Itta/370/2011 Of Andhra Pradesh Pradesh Fibres Limited v. Assistant Commissioner Of Income Tax

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. NO.370 OF 2011 DATED 15TH NOVEMBER, 2011 BETWEEN Andhra Pradesh Fibres Ltd.,Jeegiram Village, Saluru-535 591,Vizianagaram District. … Appellant And Assistant Commissioner of Income Tax,Circle-3(1), Visakhapatnam. … Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. NO.370 OF 2011 JUDGMENT:(Per Hon’ble Sri Justice V.V.S.Rao) The appellant Company filed its Income Tax Return for theassessment year 2007-08 before the Assistant Commissioner ofIncome Tax, Circle-3(1), Visakhapatnam. In the return it claimedan amount of Rs.20,92,660/- as allowable expenditure beingpayment of premium for insuring Sri T.Sapthagiri, a Director of theCompany. The expenditure was claimed on the ground that thesaid Director is a ‘Keyman’ in the Company. The AssessingOfficer, on enquiry, found that Sri Sapthagiri was not a workingDirector, that salary was not paid to him and that the insurancepremium paid cannot be allowed as expenditure. Accordingly, thesame was added back and income was recomputed. Beingaggrieved, the appellant filed an appeal before the Commissionerof Income Tax (Appeals), Visakhapatnam. By order dated09.12.2009, the appeal was allowed. The Revenue then filed anappeal before the Income Tax Appellate Tribunal, VisakhapatnamBench. The learned Tribunal by order dated 04.02.2011 allowed theappeal, aggrieved by which the present appeal is filed underSection 260A of the Income Tax Act, 1961 (for short, ‘the Act’). The learned counsel for the appellant would submit that SriSapthagiri is a Keyman as defined in Section 10(10D) of the Act.According to him, the learned Tribunal was in error in recording afinding that Sri Sapthagiri was not a Keyman; that the explanationfiled by the appellant was not considered and therefore the findingis perverse. The learned counsel relies on Circular No.762 dated 18.02.1998 issued by the Central Board of Direct Taxes [(1998)145 CTR Statutes Note Page 5]. The same reads as under:“CIRCULAR NO.762, DATED 18-2-1998 Taxation of a sum received under the Keyman Insurance Policy. 14.1 A Keyman Insurance Policy, of the Life InsuranceCorporation of India, etc., provides for an insurance policy taken by abusiness organisation or a professional organisation on the life of anemployee, in order to protect the business against the financial loss,which may occur from the employees premature death. The Keymanis an employee or a director, whose services are perceived to have asignificant effect on the profitability of the business. The premium ispaid by the employer. 14.2 There were some doubts on the taxability of the incomeincluding bonus from such policy and also regarding the treatment ofthe premium paid whether it should be allowed as a capitalexpenditure or as a revenue expenditure. The Act therefore, lay downthe tax treatment of the Keyman Insurance Policy. 14.3 Clause (10D) of section 10 of the Income Tax Act,exempts certain income from tax. The Act, amends clause (10D) ofsection 10 to exclude any sum received under a Keyman InsurancePolicy including the sum allocated by way of bonus such policy forthis purpose. 14.4 The Act also lays down that the sums received by the saidorganization on such policies, be taxed as business profit, thesurrender value of the policy endorsed in favour of the employee(Keyman), or the sum received by him at the time of retirement betaken as profits in lieu of salary for tax purposes; and in case of otherpersons having no employer-employee relationship, the surrendervalue of the policy or the sum received under the policy be taken asincome from other sources and taxed accordingly. The premium paidon the Keyman Insurance Policy is allowed as business expenditure. 14.5 The amendments take effect from 1-10-1996.” 14.4 The Act also lays down that the sums received by the saidorganization on such policies, be taxed as business profit, thesurrender value of the policy endorsed in favour of the employee(Keyman), or the sum received by him at the time of retirement betaken as profits in lieu of salary for tax purposes; and in case of otherpersons having no employer-employee relationship, the surrendervalue of the policy or the sum received under the policy be taken asincome from other sources and taxed accordingly. The premium paidon the Keyman Insurance Policy is allowed as business expenditure. 14.5 The amendments take effect from 1-10-1996.” The premium paid under Keyman insurance policy isallowed as a business expenditure for the reason that the sumreceived under the life insurance policy of the Keyman is nowtreated as business profit. To claim the benefit, the assessee isrequired to show that the Keyman is a full time employee and aninsurance policy was taken out to protect the business against thefinancial loss which may occur from the premature death of suchKeyman. When the matter was heard by the learned Tribunal, an opportunity was given to the appellant to produce evidence tojustify its claim that the said Director was a Keyman. The minutesof Board Meetings were produced. On perusing the same, thelearned Tribunal came to the conclusion that Sri Sapthagiri alonewas not chairing the Board Meetings and that no evidence wasproduced to show that he was looking after the day-to-daytransactions like planning, purchases, production, labour, etc. Inthat view of the matter, the submission that the finding of thelearned Tribunal is perverse is misconceived. After givingadequate opportunity to the assessee, the learned Tribunalrecorded a finding of fact that Sri Sapthagiri was not a Keyman.The matter must rest there. In this appeal, this question of factcannot be allowed to be reagitated. The Appeal fails and is accordingly dismissed. No costs. ______________V.V.S.RAO, J. 15 NOVEMBER, 2011.VGSR ____________________ SANJAY KUMAR, J.