM PAID FOR SUCH POLICY. IT WAS CLAIMED BEFORE THE ASSESSING OFFICER THAT THE PREMI UM PAID TOWARDS KEYMAN INSURANCE POLICY IS DEDUCTIBLE BY PL ACING RELIANCE UPON CIRCULAR NO. 762 DATED 18/02/1998. TH E LD. ASSESSING OFFICER DENIED THE CLAIM AGAINST WHICH TH E ASSESSEE WENT IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) EXAMINED THE CLAIM AND FOUND THAT THE AMO UNT OF RS.31,25,000/- WAS PAID IN RESPECT OF ICICI PRUDENT IAL KEYMAN INSURANCE POLICIES (POLICY NO.01615183, 0161 5296 AND 01051293). THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DECIDED IN FAVOUR OF THE ASSESSEE AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. WE FIND THAT THE PERSONS FOR WHOM THE KEYMAN INSURANCE POLICY WA S TAKEN AND CONSEQUENT PREMIUM WAS PAID ARE CLOSELY CONNECTED WITH THE BUSINESS OF THE ASSESSEE FIRM. K EYMAN INSURANCE POLICY MEANS A LIFE INSURANCE POLICY TAKE N BY A PERSON FOR THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOY OF THE FIRST MENTIONED PERSON OR IS WAS CONN ECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRS T MENTION PERSONS, WHO IS PAYING FOR SUCH PERSON, WHO IS CLOSELY CONNECTED WITH THE BUSINESS OF THE PAYER. THE RATIO LAID DOWN IN CIT VS B.N. EXPORTS (190 TAXMAN 325), THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT THE KEY MAN INSURANCE PREMIUM PAID ONLY POLICIES OF THE LIVES O F THE PARTNERS IS AN ALLOWABLE DEDUCTION. IN THE PRESENT APPEAL, THE LD. ASSESSING OFFICER DID NOT ALLOW THE KEYMAN FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 8 INSURANCE PREMIUM BROADLY ON TWO COUNTS (A) THE PAR TNERS IN RESPECT OF WHOM INSURANCE PREMIUM WAS PAID WERE NEITHER MANAGING PARTNERS NOR WORKING PARTNERS AS T HEY DID NOT RECEIVE ANY REMUNERATION FROM THE FIRM AND (B) THE POLICIES WERE ASSIGNED TO THE PARTNERS AND THE BENE FIT WOULD NOT ACCRUE TO THE ASSESSEE FIRM. HOWEVER, IF IT IS ANALYZE, THE KEYMAN INSURANCE PREMIUM PAID IN RESPE CT OF ANY PERSON, WHO IS CONNECTED WITH THE BUSINESS OF T HE ASSESSEE WOULD BE TREATED AS KEYMAN. THERE IS NO REQUIREMENT, THAT SUCH PERSON SHOULD BE A WORKING P ARTNER OR MANAGING PARTNER. THE HONBLE DELHI HIGH COURT IN CIT VS RAJAN NANDA (2012) 349 ITR 8 (DEL.) HELD THAT PR EMIUM ON KEYMAN INSURANCE IS A DEDUCTIBLE BUSINESS EXPEND ITURE U/S 37 OF THE ACT. THE RELEVANT PORTION OF THE ORD ER IS REPRODUCED HEREUNDER FOR READY REFERENCE:- THE ASSESSEE TOOK KEYMAN INSURANCE POLICIES ON THE LIVES OF TWO EMPLOYEES/DIRECTORS IN DIFFERENT YEARS. AFTER PAYIN G PREMIUM FOR A CERTAIN PERIOD, THEY WERE ASSIGNED TO THE TWO EMPLO YEES/DIRECTORS RECEIVING THE SURRENDER VALUE FROM THEM. FOR THE RE MAINING PERIOD OF THE POLICIES, THE INSURANCE PREMIA WERE PAID BY THE ASSIGNEES. THE ASSESSING OFFICER HELD THAT SINCE THE EXPENDITURE I NCURRED ON THE PREMIA PAID ON THE KEYMAN INSURANCE POLICIES WAS MU CH MORE THAN THE SURRENDER VALUE REALIZED BY THE ASSESSEE ON THE ASSIGNMENT OF THESE POLICIES TO THE EMPLOYEES/DIRECTORS, THE AMOU NT PAID BY THE ASSESSEE AS PREMIA ON THE POLICIES COULD NOT BE TRE ATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PU RPOSE OF THE ASSESSEE. THEREFORE, HE DISALLOWED THE PREMIA PAID IN DIFFERENT YEARS WHICH WAS CLAIMED AS BUSINESS EXPENDITURE. THE COMM ISSIONER (APPEALS) AND THE TRIBUNAL, HOWEVER, HELD THAT THE AMOUNT WAS DEDUCTIBLE. IN SO FAR AS THE EMPLOYEES/DIRECTORS WERE CONCERNED , THE QUESTION WAS WHETHER THE DIFFERENCE BETWEEN THE ACTUAL PREMI UM PAID AND THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 9 SURRENDER VALUE GIVEN BY THEM WAS TO BE TREATED AS SALARY IN THEIR HANDS AND WAS TO BE TAXED ACCORDINGLY AND WHETHER T HE MATURITY VALUE RECEIVED BY THEM ON THE POLICY WAS TO BE TAXE D OR NOT. THE ASSESSING OFFICER HELD THAT THE DIRECTORS HAD TAKEN A SUBSTANTIAL BENEFIT BY PAYING ONLY THE SURRENDER VALUE AS AGAIN ST THE MUCH HIGHER AMOUNT OF PREMIA PAID BY THE ASSESSEE. THE D IFFERENCE BETWEEN THE PREMIA PAID BY THE ASSESSEE AND THE SUR RENDER VALUE PAID BY THEM WAS TREATED AS BENEFIT TO BE TAXED IN THEIR HANDS. THE TRIBUNAL HELD THAT MERELY BY ASSIGNMENT IN A PARTIC ULAR YEAR WHEN THE POLICY WAS STILL CONTINUING, NO TAXABLE EVENT H AD TAKEN PLACE AND, THEREFORE, NO TAX COULD BE CHARGED. IT HAD ALSO HEL D THAT THE AMOUNT IN QUESTION COULD NOT BE TAXED AS PERQUISITE SO AS TO FALL WITHIN THE SCOPE OF SECTION 17(3) . THE TRIBUNAL TOOK NOTE OF THE CERTIFICATE OBTAINED BY THE ASSESSEE FROM THE LIC WHEREBY IT HA D CERTIFIED THAT A KEYMAN INSURANCE POLICY AFTER ASSIGNMENT ASSUMED TH E STATUS OF AN ORDINARY INSURANCE POLICY. THE TRIBUNAL WHILE GIVIN G REQUISITE RELIEF BROUGHT TO TAX THE AMOUNT OF THE SURRENDER VALUE AT THE TIME OF ASSIGNMENT SUBJECT TO VERIFICATION BY THE ASSESSING OFFICER. ON APPEAL TO THE HIGH COURT : HELD, DISMISSING THE APPEALS, (I) THAT THE DEPARTME NT HAD ITSELF ALLOWED THE EXPENDITURE INCURRED ON THE PREMIUM PAI D FOR THE KEYMAN INSURANCE POLICIES IN PREVIOUS YEARS AS BUSI NESS EXPENDITURE UNDER SECTION 37 OF THE ACT. RIGHT FROM 1991-92 TO 1993-94 AND THEREAFTER EVEN IN RESPECT OF THE ASSESSMENT YEAR 1 997-98, THE EXPENDITURE WAS ALLOWED. THEREAFTER, THE EXPENDITUR E WAS DISALLOWED, BUT AGAIN THE CLAIM WAS ACCEPTED FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03. THE PRINCIPLE OF CONSISTENCY WOULD, TH EREFORE, BE APPLICABLE IN SUCH A CASE. THE OBJECT OF A KEYMAN I NSURANCE POLICY IS TO ENABLE BUSINESS ORGANIZATIONS TO INSURE THE LIFE OF A KEY MAN IN ORDER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS WHICH MAY OCCUR IN THE LIKELY EVENTUALITY OF HIS PREMATURE DE ATH. SUCH AN EXPENDITURE IS TREATED AS BUSINESS EXPENDITURE BY T HE DEPARTMENT AND RECOGNISED AS SUCH IN CIRCULAR DATED FEBRUARY 1 8, 1998. THE CIRCULAR IS BINDING ON THE INCOME-TAX DEPARTMENT, W HICH CATEGORICALLY STIPULATES THAT PREMIUM ON KEYMAN POL ICY SHOULD BE ALLOWED AS BUSINESS EXPENSES. MERELY BECAUSE THE PO LICY WAS ASSIGNED AFTER SOME TIME THAT WOULD NOT MEAN THAT THE EXPEND ITURE INCURRED FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 10 IN THE FIRST INSTANCE WOULD LOSE THE FLAVOUR OF BU SINESS EXPENDITURE. THE PREMIA WERE DEDUCTIBLE AS BUSINESS EXPENDITURE. (II) THAT THE EXPLANATION TO SECTION10(10D)GIVES TH E MEANING TO KEYMAN INSURANCE POLICY AND ONLY THAT SUM RECEIVE D UNDER THIS POLICY WOULD BE TREATED AS INCOME. SUB-CLAUSE(II)OF CLAUSE(3)OF SECTION17TAXES