PER SURESH CHANDRA

            Both these revision petitions emanate from the common impugned order passed on  20.11.2012 in Appeal no. 109 of 2009 by the Rajasthan State Consumer Disputes Redressal Commission, Jaipur (‘the State Commission’) and, hence, they have been taken up together and are being disposed of by this common order.

2.         M/s Poddar Yarn Agency which is the original complainant in the case before the District Forum is petitioner in R.P. No.623 of 2013 and respondent insurance company which was the opposite party before the District Forum is the petitioner in R.P No.1807 of 2013. Parties are addressed by their status in the first R.P. No.623 of 2013.

3.         The factual matrix giving rise to these petitions are that a complaint came to be filed by the petitioner against the respondent insurance company before the District Forum. It was pleaded by the complainant/petitioner that the respondent company had sold it a ‘Key Man Policy’ bearing no. 0007972152 for the period starting 01.04.2005 for which   the first year premium of ₹ 1,31,525/- was paid by the complainant/ petitioner to the insurance company. It was assured by the insurance company that the firm’s partner Mr. Suresh Poddar’s personal risk will also be covered in that policy and the petitioner will be entitled to receive the benefit under section 37 (1) of the Income Tax Act, 1961. Believing the version of the insurance company about the coverage of  personal risk of its partner, the aforesaid policy was purchased by the petitioner. In order to get the benefit of the exemption in the income tax assessment for the year 2005 – 2006, the petitioner firm sent the aforesaid policy claiming  the amount of premium as an expenditure of the firm but the Chartered Accountant (‘the CA’) of the firm refused to accept the claim of getting the exemption of benefit under section 37 (1) of the Income Tax Act and told that penalty will be imposed by the Income Tax Department. Having received such an opinion, the petitioner firm informed the insurance company (respondent) that it could not get the benefit of section 37 (1) of the Income Tax Act. It was stated that this amounts to mis-representation on the part of the insurance company while persuading the petitioner firm to purchase the policy in question and alleging this as deficiency in service on the part of the insurance company, the petitioner firm filed the complaint in question before the District Forum praying that the amount of the policy/ compensation and other benefits be awarded to the firm against the insurance company.

4.         On notice, the respondent insurance company filed its reply in which it was submitted that the decision regarding grant of benefit under section 37 (1) of the I T Act could be given only by the Income Tax Officer concerned and the Chartered Accountant of the petitioner firm is not the competent person for the purpose. It was further stated in the reply of the insurance company that, if the Income Tax Department refuses to give the benefit under section 37 (1) of the Act holding that the same is not admissible to the petitioner firm, then the insurance company is accountable but not merely on the basis of the opinion of the Chartered Accountant. In view of this, the insurance company submitted that it has not committed any deficiency in service, because, section 37 (1) benefits of the aforesaid policy are still available to the insured people. Since the complainant/petitioner firm did not apply to the competent officer and only on the basis of the advice of its Chartered Accountant filed a consumer complaint,  the same is not maintainable. It was also pleaded on behalf of the insurance company that if the petitioner firm had deposited any tax wrongly on the advice of the Chartered Accountant the insurance company was not responsible and no relief could be granted by the Insurance Company in such cases.

5.         After hearing the parties and on appraisal of the evidence placed on record, the District Forum, vide its order dated 25.11.2008 dismissed the complaint.

6.         Aggrieved by the order of the District Forum, the petitioner firm filed an appeal against it before the State Commission which vide its impugned order dated 20.11.2012 allowed the appeal partly and came to the conclusion that the complainant/petitioner firm was entitled to only a sum of ₹ 41,253/- along with interest because he could not get the benefits in its income tax. The operative part of the impugned order of the State Commission is reproduced thus:

“Therefore, allowing this appeal partly the complaint of the complainant is accepted. The non-complainant will pay the amount of rebate in income tax of ₹41,253/- along with 9% interest from the date of complaint 10.04.2007 to the date of payment to the complainant. Being a partnership firm no amount for mental agony is awarded. ₹ 1,000/- is awarded for the cost of the complaint accordingly this appeal and complaint are accepted”.

