{"id":131103,"date":"1959-05-05T00:00:00","date_gmt":"1959-05-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-indian-molasses-co-private-vs-the-commissioner-of-income-tax-on-5-may-1959"},"modified":"2018-06-27T11:45:27","modified_gmt":"2018-06-27T06:15:27","slug":"the-indian-molasses-co-private-vs-the-commissioner-of-income-tax-on-5-may-1959","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-indian-molasses-co-private-vs-the-commissioner-of-income-tax-on-5-may-1959","title":{"rendered":"The Indian Molasses Co. (Private) … vs The Commissioner Of Income-Tax, … on 5 May, 1959"},"content":{"rendered":"
Supreme Court of India<\/div>\n
The Indian Molasses Co. (Private) … vs The Commissioner Of Income-Tax, … on 5 May, 1959<\/div>\n
Equivalent citations: 1959 AIR 1049, \t\t 1959 SCR Supl. (2) 964<\/div>\n
Author: Hidayatullah<\/div>\n
Bench: Hidayatullah, M.<\/div>\n
           PETITIONER:\nTHE INDIAN MOLASSES CO. (PRIVATE) LTD.\n\n\tVs.\n\nRESPONDENT:\nTHE COMMISSIONER OF INCOME-TAX, WESTBENGAL.\n\nDATE OF JUDGMENT:\n05\/05\/1959\n\nBENCH:\nHIDAYATULLAH, M.\nBENCH:\nHIDAYATULLAH, M.\nSINHA, BHUVNESHWAR P.\nKAPUR, J.L.\n\nCITATION:\n 1959 AIR 1049\t\t  1959 SCR  Supl. (2) 964\n CITATOR INFO :\n R\t    1964 SC1722\t (9)\n R\t    1970 SC2067\t (2,6)\n D\t    1986 SC 383\t (7)\n R\t    1986 SC 484\t (24)\n\n\nACT:\nIncome-tax-Deduction  -Business expenditure-Payment of\tsums\nfor getting annuities to provide pension-Liability depending\non  contingency-Expenditure,  meaning  of-Indian  Income-tax\nAct, 1922 (XI Of 1922), S. 10(2)(XV).\n\n\n\nHEADNOTE:\nWith  a view to provide a pension to H who was the  managing\ndirector  of the appellant company, after his retirement  at\nthe  age  Of  55 years on September 20,\t 1955,\tthe  company\nexecuted  a trust deed on September 16, 1948, in  favour  of\nthree  trustees\t to  whom  the company paid  a\tsum  of\t Rs.\n1,09,643 and further undertook to pay annually Rs. 4,364 for\nsix  consecutive years.\t The trustees undertook to hold\t the\nsaid  sums  upon  trust to spend the same in  taking  out  a\nDeferred  Annuity  Policy with an Insurance Society  in\t the\nname  of  the trustees but on the life of H  under  which  a\ncertain sum of money was payable annually to H for life from\nthe date of his superannuation.\t It was also provided in the\ndeed  that  notwithstanding  the main  clause  the  trustees\nwould,\tif  so desired by the company, take  out  instead  a\ndifferent  kind of policy for the benefit of both H and\t his\nwife,  with  a further provision for His wife should  H\t die\nbefore he attained the age Of 55.  On January 12, 1949,\t the\ntrustees  took out a policy, wherein the amount of  Deferred\nAnnuity to be paid per annum was fixed according as  whether\nboth  H and his wife were living on September 20,  1955,  or\none of them died earlier.  The policy also contained,  inter\nalia,  two clauses: \" (i) Provided the contract is in  force\nand  unseduced, the Grantees (i. e., the trustees) shall  be\nentitled to surrender the Annuity on the Option\t Anniversary\n(i.e.,\tSept. 20, 1955) for the Capital sum of pound  10,169\nsubject\t to  written notice of the  intention  to  surrender\nbeing  received by the Directors of the Society\t within\t the\nthirty\tdays preceding the Option Anniversary. (2)  If\tboth\nthe Nominees shall die whilst the Contract remains in  force\nand  unreduced\tand before the Option Anniversary  the\tsaid\nfunds  and Property of the Society shall be liable  to\tmake\nrepayment to the Grantees of a sum equal to a return of\t all\nthe premiums which shall have been paid under this  Contract\nwithout\t  interest  after  proof  thereof  and\tsubject\t  as\nhereinbefore provided.\"\nThe  appellant company paid the initial sum and\t the  yearly\npremia\tfor  some years before H died.\tFor  the  assessment\nyears  1949.50, 1950.51, 1951-52 and 1952-53, the  appellant\nclaimed a deduction of these sums from its profits or  gains\nunder s. 10(2)(XV)\n965\nof  the\t Indian\t Income-tax Act, 1922,\tbut  the  Income-tax\nauthorities disallowed the claim on the ground that the sums\nclaimed did not amount to expenditure within the meaning  of\nthe section.  The appellant's contention was that payment of\npension\t was  an expenditure of a revenue character  and  so\nalso  the  payment of a lump sum to get rid of\ta  recurring\nliability  to  pay  such pension  and  that  expenditure  on\ninsurance was not contingent, because though the contingency\nrelated\t to life and depended on it, the probabilities\twere\nestimated   on\t actuarial  calculations   and,\t  that\t the\nexpenditure was, therefore, real.\nHeld, that expenditure which is deductible for the  purposes\nof  income-tax under s. 10(2)(xv) of the  Indian  Income-tax\nAct, 1922, is one which must be towards a liability actually\nexisting  at the time, but the putting aside of money  which\nmay  become expenditure on the happening of an event is\t not\nexpenditure.\nIn  the\t present case, on the terms of the  deed  of  trust,\nmoney  was placed in the hands of trustees for the  purchase\nof  annuities  of different kinds, if required,\t but  to  be\nreturned  if the annuities were not bought, and the  clauses\nin  the\t policy taken out by the trustees showed  that\ttill\nSeptember  20, 1955, the appellant had dominion through\t the\ntrustees over the premia paid.\tThe payment to the  trustees\nwas   therefore\t  towards  a  liability\t  depending   on   a\ncontingency.   Consequently,  the  amount  claimed  was\t not\nliable to be deducted as an expenditure under S.  IO(2)(XV)\nOf the Act.\nCases on English Income-tax law reviewed.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 395 of 1957.
