Whether insurance premium paid by one brother on life of other can be considered as legitimate business expenditure when brothers execute common power of attorney in favour of each other, mutually authorizing other to, in his absence, take care of business activity - NO: ITAT

THE issue before the Bench is - Whether insurance premium paid by one brother on the life of other can be considered as legitimate business expenditure when the brothers execute a common power of attorney in favour of each other, mutually authorizing the other to, in his absence, take care of business activity. And the verdict goes against the assessee.

Facts of the case

The assessee is engaged in the business of manufacturing of cloth in his proprietary concern. His brother runs his proprietary business in the same trade from the same business premises. Both the brothers executed a (common) power of attorney in favour of each other, mutually authorizing the other to, in his absence, take care of the business activity, including acts incidental thereto. Keyman Insurance policy stood taken by each on the life of the other, treating him as an

invaluable resource (person) for and a 'deemed employee' of his business, claiming the same as 'business expenditure'. In view of the Revenue, however, the two brothers were running their independent businesses, with no business connection with that of the other. The same was, accordingly, disallowed, and confirmed by the CIT(A).

On Appeal before the Tribunal the counsel submitted that the assessee's case being covered in his favour by the decision of the Tribunal in the case of the assessee's brother, Mujeebur Raheman Ansari (in ITA Nos. 7549 to 7551/Mum(B)/2010.

Having heard the parties, the Tribunal held that,

++ even assuming valid and genuine grounds for execution of power of attorney, the same would by itself not constitute the POA holder as a key person of one's business. A brief 'interlude' or 'absence' would not in any manner make the power of attorney holder a 'key person' of the business. In fact, no reason/s for the absence, much less on a regular basis; the POA becoming operative only in the absence of the executor, has been stated. That apart, that the assessee was in fact actually not in a position to attend to his business at the relevant times is not at all evidenced. The primary condition of 'absence', only whereupon the POA would become operative, is conspicuous by its absence. The arrangement is clearly collusive; the insurance premium paid by one brother on the life of the other being a quid pro quo for the other

++ the decision in the Assessee brother case not bearing any reference to the genuineness of the expenditure, which we discern to be the principal objection by the Revenue in the instant case. The same would thus not operate to constrain us from considering the instant appeal on merits. The assessee's case fails on the basis of an inability to discharge the onus to exhibit that the impugned expenditure stood incurred wholly and exclusively for the purposes of his business, which constitutes the primary condition for deduction u/s 37(1).