The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), held that Insurance Premium for paid for Keyman insurance policy of Life Insurance Corporation of India (LIC) and is allowable as expenses.
The only ground raised in the appeal is that the CIT(A) has erred in law and on facts in allowing the claim of Keyman Insurance Premium paid without examining whether the directors were Keyman for the company. Keyman Insurance is taken by a business firm on the life of key employee(s) to protect the firm against financial losses, which may occur due to the premature demise of the Keyman.
The assessee company, M/S. Creation Publicity Limited had paid insurance premium for policies taken on life of keyman of the company which were 4 whole time directors of the company who are actively involved in the business of the company and also paid salary of Rs. 1.39 crores during the year. The AO has mainly disallowed the claim stating that the word, ‘Keyman’ was not written by the insurance company on the receipt issued for payment of premium.
After going through the copies of Renewal Premium receipts the AO observed that it is obvious that the insurance premium paid was a pure life insurance policy and not keyman insurance premium since the word ‘Keyman Insurance’ is no-where specifically mentioned in the said receipts. Hence it can be inferred that the assessee has failed to establish that the said premium paid pertains to Keyman Insurance Policy.
The Bombay High Court in the case of CIT v. M/s B.N. has held that ” The “Keyman” is an employee or a director whose services are perceived to have a significant effect on the profitability of the business. The premium is paid by the employer.”
A Coram consisting of Amit Shukla, Judicial Member and Prashant Maharshi, Accountant Member held that “Thus, there can be no doubt that it was a keyman insurance taken by the assessee company and therefore, the same could not have been disallowed on the reason given by the AO. Accordingly, the order of the CIT(A) is confirmed and the appeal of the revenue is dismissed.”
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