1962 (3) TMI 82 - HC - Income Tax

Summary

Issues Involved:
1. Whether the payment by the assessee company constituted an expenditure within the meaning of section 10(2)(xv) of the Indian Income-tax Act.
2. Whether the payment to the trustees was a capital disbursement or a revenue account.
3. Whether the liability to pay the pension was contingent or actual.
4. Whether the payment of pension to the wife of the manager was an expenditure incurred wholly and exclusively for the purpose of business.

Issue-Wise Detailed Analysis:

1. Whether the payment by the assessee company constituted an expenditure within the meaning of section 10(2)(xv) of the Indian Income-tax Act:
The primary issue was to determine if the payments made by the assessee company to the trustees for the pension of Mr. Hook constituted an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act. The Tribunal initially held that the payment was on revenue account and not a capital disbursement, asserting that the company had not acquired any new asset and had relieved itself of the liability to pay the pension directly. However, the High Court disagreed, concluding that the liability to pay the pension was contingent and not an actual existing liability, thus the payments did not qualify as deductible expenditure under section 10(2)(xv).

2. Whether the payment to the trustees was a capital disbursement or a revenue account:
The Appellate Assistant Commissioner initially ruled in favor of the assessee, stating that the payment to the trustees should be regarded as a lump sum payment, given that it was made in instalments due to the nature of the annuity policy. The Tribunal upheld this view. However, the High Court found that since the liability was contingent, the payments were not an expenditure to meet any actual existing liability and therefore were not deductible under section 10(2)(xv).

3. Whether the liability to pay the pension was contingent or actual:
The High Court analyzed the terms of the agreement, particularly clauses 7, 8, 9, and 14. It concluded that the liability to pay the pension was contingent upon Mr. Hook's dismissal. The Court noted that termination of the agreement under clause 14 would extinguish all benefits, including the pension, and thus, the liability was not actual but contingent. This conclusion was supported by the Supreme Court's decision in Indian Molasses Co. Ltd. v. Commissioner of Income-tax, which held that an expenditure must be towards an actual existing liability to be deductible.

4. Whether the payment of pension to the wife of the manager was an expenditure incurred wholly and exclusively for the purpose of business:
The High Court also considered whether the payment of pension to Mr. Hook's wife, in the event of his death, was an expenditure incurred wholly and exclusively for the purpose of business. The Court referred to the decision in Alexander Howard & Co. Ltd. v. Bentley, which held that payments to a widow were not wholly and exclusively for the purpose of trade, as the widow was not an employee and had no connection with the company's business. The High Court agreed with this reasoning, concluding that the payment to Mrs. Hook was not an expenditure incurred wholly and exclusively for the purpose of business.

Conclusion:
The High Court answered the question in the negative, indicating that the payments made by the assessee company did not constitute an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act. The assessee was ordered to pay costs, certified for two counsel.