Law:

Section:

Section 36(1)(i) of the Income-tax Act, 1961 - Insurance premium qua insurance of stocks or stores - Assessee, a partnership firm, insured the lives of its partners to provide for liquid cash to pay off outgoing partner or legal heirs of deceased partner to enable surviving partners to continue business without interruption - Assessee paid insurance premia and was entitled to sum assured on maturity of policy or in event of death of partner - Whether it could be said life insurance policies were taken out against risk of damage or destruction to the stocks so that insurance premium paid could be allowed under section 36(1)(i) -Held, on facts, no Section 37(1) of the Income-tax Act, 1961 - Capital or revenue expenditure - Whether in view of facts under the heading 'Insurance premium qua insurance of stocks or stores' insurance premium paid by assessee-firm was a capital expenditure and, hence, not allowable under section 37(1) - Held, on facts, yes Words and phrases - Expressions 'stocks', 'damage' and 'destruction' occurring in section 36(1)(i) of the Income-tax Act, 1961. Facts The assessee was a registered partnership firm. The firm desired to insure the lives of its partners. The underlying object of insuring the lives of the partners was to provide for liquid cash to pay off the outgoing partner or, in the event of death, the legal heirs of the deceased partner, with a view to enabling the surviving partners to continue the business of the firm without interruption, i.e., without the need for distress sale of the partnership assets. Accordingly, life insurance policies were taken out. The assessee was liable to pay the insurance premia on the said policies and was entitled to the sum assured under the said policies on maturity or in the event of death of the assured, as the case may be. In the assessment year 1971-72, the assessee-firm claimed deduction for insurance premium paid from the total income of the firm under section 36(1)(i). The ITO, however, did not accept this claim made by the assessee-firm. In appeal before the AAO, the assessee contended that the expression 'stocks' in section 36(1)(i) would include any partnership property and since the…

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