Whole premium paid on Keyman Insurance policy was deductible even if policy cover extended to next year

Where assessee purchased Keyman Insurance Policy on last day of relevant financial year, it was entitled to claim full deduction of premium paid during relevant year itself, even though insurance policy cover extended to next financial year.

Facts:

a)The assessee paid premium in respect of keyman insurance policy.

b)The Assessing Officer (‘AO’) allowed proportionate amount of premium on finding that the assessee had paid a premium only on the last date of the year, and, therefore, the expenditure pertained to the next financial year.

c)The Tribunal, however, allowed assessee's claim in full. The aggrieved revenue filed instant appeal. The High Court held in favour of assessee as under:

1)There was no dispute regarding the allowability of premium on Keyman Insurance Policy. The disallowance was made by the AO only because the assessee took the insurance policy on the last date of the financial year. Therefore, the AO had held that proportionate amount of the premium pertained to the next financial year.

2)This bifurcation was not permissible. The expenditure was made during the financial year relevant to the assessment year under consideration. Therefore, it was allowable.

3)Extension of insurance policy cover to the next financial year would not mean that the premium paid during the year under consideration was not an allowable expenditure. Thus, premium paid on Keyman Insurance Policy was fully deductible. – CIT V. HARIT EXPORTS LTD [2014] 49 taxmann.com 200 (Bombay)