ITO 4(2)(2), MUMBAI vs. PATANI SECURITIES P. LTD, MUMBAI

This appeal filed by the Revenue is against the order of CIT(A) for assessment year 2009-10, in the matter of order passed u/s 143(3) of the Income Tax Act.

First grievance of the Revenue relates to CIT(A)’s direction to hold that assessee’s case is carved out under the Explanation to section 73.

Rival contentions have been heard and record perused. The facts of the case are that during assessment proceedings, the Assessing Officer observed that the assessee company had shown loss on sale of stock in trade of Rs. 77,25,600/- as under:

We have considered the rival contentions, as per the finding recorded by the CIT(A) assessee’s income from interest, Long Term Capital 3 ITA no.4231/Mum./2013 (Assessment Year : 2009-10) Gain was much more than its business income, therefore case of assessee is not caught by the mischief of Explanation to section 73. Accordingly, we uphold the action of CIT(A) for allowing the setting off of the loss so incurred against its other income.

Revenue is also aggrieved by action of CIT(A) deleting proportionate amount of Keyman Insurance premium for 167 days of Rs. 11,43,835. The facts of the case are that the assessee in the revised computation filed along with revised return of income claimed "disallowed Keyman Insurance Premium as prepaid now allowable in the current year of Rs. 24,52,055/-". The appellant during assessment proceedings made submissions which is reproduced by the Assessing Officer in his assessment order. The Assessing Officer observed that the payment of Keyman Insurance Premium of Rs. 25,00,000/- for the period from 24/3/2008 to 24/3/2009 was paid by the assessee on 26/3/2008. Out of Rs. 25,00,000/- payment of Rs. 47,945/- was for the period from 24/3/2008 to 31/3/2008 and the remaining amount of Rs. 24,52,055/- pertains to the period from 1/4/2008 to 24/3/2009. On 8/10/2008, the policy was assigned to Shri Mukesh Chrmanlal Patani for Rs. 1,38,68,762/-. Therefore, the claim of the appellant for the payment of Keyman Insurance Premium for the period after the policy was assigned to the assignee was not allowable by the Assessing Officer Since the period from 9/10/2008 to 24/3/2009 works out to 167 days, the Assessing Officer, therefore.worked ./2013 (Assessment Year : 2009-10) out the proportionate amount of premium for 167 days to Rs. 11,43,835/- and disallowed the same. 7. By the impugned order the CIT(A) deleted the disallowance after observing as under:- “4.3 I have carefully considered the facts of the case and the contention of the appellant. It is an acceptable legal position that the maturity proceeds of the Keyman Insurance Policy is taxable and premium paid on such policies is deductible. The CBDT in Circular No. 763 dted February 18, 1998 has made this aspect very clear. It is not necessary that a Keyman insurance Policy should be only in the name of the employees and not partners. Mumbai ITAT in the case of ITO v. Modi Motors - 27 SOT 476 (Mum.) had to deal with a case where the Assessee, a partnership firm, claimed deduction u/s 10(10D) of the Act on account of Keyman Insurance Policy premium paid on the life insurance policies of two of its workinq partners. The AO disallowed the claim on the ground that partnership firm in not a separate legal entity. The CIT(A) allowed the assessee's claim holding the firm and its partners as separate persons. The tribunal held that for the purposes of the Act, partnership firm is a separate entity than that of its partners under the Income-tax Act and if there exist any specific provision in the Income-tax law modifying the partnership law then, such specific provision shall be applied and if the tax law is silent on a specific issue, then a reference will have to be made to the provisions of partnership law for the adjudication of the same. It was further held that Sec .. 10(D) recognize the existence of other types of relationship apart from employer-employee relationship for claiming deduction on account of premium paid on Keyman Insurance Policy as business expenditure. The Hon'ble Bombay High Court in the case of B. N. Exports- 323 ITR 178 also held that allowability of expenditure incurred on premium paid towards a Keyman Insurance Policy cannot be confined only to a situation where policy is in respect of life of an employee. The Hon'ble Court held that Keyman Insurance Policy obtained on life of a partner to safeguard firm against a disruption of business that may result due to premature death of a partner and expenditure which is laid out for payment of premium on such a policy is allowable as business expenditure.

We have considered the rival contentions and having regard to the facts recorded by the CIT(A) to the effect that expenditure so incurred was revenue in nature and for the purpose of business only, therefore, proportionate disallowance of premium was wrongly made by the 6 ITA no.4231/Mum./2013 (Assessment Year : 2009-10) Assessing Officer. Further perquisite value of the policy assigned has been taken care of by deducting due taxes thereon. Accordingly, we uphold the order of CIT(A).