1951 (5) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Whether the money was expended.
2. If expended, whether it was expended solely for the purpose of the business.
3. Whether it was a capital or revenue expenditure.
4. Whether the deduction could be allowed in view of the provisions of Section 10(4)(c).

Issue-Wise Detailed Analysis:

1. Whether the Money was Expended:
The Tribunal found that the trust deed did not create a valid trust as the Bank retained control over the funds and the trustees were merely nominees of the Bank. The Tribunal held that the ownership of the money did not pass to the trustees, and thus, the money was not expended. The High Court agreed with this view, stating that the trust was void as it did not indicate the beneficiaries with reasonable certainty. The Court highlighted that the deed left the choice of beneficiaries entirely to the Bank's discretion, which could choose not to grant any pensions at all. Therefore, the money remained the property of the Bank and was not expended within the meaning of Section 10(2)(xv) of the Indian Income Tax Act.

2. If Expended, Whether it was Expended Solely for the Purpose of the Business:
The Tribunal concluded that since no clear and binding provision had been made for the actual application of the money to the payment of pensions, the money had not been expended for the purpose of the business. The High Court supported this conclusion, noting that the deed did not obligate the Bank to grant pensions to any employee, and the payment of pensions was entirely at the Bank's discretion. The Court emphasized that the trust deed did not create any enforceable obligation to pay pensions, making the expenditure not solely for the purpose of the business.

3. Whether it was a Capital or Revenue Expenditure:
The Tribunal did not address this issue, and thus, it was not referred to the High Court. The High Court noted that this issue was not within the scope of the reference and did not consider it. The Court stated that if the decision on the first two questions was in favor of the assessee, the department might still argue that the payment was a capital expenditure. However, since the Tribunal did not deal with this issue, it was not part of the reference.

4. Whether the Deduction Could be Allowed in View of the Provisions of Section 10(4)(c):
The Tribunal did not address this issue either, and it was not referred to the High Court. The High Court noted that this issue was also not within the scope of the reference and did not consider it. The Court emphasized that its jurisdiction was limited to answering the specific questions referred by the Tribunal and that it could not consider issues not dealt with by the Tribunal.

Conclusion:
The High Court held that the trust deed did not create a valid trust as it did not indicate the beneficiaries with reasonable certainty and left the grant of pensions entirely at the Bank's discretion. Consequently, the money was not expended within the meaning of Section 10(2)(xv) of the Indian Income Tax Act, and the Tribunal was right in disallowing the deduction of Rs. 2,00,000. The answer to the question referred was in the affirmative, and the Commissioner of Income Tax, West Bengal, was entitled to costs of the reference.