Tuesday, September 30, 2014

A policy can’t be taken as ‘Keyman Insurance Policy’ unless it is a pure life insurance policy on life of an employee

Where assessee purchased Insurance Policies, in view of fact that only a fraction of total premium was meant for risk premium and balance was meant for deployment of purchase of units, i.e., investment in units, such policies could not be regarded as 'Keyman Insurance Policies'.


a)The assessee took three insurance policies, namely, ICICI Prudential (Life time), ICICI Prudential (Premium life) and Jeevan Shree (LIC) on the life of its employees.

b)The policies taken by the assessee were investment Plan & Guaranteed Return/Addition Plan. The assessee claimed that it was eligible for deduction of premium paid on Keyman Insurance Policies.

c)The Assessing Officer (‘AO’) opined that the assessee had invested in Unit Linked Insurance Plan and it was not Keyman Insurance Policy. Accordingly, the assessee's claim for deduction was rejected. The CIT(A) confirmed the order of the AO. The aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)The meaning of Keyman Insurance Policy was to be taken from the Explanation to the clause (c) of section 10(10D). As per definition of 'Keyman Insurance Policy', a person purchasing life insurance can only do so to the extent of his insurable interest in the assured.

2)In the instant case the policies had been taken from Unit Linked Investment Plan premium of which had been put into growth fund and it was not a Pure Life Insurance Policy on the life of another person.

3)The CIT(A) had rightly confirmed the action of the AO that the assessee had taken policy, which was, in fact, Unit Linked Insurance Plan, an Investment Plan, the purpose of which was to guarantee returns on the premium amount, which was not allowable as an expenditure.

4)Only a fraction of the total premium was meant for risk premium and balance was meant for the deployment of purchase of units, i.e., Investment in Units which, in fact, could not be claimed as business expenditure. Accordingly, premium paid on such policies was not eligible for deduction as business expenditure. - F.C. SONDHI & COMPANY (INDIA) (P.) LTD. V. DY. CIT [2014] 49 taxmann.com 180 (Amritsar - Trib.)