Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - By virtue of Life Insurance Corporation Act, Life Insurance Corporation (LIC) took over insurance business - Under said Act, LIC had to pay compensation, to chief agents and special agents of insurers whose business vested in Corporation - Whether since payment of aforesaid compensation, was made to get rid of recurring liability which arose out of business, it was to be considered as revenue expenditure - Held, yes - Whether, therefore, assessee's claim for deduction in respect of said expenditure was to be allowed - Held, yes FACTS By virtue of the Life Insurance Corporation Act (i.e. Act), all life insurance business was to be carried on by the Life Insurance Corporation and had ceased to be carried on by other insurers. The insurance whose business vested in the Corporation were entitled to appoint chief agents and special agents for securing the life insurance business. When the Life Insurance Corporation Act, came into force the contracts between the insurer on the one hands and the chief agent and special agent on the other were put an end to statutorily by section 36 of the Act. Under the law the LIC had to pay compensation annually for period of ten years, in case of chief agents and in lump sum in the case of special agents. The LIC claimed deduction in respect of the compensation. The Income-tax Officer held that the amount paid to the chief agents and special agents was in the nature of capital disbursement. The AAC affirmed the decision of the Income-tax Officer. On further appeal, the Tribunal also held that the compensation paid to the chief and the special agents under section 36 of the Act, was of the same nature as the compensation paid to the insurers whose business had vested in the Corporation and which required to be paid under section 16 of the Act, and, that the compensation was in fact a price for taking over the business of the insurers along with the obligation. The assessee's claim was accordingly rejected. On reference : HELD The fact that payment to the chief agents had to be spread over annually for a period of ten years, or the fact that the…

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