1955 (12) TMI 46 - HC - Income Tax

Summary

Issues Involved:
1. Whether the payments made by the assessee company to the trustees constitute "expenditure" within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922.
2. Whether the possibility of a resulting trust or reverter affects the characterization of the payments as expenditure.
3. Whether the payments were laid out or expended wholly and exclusively for the purposes of the assessee's business.
4. Whether the payments were in the nature of capital expenditure or revenue expenditure.
5. Whether section 10(4)(c) of the Act bars the deduction claimed.

Detailed Analysis:

1. Whether the payments constitute "expenditure" under section 10(2)(xv):
The primary issue is whether the payments made by the assessee company to the trustees can be classified as "expenditure" under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal had held that the payments did not constitute expenditure because there was a possibility that the money could revert to the company if both Mr. and Mrs. Harvey died before the pension became payable. The Tribunal concluded that since there was a chance of the money coming back to the company, it could not be said to have parted with the money effectively, and thus no expenditure had been incurred.

2. Possibility of a Resulting Trust or Reverter:
The Tribunal's decision was based on the provision in the policy that allowed for the return of premiums if both nominees died before the option anniversary. The court held that the possibility of a resulting trust or reverter meant that the company had not wholly parted with its interest in the amounts concerned. The court referred to section 83 of the Trusts Act, which provides for a resulting trust in such circumstances, stating that the trustee must hold the unexhausted trust property for the benefit of the author of the trust or his legal representative.

3. Laid Out or Expended Wholly and Exclusively for Business Purposes:
The question of whether the payments were laid out or expended wholly and exclusively for the purposes of the assessee's business was left open by the Tribunal. The court noted that this issue would need to be decided if it were determined that there was an expenditure.

4. Capital or Revenue Expenditure:
The Tribunal and the lower authorities had also considered whether the payments were of a capital nature. The court noted that this issue was not covered by the present reference but would need to be addressed if it were determined that there was an expenditure.

5. Section 10(4)(c) Bar:
The Income-tax Officer had initially refused the deduction on the grounds that no provision for payment of tax had been made, as required by section 10(4)(c) of the Act. The court noted that this issue was also not covered by the present reference and would need to be addressed separately.

Conclusion:
The court concluded that the payments made by the assessee company to the trustees did not constitute "expenditure" within the meaning of section 10(2)(xv) of the Indian Income-tax Act, 1922. The possibility of a resulting trust or reverter meant that the company had not wholly parted with its interest in the amounts concerned. Therefore, the answer to the question referred was in the negative. The Commissioner of Income-tax was awarded the costs of the reference, certified for two counsel.