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Issues Involved:
1. Whether the sum of Rs. 2,00,000 was admissible as an expense under section 10(2)(xv) of the Indian Income-tax Act. 2. Whether the said sum of Rs. 2,00,000 can be related as an expenditure to the year of account relevant to the assessment year 1951-52. Issue-Wise Detailed Analysis: 1. Admissibility of Rs. 2,00,000 as an Expense under Section 10(2)(xv): The main question was whether a payment of Rs. 2,00,000 made to the widow of the chairman of the board of directors of the assessee company was admissible as an expense under section 10(2)(xv) of the Indian Income-tax Act. The facts revealed that Mr. Cameron, the chairman, was fatally wounded on March 26, 1950, during travel not related to the company's business. The board resolved on June 5, 1950, to pay compensation to his widow, initially making an interim payment of Rs. 1,20,000. On January 22, 1951, the board decided the final compensation amount as Rs. 2,00,000. The Tribunal held that the expense was laid out for the business purpose and would have been allowable under section 10(2)(xv) if incurred in the accounting year. However, it found the liability was not ascertained in the year of account, noting the resolution for the final amount was passed on January 22, 1951. The High Court examined whether the expense was "wholly and exclusively for the purpose of business." It was argued that the payment fostered employee morale and business interests. However, the court found no evidence that Mr. Cameron's death was related to the company's business. The court concluded that the payment, though generous, could not be considered an expense incurred solely for business purposes. Thus, the answer to the first question was in the negative. 2. Relating the Expenditure to the Year of Account Relevant to the Assessment Year 1951-52: The second issue was whether the Rs. 2,00,000 could be related as an expenditure to the year of account relevant to the assessment year 1951-52. The Tribunal noted that the liability was not ascertained or quantified in the year of account 1950. The board's resolution determining the final amount was passed on January 22, 1951, beyond the accounting year. The court discussed the principles of mercantile accounting, which require liabilities to be estimated and recorded when they are legally incurred, even if payment is made later. The court referenced the Supreme Court's observations in Keshav Mills Ltd. v. Commissioner of Income-tax and Calcutta Company Limited v. Commissioner of Income-tax, which emphasized that a liability must be definite and ascertainable within the accounting year. In this case, the liability was indeterminate until the board's resolution on January 22, 1951. The court accepted the auditors' opinion that if the liability basis had been determined during the year of account, it could be included in the accounts prepared shortly after the year-end. However, since the liability basis was not determined in 1950, the expenditure could not be related to that year. Thus, the answer to the second question was also in the negative. Conclusion: The High Court concluded that the sum of Rs. 2,00,000 was not admissible as an expense under section 10(2)(xv) of the Indian Income-tax Act, and it could not be related as an expenditure to the year of account relevant to the assessment year 1951-52. The assessee was ordered to pay the costs of the reference.
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