Insurance Premium for paid for Keyman Insurance Policy of LIC, allowable as Expenses: ITAT

Clipped from: https://www.taxscan.in/insurance-premium-for-paid-for-keyman-insurance-policy-of-lic-allowable-as-expenses-itat/234224/?utm_source=izooto&utm_medium=push_notifications&utm_campaign=Insurance%20Premium

By Kalyani B Nair – On December 15, 2022 3:33 pm

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), held that Insurance Premium for paid for Keyman insurance policy of Life Insurance Corporation of India (LIC) and is allowable as expenses.

The only ground raised in the appeal is that the CIT(A) has erred in law and on facts in allowing the claim of Keyman Insurance Premium paid without examining whether the directors were Keyman for the company. Keyman Insurance is taken by a business firm on the life of key employee(s) to protect the firm against financial losses, which may occur due to the premature demise of the Keyman.

The assessee company, M/S. Creation Publicity Limited had paid insurance premium for policies taken on life of keyman of the company which were 4 whole time directors of the company who are actively involved in the business of the company and also paid salary of Rs. 1.39 crores during the year. The AO has mainly disallowed the claim stating that the word, ‘Keyman’ was not written by the insurance company on the receipt issued for payment of premium.

After going through the copies of Renewal Premium receipts the AO observed that it is obvious that the insurance premium paid was a pure life insurance policy and not keyman insurance premium since the word ‘Keyman Insurance’ is no-where specifically mentioned in the said receipts. Hence it can be inferred that the assessee has failed to establish that the said premium paid pertains to Keyman Insurance Policy.

The Bombay High Court in the case of CIT v. M/s B.N. has held that ” The “Keyman” is an employee or a director whose services are perceived to have a significant effect on the profitability of the business. The premium is paid by the employer.”

A Coram consisting of Amit Shukla, Judicial Member and Prashant Maharshi, Accountant Member held that “Thus, there can be no doubt that it was a keyman insurance taken by the assessee company and therefore, the same could not have been disallowed on the reason given by the AO. Accordingly, the order of the CIT(A) is confirmed and the appeal of the revenue is dismissed.”To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Be the First to get the Best

Join Our email list to get the latest Tax Updates , Special Offers, Events delivered right to your Inbox

Email Address *

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s