Income Tax Appellate Tribunal - Ahmedabad
Ganga Automobiles, Surat vs Assessee on 17 May, 2012
1 ITA NO. 532 OF 2010
A.Y. 2006-07
IN THE INCOME TAX APPELLATE TRIBUNAL"D" BENCH,AHMEDABAD
(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 Vs. ACIT, Cicle II,
Surat Surat
(Appellant) (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 : 17-05-2012
Date of Pronouncement : 22-06-2012
आदे श)/ORDER
(आदे PER: SRI KUL BHARAT, JUDICIAL MEMBER:
The present appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-II Surat dated 24 Dec,2009 in Appeal No. CAS/II/300/2008-2009.
2. The assessee has raised following grounds of appeal:-
"1. Under the facts and circumstances of the case as well as law on the subject, the learned CIT (A)-II, Surat has erred in confirming the addition of Rs. 10,83,231/- on account of premium paid for Key Man Insurance of the partners without appreciating the facts of the case as well as the submission tendered by the appellant.2 ITA NO. 532 OF 2010
A.Y. 2006-07
2. Under the facts and circumstances of the case as well as a law on the subject, the learned CIT (Appeals)-II Surat wrongly rejected the claim without appreciating the fact that such disallowance resulted into double taxation in as much as the appellant 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 to 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 under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act). While framing the assessment under Section 143(3) of the Act, the assessing officer made disallowance of administrative expenses of Rs. 3,41,480/- and premium paid on insurance policy of 10,83,231/- against the assessment order. The assessee preferred appeal before the Ld. CIT(Appeals), Surat who after considering the submissions partly allowed the appeal of the assessee, thereby confirmed the disallowance made on account of the premium paid as a key man's insurance policy and deleted the addition of sum of Rs.3.41,480/- made on account of administrative expenses. The assessee feeling aggrieved by the order of learned CIT(Appeals) filed an appeal before this Tribunal.
4. The ground No. 1 and 2 are interconnected therefore same are taken together and are being disposed together. The Ld. Authorized Representative of the assessee submitted that the issue in this appeal has already been decided by the Hon'ble co-ordinate bench of this Tribunal in ITA N0.3921/A/2008 for the year 2005-2006 . On the other hand the learned departmental representative strongly supported the orders of the authorities below.
3 ITA NO. 532 OF 2010A.Y. 2006-07
5. We have heard rival submission perused the material on record we find that this issue has already been decided by the Hon'ble tribunal in ITA No. 3921/2008. The Hon'ble Co-ordinate bench held as under:
"We have heard both the parties and gone through the facts of the case. The AO disallowed the claim for deduction 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 Insurance Policy 14.1 Keyman Insurance Policy of the Life Insurance Corporation of India, etc. provides for an insurance policy taken by a business organization or a professional organization on the life of an employee, in order to protect the business against the financial loss, which may occur from the employee's premature death. The "Keyman" is an employee or a direction whose services 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 the income including bonus, etc. from such policy and also regarding 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 the Keyman Insurance Policy.
14.3 Clause (10D) of s. 10 of the IT Act exempts certain income from tax. The Finance (No. 2) Act, 1996, amends cl. (10D) of s. 10 to exclude any sum received under a Keyman Insurance 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 policies, 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-employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly. The premium paid on the Keyman Insurance Policy is allowed as business expenditure.
14.5 The amendments take effect from the 1st day of October, 1996."
A bare perusal of the aforesaid circular reveals that there is nothing in the circular which debars the allowance of deduction of premia paid on the life of partners by the firm. In para 14.4 of the aforesaid circular it is only mentioned that in case of other persons having no employer-employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly. Apparently, only 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 Section 10(10D) which may refer to natural person or artificial i.e. legal persons or entities treated as having legal entity under the provisions of Income Tax Act, 1961 and in this view of the matter, the A.O's conclusion in disallowing the claim is neither in accordance with the aforesaid circular nor in accordance with law.
5 ITA NO. 532 OF 2010A.Y. 2006-07 5.1Now adverting to the decision in the case of P.G Electronics (supra) relied upon by the Id. AR, wherein 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 treatment of the premium paid in respect of a Keyman Insurance Policy issued by the LIC of India and has accordingly clarified, to put the doubts at rest, in the last sentence of para 14.4 that "The premium paid on the Keyman Insurance Policy is allowed as business expenditure."
In the light of the above amendments and the circular clarifying the position relating to the allowability of the premium paid on Keyman Insurance Policy, the CIT, in my view, was not justified in directing the AO to disallow the premium 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, the order of the CIT cannot be sustained as it runs counter to the amendments made to the Act as clarified by the circular issued by the CBDT. It is well settled that circular issued by CBDT regarding the execution of the Act are binding on the IT authorities. The amended law is applicable to the year under consideration. The CIT was, therefore, not justified in assuming jurisdiction to revise the assessment under s. 263, contrary to the law and circular issued by the Board. He could not have considered the assessment erroneous since the allowance of the premium 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 Insurance Policy should be disallowed is not tenable, also because 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, circular dated 18-02-1998 and explanation to Section 10(10D) of the 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 is dismissed."
6. Respectfully following the decision of the Hob'ble 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 allowed.
Sd/- Sd/-
(A.K. Garodia) (KUL BHARAT)
ACCOUNTANT MEMBER JUDICIAL MEMBER
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 the 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. Registrar for signature on the order........................
9.Date of Despatch of the Order.................