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January 2009

S. 37(1) — Premium on Keyman Insurance Policy is allowable business expenditure

By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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21 (2008) 118 TTJ 263


Sunita Finlease Ltd. v. Dy. CIT

ITA No. 203 (Nagpur) of 2007

A.Y. : 2004-05. Dated : 15-2-2008

S. 37(1) of the Income-tax Act, 1961 — In view of CBDT
Circular No. 762, dated 18th February 1998, premium on Keyman Insurance Policy
is allowable business expenditure.

 

The premium paid by the assessee-company on a Keyman
Insurance Policy was disallowed by the Assessing Officer to the extent of 30%,
on the grounds that the sum assured and the premium paid were excessive
vis-à-vis the worth of the company. The disallowance was confirmed by the
CIT(A).

 

The Tribunal allowed the assessee’s claim on the basis of
Circular No. 762, dated 18-2-1998 [(1998) 145 CTR (St.) 5]. The Tribunal noted
as under :

(1) The policy known as ‘Keyman Insurance Policy’ provides
for an insurance policy taken by a business organisation on the life of some
important persons in the organisation, generally called as Keyman in the
insurance nomenclature.

(2) In Circular No. 762, dated 18th February 1998,
clarifying with regard to the treatment of the premium paid of Keyman
Insurance Policy whether it should be allowed as a capital expenditure or a
revenue expenditure, the Board has clarified that the premium paid on the
Keyman Insurance Policy be allowed as business expenditure.

 


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