7.         Aggrieved by the impugned order of the State Commission partly accepting the appeal of the petitioner/ complainant, the opposite party/ insurance company has filed Revision Petition no. 1807 of 2013 praying for setting aside the impugned order. On the other hand, not satisfied with the partial relief granted by the State Commission, the petitioner/ complainant firm has also filed revision petition no. 623 of 2013 praying for enhancement of relief and consequent modification in the impugned order. Along with its revision petition, the opposite party insurance company has also filed an application for condonation of delay which according to the insurance company is of 18 days and according to the Registry the delay is of 56 days in filing the revision petition. For the reasons stated in the application, the delay in filing the revision petition by the insurance company is condoned.

8.         No one has appeared on behalf of the petitioner firm and as such, we have heard the arguments of  learned Shri Pankul Nagpal, Advocate appearing for the respondent insurance company (petitioner in other revision petition). We have also perused the record.

9.         We have considered the submissions made by the partnership firm in its revision petition and the oral arguments of the learned counsel for the respondent. The main submission made by the petitioner firm in its revision petition is that since the State Commission has concluded that the insurance company did give wrong impression or assurance to the petitioner firm by which it was persuaded to take the policy in question,   it has gravely erred in granting only partial relief by its impugned order and as such it has prayed that enhanced relief be granted to it by modifying the impugned order as per its prayer.

10.       The respondent insurance company (petitioner in other revision petition) which was represented by its counsel has submitted that the State Commission has exercised jurisdiction not vested in it and has committed error by not taking into consideration the law in its true spirit. Learned counsel has contended that the State Commission has overstepped its jurisdiction and has by its impugned order interfered with the jurisdiction of the Income Tax Authority. He submitted that keeping in view the reply filed by the respondent insurance company, the District Forum had rightly dismissed the complaint. Since  neither any cause of action had actually arisen against the insurance company nor there was any deficiency in service because the so called denial from rebate was only presumed and did not exist,  the State Commission has gravely erred in proceeding on the wrong assumption thereby granting even the partial relief which was not at all called for. Coming to the assurance given by the insurance company at the time of taking the policy by the petitioner firm, learned counsel contended that the insurance company stood by its assurance but the claim could be made only after the refusal to grant the desired relief under section 37 (1),  by the competent Income Tax Authorities and not merely on the understanding/ conclusion drawn by the Chartered Accountant of the petitioner firm. Elaborating his argument further, learned counsel submitted that there are judgments which confirm the principle based on which the assurances/ understanding had been given by the insurance company to the petitioner firm. In this context, the learned counsel has relied on the judgment dated 31.03.2010 of the High Court of Bombay (DB) in case of Commissioner of Income Tax vs B N Exports [ 2010 LawSuit (Bom) 1329 ].  In view of the premature nature of the complaint and also the legal position which is the basis of assurance given by the insurance company, learned counsel pleaded that there is no basis for any relief to the complainant/petitioner firm and the impugned order granting even the partial relief to the petitioner firm cannot be sustained in the eye of law and as such is liable to be set aside and the complaint be dismissed by upholding the order of the District Forum.

11.       We may note that the only issue which  arises for our consideration in this case is as to  whether the claim of the petitioner firm for deficiency in service on the part of the insurance company could be accepted merely on the basis of the advice/opinion given to it by its Chartered Accountant without the petitioner firm lodging a formal claim for rebate under section 37 (1) of the Income Tax Act before the concerned Income Tax Authorities. Admittedly, the claim of the petitioner firm for rebate under section 37 (1) had not been rejected by the competent Income Tax Authorities when the complaint was filed before the District Forum. In such a situation we agree with the order of the District Forum by which it dismissed the complaint of the petitioner firm. The District Forum in its order dated 25.11.2008 has observed thus:

