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The Commissioner Of Income Tax-2 vs M/S.B.N. Exports on 31 March, 2010

“5. The issue is no longer res integra. The Bombay High Court delving into identical issue in Commissioner of Income Tax v. B.N.Exports (2010) 323 ITR 178 after noticing the relevant statutory provisions and the Board Circular No.762 dated 18th February, 1998 issued by the Central Board of Direct Taxes on the issue had held that the premium paid for a 'Keyman Insurance Policy' is allowable as business expenditure under Section 37(1) of the Act. It was further noted that the object and Page No.8/16 https://www.mhc.tn.gov.in/judis/ T.C.A.No.843 of 2013 purpose of the said policy is to protect the business against a financial set back which may occur as a result of a premature death, to the business or professional organization. There is no rational basis to confine the allowability of the expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. The said policy when obtained to secure the life of a partner against a disruption of the business is equally for the benefit of the partnership business which may be affected as a result of premature death of a partner. Thus, the premium on the 'keyman Insurance Policy' of partner of the firm is wholly and exclusively for the purposes of business and is allowable as business expenditure. The relevant observations read thus:-
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