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July 2015

Business expenditure – Section 37 – A. Y. 2005- 06- Premium on keyman insurance on partners paid by firm – Premium is deductible

By K. B. Bhujle Advocate
Reading Time 1 mins
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CIT vs. Agarwal Enterprises; 374 ITR 240 (Bom):

The assessee
partnership firm had taken keyman insurance policies on its partners.
For the A.Y. 2005-06, the Assessing Officer disallowed the claim for
deduction of premium on such policies. The Tribunal allowed the claim.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“(i)
Keyman insurance is a life insurance 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.

(ii) The record indicated that the firm
comprised of two partners. It was dealing in securities and shares. A
keyman insurance policy was obtained for the benefit of the firm
inasmuch as the firm’s business would be adversely affected, in the
event, one of the partners met with any untimely death. The premium on
the insurance was deductible.”

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