“The averments made by the non-complainant insurance company in its reply the rebate is still available to the non-complainant firm and the non-complainant insurance company is not bound by the opinion of chartered accountant produced by the complainant firm for not availabiling such rebate, because he is not the competent person to give the rebate under the Income Tax Act but for this purpose the income tax officer is the competent officer. The complainant firm has not applied for getting such rebate. If the Income Tax Officer refused to grant such rebate then there is provision of appeal under the income tax act against his judgment and if appellate authority also refuses to grant the rebate then non-complainant insurance company is responsible for the reliefs claim in the complaint. Since the complainant firm has not done so therefore, complainant firm cannot get the required relief from the non-complainant insurance company. The learned counsel has also produced the business strategies related information letter related to the key insurance along with the copy of judgment of Gujarat High Court in which there is a reference of tax position. It has been said that the company will pre-decide the tax benefit on the premium and the accrued benefits before taking the keyman policy. But the other insurance policy like life insurance policy is deemed to be capital but such rebate is not available on the premium amount of such policy. Since, there are differences of rebates on different type of policy, therefore, we in every such matter strongly recommend that every company who wants to take the key person insurance must get the advice of tax position before making the arrangements. According to such provisions the complainant firm should have taken the advice regarding the rebate in the income tax before taking the keyman policy for the life of its partner Shri Suresh Poddar which has not been taken. The complainant firm after taking the keyman insurance policy shown the such amount of premium paid to cover the life risk of its partner Shri Suresh Poddar in its balance sheet for the assessment year 2005-2006 as the expenses of firm and sent to the chartered accountant for auditing which is totally contradictory towards the above advice given by the non-complainant insurance company. Despite of the assurance of the non-complainant insurance company the complainant firm ought to have taken the advice before taking the keyman policy which has not been taken. Therefore, the assurance given by the non-complainant insurance company towards the policy given by it and the seal affixed for the aforesaid assurance is least important. In such situation we are incompetent to deem the deficiency of services of the non-complainant insurance company towards the complainant. Resultantly, the complainant firm is not entitled to receive the reliefs prayed in the complaint and the complaint filed by the complainant non-complainant is liable to be dismissed.”

12.       We agree with the view taken by the District Forum. No cause of action could be said to have arisen until the claim for the rebate made by the petitioner firm is rejected by the competent income tax authorities. In this context, we find that the State Commission has wrongly placed reliance on the Gujarat High Court Ruling in the case of C I T vs Khodidas Motiram Panchal (1986) 27 Tax Man Page no. 28) which is not applicable to the facts and circumstances of the present case. In fact the case would rightly be covered by the later judgment in the case of B.N. Exports (Supra) relied upon by the respondent insurance company on the question as to whether benefit of rebate of Income Tax in respect of premium under the Key Man Policy would be available to a partnership firm. In its judgement, the High Court of Bombay has observed thus:

“9.            The contention of counsel appearing on behalf of the revenue is that there is no contract of service between a partnership firm and a partner and a partner cannot be regarded as being an employee of the partnership firm. In order to support the submission reliance was sought to be placed on a judgment of the Supreme Court in CIT vs Chidambaram Pillai, 1977 106 ITR 292. In the case before the Supreme Court, the respondents who were partners of a partnership firm were entitled in addition to their share in the profits, to salaries for service rendered to the firm. The firm owned certain tea estates. The issue before the Supreme Court was whether the sums drawn by the partners as salaries were wholly liable to income tax or only to the extent of 40 per cent, which fell within the scope of non-agricultural income. The Supreme Court held that a partnership is only a collective of separate persons and is not a legal person in itself and as a result the salary paid to a partner from the firm is in reality a mode of division of profits of the firm since no person can be his own servant in law. On this principle, the Supreme Court dismissed the appeal filed by the Revenue and held that only 40  per cent, of the salary paid to a partner by a firm which grows and sells tea would be liable to tax whereas 60 per cent, could be exempt from tax under Rule 24 of the Indian Income Tax Rules, 1922. The decision in Chidambaram Pillai’s case, (1977) 106 ITR 292 (SC) was rendered by a Bench of two learned judges. There is a subsequent decision of a larger Bench of these learned judges of the Supreme Court in Bist and Sons vs CIT, 1979 116 ITR 131 in which the Supreme Court held that whereas according to the general principles of law a firm is merely a compendious expression for the partners who comprise it, yet for the purpose of taxation a partnership firm is a distinct assessable entity. The Supreme Court held thus (page 134):

We are concerned with provisions for the computation of income of an assesse for the purpose of determining its income tax liability. It may be, as is quite often said, that a firm is merely a compendious description of the individuals who carry on the partnership business. But under the Income Act, a firm is a distinct assessable entity. Section 3 of the Indian Income Tax Act, 1922, treats it as such, and the entire process of computation of the income of a firm proceeds on the basis that it is a distinct assessable entity. In that respect it is distinct even from its partners: CIT vs A W Figgies and Co., 1953 24 ITR 405.

