Income Tax - Admissibility of Expenditure Incurred by a Firm on Keyman Insurance Policy in Case of a Partner
THE issue relating to admissibility of expenditure incurred by a firm on Keyman Insurance Policy premium in the case of a partner has been a contentious one. CBDT Circular no. dated 18.02.1998 clarifies that the premium paid on the Keyman Insurance Policy is allowable as business expenditure. However, in case of such expenditure incurred on a partner of a firm, the general approach of the assessing officers was to treat the expenditure as not incurred for the purpose of business and disallow the same.
CBDT now clarifies:
It is a settled position that in case of a firm, premium paid by the firm on the Keyman Insurance Policy of a partner, to safeguard the firm against a disruption of the business, is an admissible expenditure under section 37 of the Act.
Accordingly, henceforth, on this settled issue, appeals may not be filed by the department and those already filed, may be withdrawn/not pressed upon.
CBDT Circular No. 38/2016., Dated November 22, 2016