ANY SUM RECEIVED IN A KEYMAN INSURA NCE POLICY. THE WORD RECEIVED ASSUMES SIGNIFICANCE. THE LEGISLATU RE IN ITS WISDOM THOUGHT TO TAX ONLY THAT PAYMENT, WHICH IS RECEIVED BY THE EMPLOYEE- ASSESSEE UNDER THE KEYMAN INSURANCE POLICY. THE PUR PORT OF SUB- CLAUSE(II)IS ALTOGETHER DIFFERENT. SUCH AN AMOUNT D UE OR RECEIVED BY THE ASSESSEE HAS TO BE : (A) BEFORE JOINING ANY EMP LOYMENT ; OR (B) AFTER CESSATION OF ITS EMPLOYMENT. NO SUCH CONTINGE NCY OCCURRED WHEN THE KEYMAN INSURANCE POLICY WAS ASSIGNED BY TH E COMPANY IN FAVOUR OF THE DIRECTOR-ASSESSEE. THE TAX EVENT DID NOT OCCUR, AS NO SUCH AMOUNT WAS RECEIVED AT THE TIME OF ASSIGNMENT OF THE POLICY BY THE COMPANY AS EMPLOYER TO THE DIRECTOR-ASSESSEE, A S EMPLOYEE. THE AMOUNTS WERE NOT TAXABLE IN THE HANDS OF THE DIRECT ORS. (III) THAT THERE IS NO PROHIBITION ON THE ASSIGNMEN T OR CONVERSION OF KEYMAN INSURANCE UNDER THE ACT. ONCE THERE IS AN AS SIGNMENT, IT LEADS TO CONVERSION AND THE CHARACTER OF THE POLICY CHANG ES. THE INSURANCE COMPANY HAD ITSELF CLARIFIED THAT ON ASSIGNMENT, IT DOES NOT REMAIN A KEYMAN POLICY AND GETS CONVERTED INTO AN ORDINARY P OLICY. HENCE, THE POLICY IN QUESTION WAS NOT A KEYMAN INSURANCE POLIC Y AND WHEN IT MATURED, THE ADVANTAGE DRAWN THEREFROM WAS NOT TAXA BLE. IN ANOTHER CASE OF CIT VS GEM ART (2012) 208 TAXMAN 47 (GUJ.), WHEREIN, PREMIUM WAS PAID BY THE FIRM FOR P ARTNERS UNDER KEYMAN INSURANCE POLICY, THE HONBLE HIGH COU RT TREATED IT AS REVENUE EXPENDITURE. RESPECTFULLY FOL LOWING THE AFORESAID DECISIONS FROM HONBLE DELHI AND GUJARAT HIGH COURTS, WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THUS, APPEAL OF THE REVENUE I S DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 11 5.2. IN VIEW OF THE ABOVE, WE ARE EXPECTED TO ANALYS E THE PROVISION OF THE ACT. EXPLANATION TO SECTION10(10D)GIVES THE MEANING TO KEYMAN INSURANCE POLICY AND ONLY THAT SUM RECEIVED UNDER THIS POLICY WOULD BE TREATED AS INCOME. SUB-CLAUSE(II)OF CLAUSE(3)OF SECTION17TAXES ANY SUM RECEIVED IN A KEYMAN INSURANC E POLICY. THE WORD RECEIVED ASSUMES SIGNIFICANCE. THE LEGISLATURE IN ITS WISDOM THOUGHT TO TAX ONLY THAT PAYMENT, WHICH IS RECEIVED BY THE EMPLOYEE-ASSESSEE UNDER THE KEYMAN INSURANCE POLICY. THE PURPORT OF SU B- CLAUSE(II)IS ALTOGETHER DIFFERENT. SUCH AN AMOUNT DUE OR RECEIVED BY THE ASSESSEE HAS TO BE : (A) BEFORE JOINI NG ANY EMPLOYMENT ; OR (B) AFTER CESSATION OF ITS EMPLOYMENT. N O SUCH CONTINGENCY OCCURRED WHEN THE KEYMAN INSURANCE POLICY WAS ASSIGNED BY THE COMPANY IN FAVOUR OF THE DIRECTOR-ASSESSEE. THE TAX EVENT DID NOT OCCUR, AS NO SUCH AMOUNT WAS RECEIVED AT THE TIME OF ASSIGNMENT OF THE POLICY BY THE COMPANY AS EMPLOYER TO THE DIRECTOR- ASSESSEE, AS EMPLOYEE. THE AMOUNTS WERE NOT TAXABLE I N THE HANDS OF THE DIRECTORS. IN THE CASE OF CIT VS GEM ART (2012) 208 TAXMAN 47 (GUJ.), WHEREIN, PREMIUM WAS PAID BY THE FIRM FOR PA RTNERS UNDER KEYMAN INSURANCE POLICY, THE HONBLE HIGH COUR T TREATED IT AS REVENUE EXPENDITURE. RESPECTFULLY FOLLOWI NG THE AFORESAID DECISIONS FROM HONBLE DELHI HIGH COUR T (DISCUSSED IN THE AFORESAID ORDER) AND GUJARAT HIGH COURT, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE. SO FAR AS, THE CONTENTION OF THE LD. DR THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE REVENUE IN TAPARIA TOOLS L TD. VS FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 12 JCIT 260 ITR 102 (BOM.). THIS DECISION HAS BEEN RE VERSED BY HONBLE APEX COURT IN TAPARIA TOOLS VS JCIT 372 I TR 605 (SC), ORDER DATED 23/03/2015, THUS, THIS GROUND O F THE ASSESSEE IS ALLOWED. WE NOTE THAT THE TRIBUNAL ON IDENTICAL ISSUE HAS MA DE AN ELABORATE DISCUSSION AND THEN DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE AFORESAID DECISION, WE ALLOW THIS GROUND OF THE ASSESSEE. 4. THE NEXT GROUND RAISED BY THE ASSESSEE PERTAINS ALLOCATING THE DATA BASED ASSESSED CHARGES IN PROPO RTION TO THE TURNOVER OF SHARE TRADING/BROKING INCOME AS AGA INST THE ACT OF THE ASSESSEE. IT WAS CONTENDED BY THE LD. C OUNSEL THAT IDENTICALLY, THE TRIBUNAL VIDE AFORESAID ORDER DATE D 28/10/2015, IN THE CASE OF THE ASSESSEE ITSELF SEND THE ISSUE TO THE FILE OF LD. ASSESSING OFFICER. THIS FACTUAL MATRIX WAS CONSENTED TO BE CORRECT BY THE LD. DR. 4.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE AFORESAID ORDER OF THE TRIBUNAL FOR READY REFERENCE:- 13. THE LAST GROUND PERTAINS TO CONFIRMING THE ALLOCATION OF KEYMAN INSURANCE PREMIUM DATA BASE ACCESS CHARGES, TRAVELLING, CONVEYANCE, LEGAL AND PROFESSIONAL FEE TO SHARE TRADIN G BUSINESS FOR THE PURPOSES OF COMPUTING REBATE U/S 88E OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE DIRECTIO N BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO THE LD. ASSE SSING OFFICER. IT FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 13 WAS CONTENDED THAT THE ASSESSING OFFICER MAY BE DIREC TED TO FOLLOW THE DIRECTIONS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR PLACED RELIANCE UPON THE ORDER OF THE LD. COMMI SSIONER OF INCOME TAX (APPEALS). 13.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT FROM PA RA 7 ONWARDS (PAGE-5) OF THE ORDER OF THE LD. COMMISSIONER OF INCOM E TAX (APPEALS), THE ISSUE HAS BEEN DISCUSSED AND FINALLY ASSESSING OFFICER WAS DIRECTED TO VERIFY THE NATURE OF EXPENDITURE AND TH EN ALLOCATE SUCH EXPENSES AND RECOMPUTED THE REBATE U/S 88E OF TH E ACT. WE FIND NO INFIRMITY IN THE DIRECTION OF THE COMMISSIONER OF I NCOME TAX (APPEALS), THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO FOLLOW THE DIRECTION OF THE LD. FIRST APPELLATE AUTHORITY AND DEC IDE IN ACCORDANCE WITH LAW. IN VIEW OF THE ABOVE, THIS GROUND IS SENT TO THE FI LE OF THE LD. ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE A SSESSEE AND DECIDE IN ACCORDANCE WITH LAW. THE ASSESSEE BE GIVE N OPPORTUNITY OF BEING HEARD WITH FURTHER LIBERTY TO FURNISH EVIDENCE, IF ANY, TO SUBSTANTIATE ITS CLAIM, CONSEQ UENTLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. 5. NOW, WE SHALL TAKE UP APPEAL OF THE REVENUE (ITA NO.406/MUM/2011) (A.Y. 2007-08), WHEREIN, ONLY GROU ND RAISED PERTAINS TO DELETING THE PENALTY OF RS.10,00 0/- ON FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 14 VIOLATION OF BYE-LAWS OF THE STOCK EXCHANGE WHICH A RE STATUTORY IN CHARACTER, THUS, AMOUNTS TO INFRINGEME NT OF LAW, IGNORING THE FACT THAT THE PENALTY WAS IMPOSED UNDE R SEBI RULES, 1995 WHICH HAS A BINDING CHARACTER. 5.1. DURING HEARING, THE LD. DR, ADVANCED ARGUMENT S WHICH IS IDENTICAL TO THE GROUND RAISED BY CONTENDI NG THAT THE ASSESSEE VIOLATED THE BYE-LAWS OF THE STOCK EXCHANG E WHICH ARE STATUTORY IN CHARACTER, THUS, THE PENALTY WAS I MPOSED AS PER SEBI RULES. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), CONSEQUENTLY, ERRED IN DELETING THE PENA LTY. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE DEFEND ED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY INVI TING OUR ATTENTION TO PAGE-26, PARA 7 AND 7.1 OF THE ORDER O F THE TRIBUNAL DATED 28/10/2015 (ITA NO. 790/MUM/2009) ET C. 5.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION OF THE AFORESAID ORDER FOR READY REFERENCE:- 7. SO FAR AS, GROUNDS NO 8 TO 12 ARE CONCERNED, THESE WERE CLAIMED TO BE COVERED BY THE DECISION FROM HONBLE JU RISDICTIONAL HIGH COURT IN CIT VS ANGEL CAPITAL & DEBIT MARKET LTD. (IT A NO.475 OF 2011) ORDER DATED 28/07/2011. THIS FACTUAL MATRIX WAS NOT CO NTROVERTED BY LD. DR. 7.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT SO FAR AS DELETING THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 15 ADDITION MADE ON ACCOUNT OF PENALTY OF RS.76,410/-, ON VIOLATION OF BYE-LAWS OF STOCK EXCHANGE, PENALTY IMPOSED UNDER SE BI RULES 1995 IS CONCERNED, THE HONBLE HIGH COURT HELD THAT SUCH PAYM ENTS WERE NOT ON ACCOUNT OF INFRACTION OF LAW, HENCE, ALLOWABLE AS BUSINESS EXPENDITURE AND FURTHER EXPLANATION TO SECTION 37 OF T HE ACT WILL NOT APPLY. THIS GROUND OF THE REVENUE, IS THEREFORE, HAS NO MERIT. 5.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, CONCLUSION DRAWN IN THE ORDER OF THE TRIBUNAL, ASSE RTIONS MADE BY THE LD. RESPECTIVE COUNSELS, IF KEPT IN JUX TAPOSITION AND ANALYZED, THERE IS A FINDING IN THE ORDER OF TH E TRIBUNAL THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS ANGEL C APITAL DEBIT MARKET LTD. (ITA NO.475 OF 2011) ORDER DATED 28/07/2011. THIS FACTUAL MATRIX WAS NOT CONTROVERTE D BY THE LD. DR. THE HONBLE HIGH COURT IN THE AFORESAID CAS E HELD THAT SUCH PAYMENTS ARE NOT ON ACCOUNT OF INFRACTION OF LAW, HENCE ALLOWABLE AS BUSINESS EXPENDITURE AND FURTHER EXPLANATION TO SECTION 37 OF THE ACT WILL NOT APPLY. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE F IND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) IN DELETING THE PENALTY, THUS, APPEAL OF THE REVENUE IS HAVING NO MERIT, CONSEQUENTLY, DISMI SSED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES, WHEREAS, THE APPEAL OF THE RE VENUE IS DISMISSED. FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.9085/MUM/2010 & ITA NO.406/MUM/2011 16 THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 23/12/2015. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SING H) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ) DATED : 01/01/2016 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,-. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1 1 $ 2' ( +, ) / THE CIT, MUMBAI. 4. 1 1 $ 2' / CIT(A)- , MUMBAI 5. 4#5 /' , 1 +,' + 6 , $ % / DR, ITAT, MUMBAI 6. 7 % / GUARD FILE. / BY ORDER, 04,' /' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI