Question And Answer
Subject: Deduction U/SEc.37- Ins premium of relative who is employee
Querist: Ruchi Bhansali
Answered by:
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Date: March 28, 2022
Query asked by Ruchi Bhansali

Assessee is Partnership Firm having 3 partners . Son and daughter of the one partner are working as employee for last more than 5 years . All the partners have decided to take the Term Policy( which is not key man Ins Policy)  in the name of these employees to safe guard the interest of firm, therefore decided to claim the same as deduction U/SEc. 37 of the Act. The nominee of the policy will be Firm.

Whether this is allowable deduction in the hands of firm U/Sec. 37 of the Act ?

Whether the premium paid will be considered as perquisite in the hands of employee?

Pl. guide

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Where the assessee has obtained an insurance premium for its employees, the same is deductible under section 37 of the Income-tax Act, 1961 (Act). This has been upheld by various High Courts, including the Hon’ble Madras High Court in the case of CIT v. Coimbatore Premier Corpn. (P.) Ltd. [2000] 244 ITR 753 (Madras).

As the transaction is bona fide, and the beneficiary in the Partnership Firm, the same cannot be considered as perquisite in the hands of the employees. The Hon’ble Bombay High Court in the case of CIT v. Agarwal Enterprises [2015] 55 54 (Bombay) held that Where partnership firm obtained insurance policy on life of two partners, expenditure was incurred for benefit of firm and same was allowable under section 37(1) of the Act.

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