M/s. Escorts Heart Institute and Research Centre Ltd, New Delhi v. DCIT, New Delhi

ITA 3891/DEL/2009 | 2006-2007
Pronouncement Date: 11-01-2010 | Result: Allowed

Appeal Details

RSA Number 389120114 RSA 2009
Bench Delhi
Appeal Number ITA 3891/DEL/2009
Duration Of Justice 3 month(s) 26 day(s)
Appellant M/s. Escorts Heart Institute and Research Centre Ltd, New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 11-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 11-01-2010
Date Of Final Hearing 11-01-2010
Next Hearing Date 11-01-2010
Assessment Year 2006-2007
Appeal Filed On 15-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI D.R.SINGH JM AND SHRI R.C.SHARMA AM ITA NO.3891/DEL/2009 ASSESSMENT YEAR : 2006-07 M/S ESCORTS HEART INSTITUTE AND RESEARCH CENTRE LTD. OKHLA ROAD NEW DELHI. PAN NO.AAACE8731F. VS. DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3 NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.3961/DEL/2009 ASSESSMENT YEAR : 2006-07 DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3 NEW DELHI. VS. M/S ESCORTS HEART INSTITUTE AND RESEARCH CENTRE LTD. OKHLA ROAD NEW DELHI. PAN NO.AAACE8731F. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K.KAPOOR CA. REVENUE BY : SMT.KAVITA BHATNAGAR CIT-DR. ORDER PER BENCH : THESE ARE THE CROSS-APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) DATED 23.7.2009 FOR THE AY 2006-07 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE IT ACT. 2. THE GRIEVANCE OF THE REVENUE AND ASSESSEE RELATE S TO DISALLOWANCE OF KEYMAN INSURANCE PREMIUM PAID BY THE ASSESSEE COMPA NY. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN PROVIDING HEALTHCARE SERVICE S IN THE FIELD OF CARDIOLOGY. DURING THE YEAR KEYMAN INSURANCE POLICIES WERE TAK EN ON THREE PERSONS VIZ. DR.NARESH TREHAN CHIEF CARDIAC SURGEON SHRI RAJAN NANDA CHAIRMAN AND SMT. RITU NANDA MANAGING DIRECTOR OF THE ASSESSEE COMPA NY. HOWEVER THE AO HAS ITA-3891 & 3961/D/2009 2 DISALLOWED THE PREMIUM PAID ON KEYMAN INSURANCE POL ICIES BY OBSERVING THAT POLICIES HAD ARISEN IN THE NAME OF THESE PERSONS AT A MUCH LESSER VALUE THAN THE AMOUNT PAID IN THE VERY NEXT YEAR OF THE TAKING OF POLICY. BY OBSERVING THAT BENEFIT HAS BEEN GIVEN TO THESE RELATED PERSONS TH E PREMIUM PAID COULD NOT BE SAID TO BE EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. IN AN APPEAL FILED BEFORE THE CIT(A) THE CIT(A) DIRECTED THAT P REMIUM PAID IN RESPECT OF DR.NARESH TREHAN HAS TO BE ALLOWED AS A DEDUCTION. HOWEVER IN RESPECT OF PREMIUM PAID FOR CHAIRMAN CUM MANAGING DIRECTOR OF THE COMPANY VIZ. SHRI RAJAN NANDA AND MANAGING DIRECTOR SMT.RITU NANDA T HE CIT(A) OBSERVED THAT THE EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS THEREFORE CONFIRMED THE ACTION OF THE AO FOR DISALLOWING THE SAME. AG GRIEVED BY THE ABOVE ORDER OF CIT(A) BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 3. LEARNED AR PLACED ON RECORD ORDER OF THE TRIBUNA L IN ASSESSEES OWN CASE FOR AY 2005-06 WHEREIN SIMILAR KEYMAN INSURANCE POL ICIES TAKEN IN THE NAME OF ALL THESE THREE PERSONS WERE HELD TO BE ALLOWABLE. 4. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL D ATED 9.10.2009 IN ASSESSEES OWN CASE FOR AY 2005-06 WHEREIN FOLLOWIN G WAS THE OBSERVATION OF THE BENCH:- FROM THE ABOVE IT IS CLEAR THAT ALL ALONG THE PRE MIUM PAID OF KEYMAN INSURANCE POLICY TAKEN ON THE LIVES OF DR. N ARESH TREHAN SHRI RAJAN NANDA AND SMT. RITU NANDA IS ALWAYS HELD TO BE ALLOWABLE. AS RIGHTLY CONTENDED BY THE LEARNED AR WHILE JUDGING THE HEALTH OF ANY COMPANY IT IS NOT ONLY THE TURNO VER THAT IS RELEVANT BUT ALSO ITS PROFITABILITY. MERELY BY ACHIEVING HI GHER TURNOVER ONE DOES NOT GAIN ANYTHING UNLESS THE SAME IS TO RESULT IN PROFITS. A SURGEON IS GOOD AT CONDUCTING OPERATION OR SURGERY BUT MAY NOT BE COMPETENT TO RUN THE HOSPITAL AS A BUSINESSMAN APPR OACH WILL ALWAYS BE LACKING IN A PROFESSIONAL. IN SUCH A SITUATION ONLY A SOUND BUSINESSMAN CAN MAKE THE ORGANIZATION PROFITABLE. THEREFORE IT IS INCORRECT ON PART OF THE LEARNED CIT(A) TO HOLD THA T SUCH PERSONS CANNOT BE CONSIDERED TO BE KEYMEN. THE ASSESSEES ACTIVITY CANNOT BE SAID TO BE SOLELY DEPENDING ON SPECIALIZED SERVI CES BY DOCTORS AND THERE IS NO CONTRIBUTION BY THE CHAIRMAN AND MANAGI NG DIRECTOR IN THE PROFITABILITY. THE LEARNED CIT(A) WAS ALSO WRO NG IN CONCLUDING ITA-3891 & 3961/D/2009 3 THAT PROFITS CANNOT BE TAKEN AS GUIDING FACTOR TO ANALYZE THE BUSINESS. THE BUSINESS IS ALWAYS CARRIED ON FOR T HE PURPOSE OF EARNING INCOME AND IF PROFIT IS NOT THE GUIDING FAC TOR WHAT ELSE CAN BE A GUIDING FACTOR AS TO WHETHER BUSINESS IS WELL RUN OR NOT. IF A PERSON IS ALWAYS TO INCUR LOSS EVEN THOUGH IT MAY R ESULT INTO ACHIEVING HIGHER TURNOVER THE SAME WILL NEVER BE C ARRIED ON FOR LONG AND NO ONE CAN INCUR LOSSES FOR EVER AND THERE CANN OT BE AN INTENTION FOR CARRYING ON SUCH BUSINESS ALSO. THUS THE LEARN ED CIT(A) WAS WRONGLY GUIDED BY THE TURNOVER FIGURE ONLY AND NOT BY PROFIT FIGURE. THE PROFITABILITY FOR SUBSEQUENT YEAR HAS SHOWN THA T WHEN THESE PERSONS LEFT THE ASSESSEE REDUCED ITS EARNING CAPA CITY AND ENDED IN LOSS IN FINANCIAL YEAR 2007-08. THERE IS NO DISPUT E TO THE FACT THAT SALARIES PAID TO THESE PERSONS WERE ALWAYS HELD TO BE ALLOWABLE. THIS COULD NOT HAVE BEEN ALLOWED UNLESS IT IS FOUND THAT THEY ARE ALSO EQUALLY INVOLVED IN CARRYING ON THE BUSINESS OF THE ASSESSEE. IN SUCH A SITUATION ALL THE 3 PERSONS CAN BE CONSIDERED AS KEY PERSONS AND INSURANCE PREMIUM PAID ON THE KEYMAN INSURANCE POLI CY TAKEN ON THEIR LIVES QUALIFIES FOR DEDUCTION UNDER SECTION 3 7(1) OF THE ACT. 5. IT IS CRYSTAL CLEAR FROM THE DECISION OF THE COO RDINATE BENCH THAT PREMIUM PAID IN RESPECT OF ALL THE THREE PERSONS IS TO BE A LLOWED AS BUSINESS EXPENDITURE U/S 37(1). RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE WE DIRECT THE AO TO ALLOW THE DEDUCTION O F PREMIUM PAID IN RESPECT OF ALL THESE THREE PERSONS WITH RESPECT TO KEYMAN INSU RANCE POLICIES TAKEN IN THEIR NAMES. HOWEVER AO IS DIRECTED TO VERIFY THAT WHEN THESE POLICIES WERE ASSIGNED IN FAVOUR OF THE RESPECTIVE PERSONS THE AMOUNT PAI D BY BENEFICIARY TO THE ASSESSEE COMPANY IS BROUGHT TO TAX. WE DIRECT ACCORDINGLY. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED SUBJECT TO OUR DIRECTION CONT AINED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY 2010. SD/- SD/- (D.R.SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11.01.2010. VK. ITA-3891 & 3961/D/2009 4 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR