Section 37(1) – Premium paid on keyman insurance policy, under which in the event of death of the directors assured sum had to be received by the assessee, is allowable expenditure u/s. 37(1) of the Act.

8. [2018] 93 taxmann.com 188
(Mumbai)

Arcadia Share & Stock
Brokers (P.) Ltd. vs. ACIT

ITA Nos. : 5854 &
5855/Mum/2016

A.Ys.: 2011-12 &
2012-13 

Dated: 25^th April,
2018

Section
37(1) – Premium paid on keyman insurance policy, under which in the event of
death of the directors assured sum had to be received by the assessee, is
allowable expenditure u/s. 37(1) of the Act.

FACTS

The
assessee, a private limited company, engaged in the business of share and stock
broking, claimed deduction on account of premium paid towards keyman insurance
policy taken in the name of two of its directors. In course of assessment
proceedings, the Assessing Officer (AO) called upon the assessee to furnish
necessary details. After verifying the details furnished by the assessee and
referring to the characteristic of keyman insurance, the AO called upon the
assessee to justify the deduction claimed. The assessment order stated that the
assessee submitted some literatures of keyman insurance policy, but did not
furnish any document to prove that the policies taken are keyman insurance
policy. The AO held the premium paid to be on life insurance policy and not on
keyman insurance policy. Accordingly, he held that the premium paid by the
assessee cannot be allowed as business expenditure and disallowed the amount of
premia paid. 

Aggrieved,
the assessee filed an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved,
the assessee preferred an appeal to the Tribunal.

HELD

The
Tribunal noted that the assessee had claimed deduction of the premium paid in
respect of such Insurance policy in assessment years 2005-06, 2006-07 and
2007-08. While completing assessments for these years
u/s. 143(3) of the Act, the AO after examining assessee’s claim, allowed
deduction in respect of premium paid. The Tribunal held that when it is a fact
on record that the Insurance policies are continuing from the year 2004 and in
the preceding assessment years assessee’s claim of deduction in respect of
premium paid have been allowed by the AO in scrutiny assessments, in the
absence of any material change in facts the deduction claimed in respect of
premium paid cannot be disallowed in the impugned assessment year, as the rule
of consistency must be applied.  

It
observed that except stating that in the preceding assessment years the AO has
not properly examined the issue no material change was pointed which could have
influenced the AO to take a different view in the impugned assessment year
departing from the view taken in the preceding assessment years.

The
Tribunal noted that the keyman insurance policies were taken in the name of
directors in pursuance to resolution dated 24^th February 2004 of
board of directors and the sum assured under the insurance policy as per the
terms and conditions will come back to the assessee on the death of policy
holders. Accordingly, the Tribunal allowed assessee’s claim of deduction of
premium paid in both the assessment years.