Law: Income Tax Act, 1961

Section: 37(1)

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Insurance Premium) - Assessment year 2005-06 - Whether, where assessee-partnership firm obtained insurance policy on life of two partners as firm's business would be adversely affected, in event, one of partners met with an untimely death, expenditure was incurred for benefit of firm and same was allowable under section 37(1) - Held, yes [Para 8] [In favour of assessee] FACTS â–  The assessee was a partnership firm. It was engaged in business of purchase and sale of securities and investment in capital market. The assessee paid insurance premium which was claimed on the life of two partners under section 37(1). â–  The Assessing Officer held that the Insurance Premium could be treated as personal expenses of the partners. He disallowed 20 per cent of the Insurance Premium on the basis that the expenditure was personal in nature of the partners and it was not incurred wholly and solely for the purpose of business of the assessee firm. â–  On appeal, both the Commissioner (Appeals) and the Tribunal decided in favour of assessee. â–  On appeal : HELD â–  The findings of the Tribunal are that the ad hoc deduction could not have been effected. More so, when the department itself has clarified that premium paid on the Keyman Insurance Premium is allowable as business expenditure. The Keyman Insurance Premium is a life insurance taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person. The Commissioner referred to the legal provisions. The Commissioner rested his findings on the factual position that emerged from the record. The record indicated that the partnership firm comprised of two partners. It was dealing in securities and shares. The policy was obtained for the benefit of the firm inasmuch as the firm's business would be adversely affected, in the event, one of the partners met with an untimely death. It is, therefore, concluded by the Tribunal that such being the nature of the expenses and the business of the…

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