|CORAM:||A. D. Jain (JM), Pramod Kumar (AM)|
|CATCH WORDS:||keyman insurance|
|COUNSEL:||Y. K. Sud|
|DATE:||August 31, 2015 (Date of pronouncement)|
|DATE:||September 11, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 10(10D): Keyman Insurance: Even a "United Linked Endowment Assurance Plan" with the main object of guaranteed returns rather than life insurance is a "keyman insurance" as defined in s. 10(10D). The fact that policy was not termed as a "keyman insurance" and the fact that the IRDA Guidelines disapproved the issue of such policies is irrelevant|
The assessee claimed a deduction of Rs 1,49,99,222 towards keyman insurance policy on its partner Shri Sanjeev Suri. The Assessing Officer noted that the assesse had taken “united linked endowment assurance plan” and that out of total premium paid by the assessee, only Rs 3,26,293 is towards “risk premium on life” and the balance premium is invested by the insurance company in buying units. The main objective of the insurance policy, thus, was guaranteed returns on the insurance premium amounts, rather than life insurance, and this main objective was to be achieved by investing in units. The Assessing Officer was of the view that a unit linked endowment plan, under Kotak Safe Investment Plan, “cannot be keyman insurance policy as per definition of keyman insurance given in the Income Tax Act”. The AO was of the view that keyman insurance policy can include only a ‘life insurance policy’ and “the scope of cover should not be wider than the term assurance”. The AO concluded that “the policy that has been taken as united linked endowment assurance plan is investment plan, premium of which has been put into growth fund and it is not a pure life insurance policy on the life of another person”. On a separate note, the Assessing Officer also held that a partner of the firm cannot be ‘keyman’, and, for this reason also, the deduction cannot be allowed. The Assessing Officer also referred to the circular issued in April 2005 by the Insurance Regulatory and Development Authority (IRDA) referring to misuse of keyman insurance policies and warning the insurance companies and their agents of such malpractices. The AO observed that “Even as per the IRDA, only term insurance policies can be issued as keyman insurance cover”. The AO further examined an employee of the Kotak Mahindra Life Insurance Ltd who stated that the policy in question was “in no way keyman insurance policy” nor could it be converted into a keyman insurance policy. The AO also examined an employee of the Kotak Mahindra Old Mutual Life Insurance Ltd who stated on oath that the policy was issued as “keyman insurance cover under the United Linked Endowment Assurance Plan in accordance with the application made” by the policyholder. The Assessing Officer also noted that the turnover of the assessee firm has gone down from 19 crores in the 2003-04 to Rs 12 crores in the assessment year 2004-05 and it has further come down to Rs 9 crore in the present year. This fall in turnover, apparently according to the Assessing Officer, shows that there was no commercial benefit from taking the keyman insurance cover. The insurance policy was taken for the benefit of the partner rather than the firm. No necessity or expediency of the person being keyman and the policy being taken for the benefit of the firm was established. When benefit of policy was assigned to the insured, the policy cannot be said to be for the benefit of the assesse firm. The Assessing Officer disallowed Rs 1,49,99,922. This was confirmed by the CIT(A). On appeal by the assessee to the Tribunal HELD allowing the appeal:
(i) All that is required for an insurance policy to meet the requirements of Section 10(10D), therefore, has to be – (a) it should be a life insurance policy; (b) it should be taken by the assesse on the life of another person who is, or was, an employee of the assesse or is related to the business of the assesse is any manner. As long as a policy is an insurance policy, whether it involves a capital appreciation or is under any other investment scheme, it meets the tests laid down under section 10(10D). Even if such an inference is desirable, as long as it does not emerge from the plain words of the statute, it cannot be open to supply the same. The concepts of term policy, pure life policy and the IRDA guidelines find no mention in the statutory provisions. But even if these concepts ought to be incorporated in this statutory provision of the Income Tax Act to make it more meaningful and workable, it cannot be open to any judicial forum to supply these omissions.
(ii) The IRDA guidelines, no matter how relevant as these guidelines may be, have no role to play in the interpretation of the statutory provisions. IRDA is a body controlling the insurance companies and its guidance is relevant on how the insurance companies should conduct their business. Beyond this limited role, these guidelines do not affect how the provisions of the Income Tax Act are to be construed. Whenever the provisions of the other statututes are to be taken into account, for interpreting the provisions of the Income Tax Act, the Income Tax Act specifically provides so. The fulfilment of IRDA terms and conditions is wholly alien to the present context. As for the policy being taken for the benefit of the assesse firm, as long as it is for the purpose of taking an insurance policy on the life of a person who is related to the firm, the same cannot be called into question either.
(iii) The fact that the insurance policies in question were not termed as keyman insurance policies is irrelevant. The keyman insurance policy is a defined concept and as long as it meets the requirements of this definition, the terminology given by the insurers have no relevance for the purposes of the Income Tax Act. All that is necessary is that it should be a life insurance policy, whether pure life insurance policy or not- as such criterion is not set out anywhere in the stature, and it should be taken on the life of a person who is, or has been, an employee of the assesse or any other person who is or was connected in any manner whatsoever with the business of the assesse. These conditions are clearly satisfied on the facts of the case before us.
(iv) The Assessing Officer has questioned commercial expediency of taking the keyman insurance policies on the short grounds that (a) the fall in turnover, apparently according to the Assessing Officer, shows that there was no commercial benefit from taking the keyman insurance cover; (b) the insurance policy was taken for the benefit of the partner rather than the firm; and (c) no necessity or expediency of the person being keyman and the policy being taken for the benefit of the firm was established. When benefit of policy was assigned to the insured, the policy cannot be said to be for the benefit of the assesse firm. We see no merits in these objections to the commercial expediency. As for the fall in turnover, the benefit of an expenditure cannot be, by any stretch of logic, relevant to determine its commercial expediency, and, in any case. Such a benefit of hindsight cannot be available at the point of time when business decisions are made; more often than not, these are the tools of post mortem of events, rather than inputs for the decision making (CIT vs. Rajan Nanda etc. [(2012) 349 ITR 8 (Del)] followed, Shri Nidhi Corporation Vs ACIT [(2014) 151 ITD 470 (Bom)] and Emdee Apparel & Another Vs ACIT [(2012) 19 ITR 623 (Bangalore) referred).