10.            The effect of Section 10 (10D) is that monies which are received under a life insurance policy are not included in the computation of the total income of a person for a previous year. However, any sum received under a Keyman Insurance Policy is to be reckoned while computing the total income. For that purpose, a Keyman Insurance Policy means a life insurance policy taken by a person on the life of another person who is or was in employment as well as on a person on who is or was connected in any manner whatsoever with the business of the subscriber. The words, “is or was connected in any manner whatsoever with the business of the subscriber” are wider than what would be subsumed under a contract of employment. The latter part makes it clear that a Keyman insurance policy for the purpose of Clause (10D) is not confined to a situation where there is a contract of employment. Clause (10D) relates to the treatment for the purpose of taxation of moneys received under an insurance policy. In this appeal, the court has to determine the question of expenditure incurred towards the payment of insurance premium on a Keyman insurance policy. The circular which has been issued by the Central Board of Direct Taxes clarifies the position by stipulating that the premium paid for a Keyman insurance policy is allowable as business expenditure. In the present case, on the question whether the premium which was paid by the firm could have been allowed as business expenditure, there is a finding of fact by the Tribunal that the firm had not taken insurance for the personal benefit of the partner, but for the benefit of the firm, in order to protect itself against the set back that may be caused on account of the death of a partner. The object and purpose of a Keyman insurance policy is to protect the business against a financial set back which may occur, as a result of a premature death, to the business or professional organization. There is no rational basis to confine the allowability of the expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. A keyman insurance policy is obtained on the life of a partner to safeguard the firm against a disruption of the business that may result due to the premature death of a partner. Therefore, the expenditure which is laid out for the payment of premium on such a policy is incurred wholly and exclusively for the purposes of business”.

14.       In view of the discussion above, it is clear that the respondent insurance company had sound basis to give the assurance/understanding to its prospective clients including the petitioner regarding the availability of rebate under  section 37(1) of the Income Tax Act in respect of expenses incurred by them on payment of premium for the Key Man Policy. Keeping this aspect in view, the District Forum was right in concluding that no cause of action could be said to have arisen against the insurance company under the policy since the claim of the petitioner firm for the rebate had not been dealt with and rejected by the competent income tax authorities. The State Commission obviously committed grave error in setting aside this order while granting partial relief to the petitioner firm.

15.       While on the subject, we may note that there is another aspect which could be regarded as relevant in relation to this case and the same is regarding the admissibility of the claim for rebate by the Income Tax Authority concerned to the petitioner firm in respect of the premium on the Key Man Policy keeping in view the judgement in the case of the B.N. Exports. However, we are of the considered opinion that adjudication on the question of admissibility of a claim under the Income Tax Act is outside the purview of the consumer fora and as such we refrain from making any comment in respect of this aspect in spite of the given legal position and leave it to the competent income tax authorities to decide it at the appropriate time. We, therefore, confine ourselves only to the question of alleged deficiency in service on the part of the respondent insurance company and the claim of the petitioner firm for consequential relief in regard to that.

16.       In view of the above discussion, we proceed to decide these revision petitions as under:-

Revision Petition No.623 of 2013

Since the impugned order passed by the State Commission cannot be sustained in the eye of law, the same is liable to be set aside. Accordingly, we set aside the impugned order and dismiss this revision petition filed by the complainant. Along with this, the complaint filed by the petitioner/complainant also stands dismissed.

Revision Petition No.1807 of 2013

This revision petition is allowed and the impugned order is set aside.

17.       In both the cases, the parties are left to bear their own costs.