Income Tax Appellate Tribunal - Ahmedabad
Orio Sanghai Colours Pvt.Ltd., ... vs Assessee on 8 September, 2016
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"SMC" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
आयकर अपील सं./ ITA.No.2559/Ahd/2011
नधा रण वष /Asstt. Year: 2007-2008
Orio Sanghai Colours Pvt.Ltd. ITO, Ward-5(2)
306/B, Phase-I, GIDC Vs Ahmedabad.
Naroda, Ahmedabad 382 330.
PAN : AAACO 5144 Q
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Assessee by : Shri Y.K. Batra, AR
Revenue by : Shri Satish Solanki, Sr.DR
ु वाई क तार ख/ Date
सन of Hearing : 29/07/2016
घोषणा क तार ख / Date of Pronouncement: 08/09/2016
आदे श/O RDER
Assessee is in appeal against the order of the ld.CIT(A)-XI, Ahmedabad dated 24.8.2011 passed for the Astt.Year 2007-08.
2. Though assessee has taken seven grounds of appeal, but its grievance revolves around a single issue viz. the ld.CIT(A) has erred in upholding disallowance of Rs.10,00,129/- which was claimed by the assessee on the ground that it has purchased a Keyman Insurance Policy ("KIP" for short) for Managing Director.
3. Brief facts of the case are that the assessee has filed its return of income on 30.10.2007 declaring total income at Rs.6,26,902/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) ITA No.2559/Ahd/2011 2 was issued and served upon the assessee. On scrutiny of the accounts it revealed to the AO that the assessee has debited a sum of Rs.10,00,129/- in the profit & loss account. It has incurred this expenditure on purchase of KIP for Smt.Tarulata Mahesh Agrawal, who is director of the company. The ld.AO has disallowed this claim of the assessee on the ground that insurance companies are controlled by the guidelines of IRDA and IRDA has advised for providing KIP to the companies. Policy to cover Smt.Tarulata Mahesh Agrawal has been granted by the insurance company in violation to this guidelines, hence the assessee is not entitled for deduction of the expenditure. Appeal to the ld.CIT(A) did not bring any relief to the assessee.
4. The ld.counsel for the assessee, while impugning order of the ld.Revenue authorities contended that section 10(10D) contemplates mainly two requirements for the purpose of KIP viz. (a) it should be a life insurance policy, (b) it should be taken by the assessee on life of any persons who is or was an employee of the assessee or is related to the business of the assessee in any manner. The assessee fulfills both these conditions. On the strength of ITAT decision in the case of Suri Sons Vs. ACIT, 61 taxmann.com 141 (Amristar-Trib.), he contended that ITAT has considered this aspect and observed that guidelines issued by IRDA would not be a relevant factor for interpreting the income-tax provisions. He placed copy of this judgment on record. On the other hand, the ld.DR relied upon the orders of the Revenue authorities below.
5. I have duly considered rival contentions and gone through the record carefully. As far as fulfillment of conditions contemplated under section 10(10D) is concerned, the assessee has duly complied with. Objection of the AO is that insurance company has issued policy in violation to IRDA ITA No.2559/Ahd/2011 3 guidelines. This aspect has been considered by the ITAT, Amristar Bench in the order in the case of Suri Sons (supra), and following finding is worth to note:
"15. It is also important to bear in mind the fact that the IRDA guidelines, no matter how relevant as these guidelines may be, have no role to play in the interpretation of the statutory provisions. IRDA is a body controlling the insurance companies and its guidance is relevant on how the insurance companies should conduct their business. Beyond this limited role, these guidelines donot affect how the provisions of the Income Tax Act are to be construed. Whenever the provisions of the other statutes are to be taken into account, for interpreting the provisions of the Income Tax Act, the Income Tax Act specifically provides so, such as in the case of Explanation 2 to Section 2 (42A) which provides that "the expression "security" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)]". It cannot, therefore, be open to us to turn to the guidelines of the IRDA to interpret the provisions of the Income tax Act, 1961. In this view of the matter, learned Assessing Officer's observations to the effect that, ""that the policy taken is keyman as per definition given in the Income Tax Act, i.e. policy taken by a person on the life of another person and also fulfilling the terms and conditions laid down by IRDA in this regard, necessity and expediency of the person being keyman and the policy taken for the benefit of the assessee firm (emphasis, by underling, supplied by the AO)" are devoid of any legally sustainable merits. The fulfilment of IRDA terms and conditions is wholly alien to the present context. As for the policy being taken for the benefit of the assessee firm, as long as it is for the purpose of taking an insurance policy on the life of a person who is related to the firm, the same cannot be called into question either. We have also noted that the authorities below have paid a lot of emphasis on the contention that the insurance policies in question were not termed as keyman insurance policies but nothing turns on that aspect, even if that be so, either. The keyman insurance policy is a defined concept and as long as it meets the requirements of this definition, the terminology given by the insurers have no relevance for the purposes of the Income Tax Act. All that is necessary is that it should be a life insurance policy, whether pure life insurance policy or not- as such criterion is not set out anywhere in the stature, and it should be taken on the life of a person who is, or has been, an employee ITA No.2559/Ahd/2011 4 of the assessee or any other person who is or was connected in any manner whatsoever with the business of the assessee. These conditions are clearly satisfied on the facts of the case before us."
6. The Tribunal has also considered the Circular issued by IRDA contemplating duties, powers and functions of the authorities. After reproducing the circular, the Tribunal has made the following observations:
"17A. A plain look at the above circular shows that it deals with aberrations in sale of keyman insurance policies and it is was a direction to the insurance companies that effect 27th April 2005 only term insurance policies should be issued as keyman insurance cover. That is between the regulatory authority and the insurance companies as to what should be allowed to be marketed as keyman insurance cover. However, it does not alter the requirements of Section 10(10D) which is for 'life insurance policy'. What can be sold as a 'life insurance policy' taken by a business entity for its employee, former employee or any other person important for business of such an entity is between the insurance regulator and insurance service provider. However, once it has been sold as a life insurance policy on the keyman to the business, as long as it is in the nature of life insurance policy, whether pure life cover or term cover or a growth or guaranteed return policy, it is eligible for coverage of Section 10(10D). It is not open to us to infer the words which are not there on the statute and then proceed to give life and effect to the same. We had detailed discussions about this aspect of the matter in paragraph numbers 10 to 15 above, and, as we have held there, such an exercise is not permissible under the scheme of the Act. 18. What IRDA regulates is issuance of life insurance policies by the insurance companies to the policyholders on the lives of its employees, former employees and key personnel but once such a policy is issued it cannot but be treated as a 'keyman insurance cover' as it essentially meets the requirement of Section 10(10D) because it is a "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". The mandate of Section 10(10D) does not put any further tests, nor can we infer the same."ITA No.2559/Ahd/2011 5
7. The AO cannot deny the claim of expenditure simply on the basis of IRDA guidelines. Therefore, respectfully following the order of the Division Bench of ITAT, Amristar Bench, I allow this appeal and delete disallowance.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 8th September, 2016 at Ahmedabad.
Sd/-
(RAJPAL YADAV) JUDICIAL MEMBER