\nAppeal\tby special leave from the judgment and\torder  dated
\nDecember 21, 1955, of the Calcutta High Court in  Income-tax
\nReference No. 15 of 1954.\n<\/p>\n
A.   C. Sampath Iyengar, Dipak Dutta Choudhury and B.  N.
\nGhosh, for the appellant.\n<\/p>\n
M.C.  Setalvad, Attorney-General for India, R.\tGanapathy
\nIyer, B. H. Dhebar and D. Gupta, for the respondent.
\n1959.  May 5. The Judgment of the Court was delivered by
\nHIDAYATULLAH,  J.-The  Indian Molasses Co.  (Private)  Ltd.,
\nCalcutta  (hereinafter\tcalled the assesses  Company),\thave
\nbrought\t this appeal, with the special leave of\t this  Court
\ngranted\t on  November 9, 1956, against the judgment  of\t the
\nHigh  Court of Calcutta dated December 21, 1955, in  Income-
\ntax Reference,
\n966<\/span>
\nNo.  15 of 1954.  The question of law referred to  the\tHigh
\nCourt was:\n<\/p>\n
” Whether on the facts and in the circumstances of the case,
\nand  on\t a true construction of the Trust Deed,\t dated\t16th
\nSeptember,  1948,  and the Policy dated\t the  13th  January,
\n1949, the payments made by the assessee Company and referred
\nto in paragraph 4 above constitute ‘expenditure’ within\t the
\nmeaning\t of  that  word in section  10(2)(xv)of\t the  Indian
\nIncome-tax Act, 1922, in respect of which a claim for deduc-
\ntion  can be made,subject to the other conditions  mentioned
\nin that clause being satisfied “.\n<\/p>\n
The question was answered in the negative.
\nThe facts of the case are as follows: One John Bruce Richard
\nHarvey was the Managing Director of the assessee Company  in
\n1948.\tHe had by then served the Company for 13 years,\t and
\nwas  due to retire at the age of 55 years on  September\t 20,
\n1955.\tThere  was, it appears, an agreement  by  which\t the
\nCompany\t was  under an obligation to provide  a\t pension  to
\nHarvey\tafter  his retirement.\tOn September 16,  1948,\t the
\nCompany executed a Trust Deed in favour of three trustees to
\nwhom  the  Company  paid  a sum\t of  pound  8,208-19-0\t(Rs.
\n1,09,643)  and further undertook to pay annually  Rs.  4,364
\n(pound\t326-14\tsh.)  for six  consecutive  years,  and\t the
\ntrustees  agreed  to execute a declaration  of\ttrust.\t The
\ntrustees undertook to hold the said sums upon trust to spend
\nthe  same in taking out a deferred -Annuity Policy with\t the
\nNorwich\t Union\tLife Insurance Society in the  name  of\t the
\ntrustees but on the life of Harvey under which pound 720 per
\nannum  were payable to Harvey for life from the date of\t his
\nsuperannuation.\t  It  was  also provided in  the  deed\tthat
\nnotwithstanding\t the main clause the trustees would,  if  so
\ndesired by the assessee Company, take out instead a deferred
\nlongest\t life  policy, with the said Insurance\tCompany,  in
\ntheir names, but in favour of Harvey and Mrs. Harvey for  an
\nannuity\t of  pound 558-1-0 per annum  payable  during  their
\njoint  lives  from the date of Harvey’s\t superannuation\t and
\nduring\tthe lifetime of the survivor, provided further\tthat
\nif Harvey died before he attained the age of 55 years the
\n967<\/span>
\nannuity\t payable  to Mrs. Harvey would\tbe  pound,  611-12-0
\nduring her life.  It was further provided that should Harvey
\ndie before attaining the age of 55 years, the trustees would
\nstand possessed of the capital value of the Deferred Annuity
\nPolicy,.  upon\ttrust to purchase therewith an\tannuity\t for
\nMrs.  Harvey with the above 2 Insurance Company\t or  another
\nInsurance  Company of repute.  The other conditions  of\t the
\ndeed  of trust need Dot be considered, because they  do\t not
\nbear upon the controversy.\n<\/p>\n
In  furtherance of these presents, the trustees took  out  a
\npolicy on January 12, 1949.  In addition to conditions usual
\nin such policies, it provided for the following benefits:
\nAmount\tper  annum of
\ndeferred Annuity
\npound 563-5-8 p. a. if both   Mr. and Mrs. Harvey be  living
\non September 20,1955.\n<\/p>\n
pound,\t720-0-0\t p.  a.\t if  Mrs.Harvey\t should\t die  before
\nSeptember 20, 1955, leaving Harvey surviving her.
\npound, 645-0-0 p. a. if Harvey should die before September 20,
\n1955, leaving Mrs. Harvey surviving him.\n<\/p>\n
There was a specialprovision which must be reproduced:
\n”  Provided  the  contract is in force\tand  unreduced,\t the
\nGrantees  (i.  e.,  the\t trustees)  shall  be  entitled\t  to
\nsurrender the Annuity on the Option Anniversary (i.e., Sept.
\n20,  1955)  for the Capital sum of pound 10,169\t subject  to
\nwritten notice of the intention to surrender being  received
\nby  the\t Directors  of the Society within  the\tthirty\tdays
\npreceding the Option Anniversary.”\n<\/p>\n
Two  other clauses of the second schedule of the Policy\t may
\nalso be quoted:\n<\/p>\n
(III)\t  “If  both  the  Nominees  shall  die\twhilst\t the
\nContract  remains  in force and unredressed and\t before\t the
\nOption\tAnniversary  the  said funds  and  Property  of\t the
\nSociety shall be liable to make repayment to
\n968<\/span>
\nthe Grantees of a sum equal to a return of all the  premiums
\nwhich  shall  have  been paid under  this  Contract  without
\ninterest  after\t proof thereof and subject  as\thereinbefore
\nprovided.\n<\/p>\n
(IV) The  Grantees shall before the Option  Anniversary\t and
\nafter  it  has\tacquired a Surrender Value  be\tentitled  to
\nsurrender the Contract for a Cash Payment equal to a  return
\nof  all\t the premiums (at the yearly rate) which  have\tbeen
\npaid less the first year’s premium or five per cent. of\t the
\nCapital Sum specified in the Special Provision of the  First
\nSchedule whichever shall be the lesser sum, provided that if
\nthe   Deferred\tAnnuity\t has  been  reduced  an\t  equivalent
\nreduction  in the guaranteed Surrender Value  as  calculated
\nabove will be made.  ”\n<\/p>\n
The  assessee  Company paid the initial sum and\t the  yearly
\npremia for some years before Harvey died.  In the assessment
\nyears  1949-50, 1950-51, 1651-52 and 1952-53, it  claimed  a
\ndeduction  of these sums from its profits or gains under  s.
\n10(2)(xv)  of the Indian Income-tax Act (hereinafter  called
\nthe Act), which provides:\n<\/p>\n
”  Such profits or gains shall be computed after making\t the
\nfollowing allowances, namely,
\nany  expenditure  (not\tbeing  in  the\tnature\tof   capital
\nexpenditure  or personal expenses of the assessee) paid\t out
\nor expended wholly and exclusively for the purposes of\tsuch
\nbusiness, profession or vocation.  ”\n<\/p>\n
This  claim  was  disallowed  by  the  Department  and\t the
\nAppellate  Tribunal.   The  Tribunal held that\tit  was\t not
\nnecessary  to  decide  if  the\texpenditure  was  wholly  or
\nexclusively for the purposes of the Company’s business,\t and
\nif  so, whether it was of a capital nature, because  in\t the
\nTribunal’s  opinion  there was no expenditure at  all.\t The
\nreason\twhy the Tribunal held this way may be stated in\t its
\nown words:\n<\/p>\n
” Clauses (1) and (II) do not contain any provision having a
\nmaterial bearing upon Clause (111).  Therefore if it happens
\nthat  both  Mr. and Mrs. Harvey die before  20th  September,
\n1955, all the payments till made through the Trustees to the
\nInsurance  Society  will come back to the  Trustees  and  as
\nthere is not the
\n969<\/span>
\nslightest trace of any indication anywhere that the Trustees
\nshould have any beneficient interest in these moneys,  there
\nwould  be  a  resultant trust in favour of  the\t Company  in
\nrespect\t of the moneys thus far paid out.  In  other  words,
\nwhat has been done amounts to a provision for a\t contingency
\nwhich  may  never  arise.  Such a  provision  can  hardly be
\ntreated as payment to an employee whether of remuneration or
\npension\t or  gratuity,\tand cannot  be\ta  proper  deduction
\nagainst the incoming of the business of the Company for\t the
\npurpose\t of computing its taxable profits.  In short,  there
\nhas  been no expenditure by the Company yet; there has\tbeen
\nonly an allocation of a part of its funds for an expenditure
\nwhich may (or may not) have to be incurred in future.  ”
\nThe  Tribunal, however, referred the  above-stated  question
\nfor  the opinion of the High Court.  The High Court  noticed
\nthe limited scope of the question, and pointed out that\t the
\nTribunal had stated at the end of the Statement of the Case:
\n”  In the event of the High Court holding that there was  an
\nexpenditure  in this case, it would still be  necessary\t for
\nthe  Tribunal  whether the money was laid  out\tor  expended
\nwholly\tand  exclusively for the purposes of  the  assesses’
\nbusiness  and,\tif so, whether the expenditure\twas  in\t the
\nnature of capital or revenue expenditure.  ”
\nThe  learned  Chief  Justice  of  the  Calcutta\t High  Court
\n(Sarkar,  J., concurring) felt the difficulty of  the  ques-
\ntion.  He analysed the ingredients of cl. (xv), and  pointed
\nout  that the question referred to but one such\t ingredient.
\nThe   Divisional  Bench,  however,  did\t not  call  for\t  an
\nadditional  statement of fact, or ask that the rest  of\t the
\nmatter\tbe  referred,  so that the  whole  of  the  question
\ninvolved might get disposed of It observed :
\n”  This Court has always construed questions referred to  it
\nwith a certain degree of strictness and has not allowed\t any
\npoint  to be canvassed before it which had not\tbeen  raised
\nbefore\tthe Appellate Tribanal and which was not covered  by
\nthe Tribunal’s
\n122<\/span>
\n970<\/span>
\nappellate  order.   I  am, therefore, of  opinion  that\t the
\nquestion  should be taken as covering only the\tground\tupon
\nwhich the Tribunal held the payments to be not allowable  as
\ndeductions as not embracing any other ground.  ”
\n   We must express our regret that the case  took the course
\nit  did.  The order of assessment was passed as far back  as
\n1952, and seven years have now passed during which only\t one
\nquestion  out  of three is before the Courts  for  decision.
\nSection 10(2)(xv) was analysed by the learned Chief  Justice
\nin these words:\n<\/p>\n
”  It will be noticed that three ingredients of\t the  clause
\nlie  on\t the  surface  of its language.\t  In  order  that  a
\ndeduction  may\tbe claimed under its provisions it  must  be
\nproved\tfirst that there was an expenditure, secondly,\tthat
\nthe  expenditure  was  not  in\tthe  nature  of\t a   capital
\nexpenditure-  I am leaving aside the personal  expenses-and,
\nthirdly,  that\tit  was\t laid out  or  expended\t wholly\t and
\nexclusively for the purposes of the assessee’s business-I am
\nleaving out profession or vocation.  ”\n<\/p>\n
We  must  not  be  understood  as  finding  fault  with\t the
\nDivisional Bench.  It decided the question as framed.  It is
\nthe  Tribunal  which  referred the question  in\t this  form,
\nkeeping\t to  itself  the right to  decide  about  the  other
\ningredients  of the clause later.  Whether the question\t can
\nbe  answered in the bland form it is posed, is a  matter  to
\nwhich  we will have to address ourselves presently.  But  it
\nappears\t to us that this is a very unsatisfactory way to  go
\nabout the business.  Perhaps, the Tribunal decided this case
\nin  this  way and referred the question it did,\t because  it
\nfelt  that  if\tthis Court in Allahabad Bank  Ltd.  v.\tCom-
\nmissioner of Income-tax, West Bengal (1) was able to  decide
\nwhether\t a  particular\toutlay was  ‘  expenditure’  without
\nreference  to  the other ingredients of cl. (xv),  the\tsame
\ncould  be done in this case also.  That case,  however,\t was
\nvery  different in its facts.  There, certain  contributions
\non trust for payment of pensions to employees were held\t not
\nto be I expenditure’, because on the original trust failing,
\nthe money was
\n(1)  [1954] S.C.R. 195.\n<\/p>\n
971<\/span><\/p>\n
deemed\tto be held by the trustees on a resulting trust\t for
\nthe  benefit of the maker.  If the same can be said in\tthis
\ncase,  namely,\tthat the money continued to  belong  to\t the
\nassessee  Company in the account years, its payment  to\t the
\ntrustees or the Insurance Company notwithstanding, there may
\nbe  a possibility of answering the question as was  done  in
\nthe  decision  of this Court cited earlier.  But if  such  a
\nclear-cut proposition cannot be laid down, then,  obviously,
\nthere  is  considerable\t difficulty in deciding\t what  is  I
\nexpenditure  ‘ within the clause, without reference  to\t the
\nrest  of its provisions.  Of course, to find the meaning  of
\nthe  word  I  expenditure ‘, a dictionary  is  ill  that  is
\nneeded,\t but to go further and to decide whether the  outlay
\nin  this case was I expenditure ‘, the context in which\t the
\nword is used in the clause cannot successfully be left out.
\nMr.  Sampath  Iyengar for the  assessee\t Company  complained
\nbefore\tus of the narrowness of the question, though  before
\nthe High Court be was opposed to any extension of the  ambit
\nof the question.  The following passage from the judgment of
\nthe  Chief  Justice shows the respective  attitudes  of\t the
\nDepartment and the assessee Company before the Bench:
\n”  Mr. Meyer contended that language entitled him  to  argue
\nnot only that there had been no expenditure in fact at\tall,
\nbut  also  that\t even  assuming\t that  there  bad  been\t  an
\nexpenditure  in the sense of a physical spending, still\t the
\nexpenditure was not such as could be claimed as an allowance
\nunder  the  clause  against  the  profits  of  the  relevant
\naccounting  year  in view of the fact that it  was,  in\t any
\nevent,\tan expenditure made to meet a contingent  liability.
\nMr.  S.\t Iyengar, who appeared on behalf  of  the  assessee,
\nobjected to the scope of the question being so enlarged\t and
\nhe referred to the appellate order of the Tribunal which had
\nproceeded on a single ground.  ”\n<\/p>\n
The learned Attorney-General who appeared for the Department
\nat  once conceded the difficulty of answering the  question,
\nbut contended that the question in its present form could be
\nanswered,  though he agreed that if it could not, the  Court
\nwould be free to say so.\n<\/p>\n
972<\/span><\/p>\n
We  cannot  help saying that though the Tribunal may  be  at
\nliberty\t to  decide a case as appears best to it,  there  is
\nconsiderable hardship to the tax-payers, if questions of law
\nare  decided piecemeal and repeated references to  the\tHigh
\nCourt are necessary.  The jurisdiction of-the High Court  is
\nadvisory  and consultative, and questions of  interpretation
\nof  the\t law in this attenuated form can  well\tbe  avoided.
\nThis will tend to cut down the duration of litigation.
\nIn deciding that the payment of the lump sum and premia\t was
\nnot  ‘expenditure’,  different views were expressed  as\t the
\ncase  progressed.  The Income-tax Officer held that  in\t the
\nabsence\t of a written agreement covering the  conditions  of
\nservice,  remuneration, etc., the arrangement could only  be
\ntaken as a provision for a gratuity, more so as there was  a
\nprovision in the deed of trust for payment of an annuity  to
\nMrs.  Harvey in the event of Harvey’s demise.  According  to
\nhim,  there  were so many alternative arrangements  for\t the
\ndisbursement  of the money laid out, that it was  impossible
\nto say what shape the annuity would ultimately take and till
\ncertain\t  events  happened,  the  I  expenditure’  was\t not
\neffective.   Following, therefore, the case in\tAtherton  v.
\nBritish\t  Insulated   and  Helsby  Cables,  Ltd.   (1)\t and
\ndistinguishing\t Hancock   v.\tGeneral\t  Reversionary\t and
\nInvestment  Co.\t Ltd.  (2),  the  claim\t for  deduction\t was
\nrejected by the Income-tax Officer.\n<\/p>\n
The Appellate Assistant Commissioner considered that in\t the
\nabsence\t of an agreement the payment must be regarded as  an
\nex gratia payment of a capital nature, so Iona as the  trust
\nintervened.   The  Appellate  Assistant\t Commissioner\talso
\ncommented  upon\t the  existence\t of  a\tprovision  for\tMrs.
\nHarvey’s pension which could not be a part of the agreement.
\nHe  was\t thus of the opinion that the case fell\t within\t the
\nrule laid down in Atherton’,s case (1).\t This opinion of the
\nTribunal  which\t has already been  reproduced  earlier,\t was
\nshortly\t that  there was no ‘expenditure’ yet and  this\t was
\nonly an allocation of funds for an I expenditure which might
\nor might not be incurred in the future.\n<\/p>\n
The High Court analysed the terms of the deed of
\n(1) (1925) 10 Tax Cas. 155.\n<\/p>\n
(2) (1918) 7 Tax Cas. 358.\n<\/p>\n
973<\/span><\/p>\n
trust, and pointed out that there were two contingencies  in
\nwhich  money was likely to revert to the  assessee  Company.
\nThe  first  contingency was if both Harvey and\tMrs.  Harvey
\ndied before September 20, 1955.\t The second contingency\t was
\ndue to an omission in el. (III) to provide for a pension  to
\nHarvey, if Mrs. Harvey died before the above date.  In\tthat
\nevent,\tthe  trust would have failed, unless  a\t policy\t was
\ntaken  out under 61. (II).  The High Court held that if\t any
\nof  these two circumstances happened, then there would\thave
\nbeen  a resulting trust in favour of the  assessee  Company,
\nand  it would have been entitled to get back all  the  money
\nlaid out by it.\t We must say here that the High Court was in
\nerror as to the second of the two contingencies because\t the
\npolicy\twhich  was  taken out provided\tfor  all  the  three
\nalternatives,  and  pension was payable to  both  or  either
\nsurvivor, though in different sums.  Even in the trust deed,
\nthe  three  alternative pensions were provided\tas  follows:
\npound  720, if the annuity was payable to Harvey  alone;  or
\npound  558-1-0, during the joint lives of both or  survivor;
\nor  pound  611-12-0, to Mrs. Harvey if\tHarvey\tdied  before
\nSeptember  20, 1955.  The special provision in\tthe  policy,
\nhowever,   covered  the\t first\tcontingency  of\t  both\t the
\nprospective annuitants dying before September 20, 1955,\t and
\nif  that  happened, the assessee Company would have,  if  it
\nchose  to  surrender the policy, got back the sum  of  pound
\n10,169\tsubject\t to  a written notice of  the  intention  to
\nsurrender  being  received by the Insurance  Company  within
\nthirty days preceding September 20, 1955.
\nThe High Court then observed in addition that there was no ‘
\ninstant\t necessity ‘ for the expenditure, nor was the  money
\n‘laid  out for a business purpose of an instant\t character’,
\nnor  did  it bring in a ‘present asset\twhich  would  always
\nremain\tan  asset in that form, the money  having  gone\t for
\never’.\t The High Court pointed out that there was always  a
\npossibility  ,of a resulting trust in favour of the  Company
\nand the money could not, therefore, be held to have been ex-
\npended.\t  The conclusion of the High Court,  therefore,\t was
\nthat the assessee Company must be held to have
\n974<\/span>
\nset  apart  I tentatively’ a sum of money in order  that  it
\nmight  be  available for the payment of a I  gratuity  ‘  to
\nHarvey\tand Mrs. Harvey, but there being I no provision\t for
\nthe  application  of  the  money  in  the  event  of   those
\ncontingencies not occurring and no annuity being payable  to
\nany  one’,  there  was no I expenditure’  in  any  real\t and
\npractical sense of the term’.\n<\/p>\n
The arguments in this appeal have ranged, as they did before
\nthe  High Court, over a very wide field.  No useful  purpose
\nwill   be  served  in  following  them\tthrough\t all   their
\nconvolutions.\tThe  main  points urged\t on  behalf  of\t the
\nassessee   Company  are\t that  payment\tof  pension  is\t  an
\nexpenditure  of a revenue character and so also the  payment
\nof  a  lump sum to get rid of a recurring liability  to\t pay
\nsuch pension.  This is illustrated from some English  cases,
\nand  reference is made also to Ch.  IX-B of the Act.  It  is
\nalso  submitted\t that in so far as payment by  the  assessee
\nCompany\t was concerned, it was, in point of fact, made,\t and
\nthis was I expenditure’ within the dictionary meaning of the
\nword.\tThe  argument  of  the\tDepartment  is\tthat  by   I
\nexpenditures  meant  a laying out of money  for\t an  accrued
\nliability   and\t not  for  a  contingent  liability,   which
\ncontingency  may  or may not take place;  that\tthe  present
\narrangement  was  only\ta  setting  apart  of  money  for  a
\nContingent  liability  and till the liability  became  real,
\nthere  was no expenditure.  The assessee  Company,  however,
\ncontends  that expenditure on insurance is  not\t contingent,
\nbecause\t though the contingency relates to life and  depends
\non  it,\t the  probabilities are\t great\tbeing  estimated  on
\nactuarial  calculations and the expenditure is\treal.\tBoth
\nsides rely on a large number of English decisions.  We shall
\nnow  consider  the arguments in detail and  refer  to  those
\nauthorities, which are relevant.\n<\/p>\n
In  dealing with cases expounding the English  In.  come-tax
\nlaw,  it  must always be borne in mind that  the  scheme  of
\nlegislation  there  is not the same as in our  country.\t  No
\ndoubt, a certain amount of assistance can, with caution,  be
\ntaken from them, but the’ problems under our Income-tax laws
\nmust  be resolved, in the ultimate analysis, with  reference
\nto our laws.\n<\/p>\n
975<\/span><\/p>\n
It  has been ruled under the English statute that sums\tpaid
\nto  an\temployee as pension or gratuity\t are  deductible  as
\nmoney  laid  out  and expended for  the\t purpose  of  trade,
\nprofession  or vocation.  See Smith v. Incorporated  Council
\nof  Law\t Reporting for England and Wales (1).  It  has\talso
\nbeen  ruled  that a single payment to  avoid  the  recurring
\nliability  of  an  employee’s  pension\tis  also  a   proper
\ndeduction.   The leading case on the subject is\t Hancock  v.
\nGeneral\t Reversionary and Investment Co. Ltd. (1).  In\tthat
\ncase, the taxpayer was under a liability to pay a pension to
\na  retired actuary, and pension had, in fact, been paid\t for
\nsome  years.   Subsequently,  the  tax-payer  purchased\t  an
\nannuity for the employee, which he accepted in place of\t his
\npension.  The sum paid in purchasing the annuity was allowed
\nas  a  deduction in computing the  tax-payer’s\tprofits,  it
\nbeing held that it was money wholly and exclusively laid out
\nor  expended  for the purposes of the trade,  profession  or
\nvocation.\n<\/p>\n
On the other hand, a sum which a company put into a fund for
\nthe  relief  of\t invalidity, etc., was held  not  to  be  an
\nadmissible   deduction,\t  and  the  case  last\t cited\t was
\ndistinguished.\t See  Rowntree, & Co. Ltd.  v.\tCurtis\t(3).
\nPollock, M. R., drew pointed attention to the words of Lush,
\nJ., in the earlier case, where lie observed at p. 698:-
\n“It  seems tome as impossible to hold that the fact  that  a
\nlump  sum was paid instead of a recurring series  of  annual
\npayments  alters  the character of the\texpenditure,  as  it
\nwould  be  to  hold that, if an employer  made\ta  voluntary
\narrangement  with  his servant to pay the servant  a  year’s
\nsalary in advance instead of paying each year’s salary as it
\nfell due, he would be making a capital outlay.”,
\nand added that Lush, J., had described the actuarial payment
\nmade  in  Hancock’s case (2) as a pension in  another  form,
\nwhich could not be said of the invalidity, claims for  which
\nwere wholly uncertain.\tWarrington, L. J., pointed out\tthat
\nthe test to apply was first
\n(1)  [1914] 3 K. B. 574 ; 6 Tax Cas. 477.\n<\/p>\n
(2)  (1918) 7 Tax Cas. 358.\n<\/p>\n
(3)  [1925] 1 K. B. 328; 8 Tax Cas. 678.\n<\/p>\n
976<\/span><\/p>\n
whether\t there was an expenditure which he held\t there\twas,
\nand  next  whether  it\tcould  be  said\t to  be\t wholly\t and
\nexclusively  for  the purposes of the trade  which,  in\t his
\nopinion, could not be said of the expenditure in that  case.
\nThe  words  of\tthe  learned  Lord  Justice  on\t ‘the  first
\nproposition have a bearing upon the present case, and may be
\nreproduced here(at p. 703) :\n<\/p>\n
I  am  inclined to agree with Mr. Latter in  his  contention
\nthat the money has actually been expended. There is  nothing
\nlike  a\t resulting trust in favour of the  company  although
\nthere  is  that\t provision  which  I  have  already   called
\nattention to in the trust deed, that one of the things which
\nmight  be done would be to abrogate altogether the trust  or
\nthe provisions of the deed and to substitute other rules and
\nprovisions.  But it seems to me that cannot be said to be  a
\nresulting  trust in favour of the company having  regard  to
\nthe  other objects which are pointed out as those  to  which
\nthe scheme was directed.”\n<\/p>\n
Similarly,  a  sum of money paid to the trustees to  form  a
\nnucleus\t of  a pension fund for the benefit of some  of\t its
\nemployees by a company was also not held to be an admissible
\ndeduction  in  Atherton’s case (1).  Viscount Cave,  L.\t C.,
\nrecalled  the test laid down in a rough way by Lord  Dunedin
\nin Vallambrosa Rubber Co. v. Farmer (2) (at p. 192) that,
\ncapital\t expenditure  is a thing that is going to  be  spent
\nonce and for all and income expenditure is a thing which  is
\ngoing  to recur every year ” but added that it was  not\t and
\nwas  not meant to be a decisive test.  The  Lord  Chancellor
\nobserved, however, that,
\n”  when an expenditure is made, not only once and  for\tall,
\nbut  with a view to bringing into existence an asset  or  an
\nadvantage for the enduring benefit of a trade, I think\tthat
\nthere  is  very\t good  reason (in  the\tabsence\t of  special
\ncircumstances\tleading\t to  an\t opposite  conclusion)\t for
\ntreating such an expenditure as properly attributable not to
\nrevenue but to capital.”\n<\/p>\n
(1)  (1925) 10 Tax Cas. 155.\n<\/p>\n
(2)  (1910) 5 Tax Cas. 529.\n<\/p>\n
977<\/span><\/p>\n
Again,\tin Morgan Crucible Co. Ltd. v. The Commissioners  of
\nInland\tRevenue (1), the payment to an insurance company  to
\ntake  out  a  policy  was  held\t not  to  be  an  admissible
\ndeduction.  There, the company operated a scheme for payment
\nof pensions to retired or incapacitated employees, reserving
\nto  itself  the\t uncontrolled discretion to  vary  or  cease
\npayment\t of  pensions.\tWhen pensions were paid,  they\twere
\ndeducted  -but when the company took out a policy,  without,
\ninforming   their  employees,  for  payment  to\t itself\t  of
\nannuities  equal to the pensions, it was held that  by\tthis
\nthe company had acquired an asset and this was in the nature
\nof   a\tcapital\t asset.\t  Rowlatt,  J.,\t in   distinguishing
\nHancock’s  case\t (2),  observed that unlike  that  case\t the
\nliability  to pay pensions was not got rid of and  that\t the
\ncompany had acquired an asset.\tThe learned Judge  continued
\n(at p. 317):\n<\/p>\n
”  It is true they have got an asset which would give  them,
\nin all probability, nothing on balance, because they use  it
\nto pay these pensions; but they have got an asset; they\t had
\nnot  any  pension fund to pay these pensions with,  and\t now
\nthey have got an insurance company which will in the  future
\nnot  extinguish\t the liability but countervail it  and\tthey
\nhave got the command of this policy to the extent that\tthey
\nare entitled to get their capital money say ‘ capital  money
\n‘  without  prejudice-back  from the  insurance\t company  on
\nsurrendering the policies.”\n<\/p>\n
From these cases, there are deducible certain principles  of
\na   fundamental\t character.   The  first  is  that   capital
\nexpenditure cannot be attributed to revenue and vice  versa.
\nSecondly,  it is equally clear that a payment in a lump\t sum
\ndoes not necessarily make the payment a capital one.  It may
\nstill possess- revenue character in the same way as a series
\nof  payments.  Thirdly, if there is a lump sum\tpayment\t but
\nthere is no possibility of a recurrence, it is probably of a
\ncapital nature, though this is by no means a decisive  test.
\nFourthly, if the payment of a lump sum closes the
\n(1)  [1932] 2 K. B. 185 ; 17 Tax Cas. 311, 317.\n<\/p>\n
(2)  (1918) 7 Tax Cas. 358.\n<\/p>\n
123<\/span>
\n978<\/span><\/p>\n
liability  to  make repeated and periodic  payments  in\t the
\nfuture,\t it  may  generally be regarded as a  payment  of  a
\nrevenue character (Anglo-Persian Oil Co. Ltd. v. Dale)\t(1),
\nand  lastly, if the ownership of the money whether in  point
\nof fact or by a resulting trust be still  in the  tax-payer,
\nthen  there  is acquisition of a capital asset\tand  not  an
\nexpenditure of a revenue character.\n<\/p>\n
Side  by side with these principles, there are others  which
\nare also fundamental.  The Income-tax law does not allow  as
\nexpenses  all the deductions a prudent trader would make  in
\ncomputing his profits.\tThe money may be expended on grounds
\nof commercial expediency but not of necessity.\tThe test  of
\nnecessity  is  whether\tthe intention was  to  earn  trading
\nreceipts or to avoid future recurring payments of a  revenue
\ncharacter.    Expenditure   in\tthis  sense  is\t  equal\t  to
\ndisbursement which, to use a homely phrase, means  something
\nwhich  comes out of the trader’s pocket.  Thus,\t in  finding
\nout  what profits there be, the normal accountancy  Practice
\nmay be to allow as expense any sum in respect of liabilities
\nwhich have accrued over the accounting period and to  deduct
\nsuch sums from profits.\t But the Income-tax laws do not take
\nevery  such allowance as legitimate for purposes of tax.   A
\ndistinction is made between an actual liability in praesenti
\nand a liability de futuro which, for the time being, is only
\ncontingent.   The former is deductible but not\tthe  latter.
\nThe  case  which  illustrates  this  distinction  is   Peter
\nMerchant  Ltd.\tv. Stedeford (2).  No doubt, that  case\t was
\ndecided\t under\tthe system of Income-tax laws  prevalent  in
\nEngland,  but  the,  distinction is real.   What  a  prudent
\ntrader sets apart to meet a liability, not actually  present
\nbut  only contingent, cannot bear the character\t of  expense
\ntill the liability becomes real.\n<\/p>\n
We may here refer to two other cases.  In Alexander Howard &
\nCo.  Ltd  v.  Bentley (3), a business  of  blouse  and\tgown
\nmanufacture  was carried on by one A. C. Howard.  His  three
\nbrothers were employed by him as salaried managers.  In 1933
\nA. C. Howard remarried
\n(1)  [1932] 1 K. B. 124; 16 Tax Cas. 253.\n<\/p>\n
(2)  (1948) 30 Tax Cas. 496.\n<\/p>\n
(3) (1948) 30 Tax Cas. 334.\n<\/p>\n
979<\/span><\/p>\n
and  under pressure from his brothers a company\t was  formed
\nand the directors were authorised to enter into an agreement
\nto  purchase the business.  A. C. Howard was  the  governing
\ndirector  of the company and his three\tbrothers,  permanent
\ndirectors.    The  company  also  entered  into\t a   service
\nagreement with them, and Art.  107 thereof provided :
\n”  After the death of the said Alexander Charles Howard\t and
\nduring\tsuch.  time as his  legal  personal  representatives
\nshall hold at least Ten Thousand Shares in the Company,\t any
\nwidow surviving him shall receive out of the profits of\t the
\nCompany\t an annuity of One Thousand Pounds per annum  during
\nher life.”\n<\/p>\n
This service agreement was executed on January 3, 1934.\t  In
\n1943  by  a  deed of release A. C. Howard  released  to\t the
\ncompany\t all right to a claim in respect of the\t annuity  in
\nconsideration of the payment to him of a sum of pound 4,500.
\nThis amount was based upon the findings of an actuary.\t The
\ntaxpayer  submitted that the sum paid in redemption  of\t the
\nannuity\t was  a\t proper\t charge\t against  revenue,  and\t was
\ndeductible.   The Commissioners held against the company  on
\ntwo main grounds.  They held that in order to decide whether
\nthe  sum paid to obtain release of the annuity was  properly
\nallowable  as a deduction, they had to decide first  whether
\nthe  annuity itself would have been properly  chargeable  to
\nrevenue,  (Anglo-Persian Oil Co.  Ltd. v. Dale (1) and\tBean
\nv. Doncaster Amalgamated Collieries Ltd. (2) per Lord  Simon
\nat  pp. 311-312); and they held next that the redemption  of
\nthe  annuity freed the company from a  contingent  liability
\nand   the  company  had.  thus\tsecured\t only  an   enduring
\nadvantage.\n<\/p>\n
Singleton, J., before whom the case came in appeal, affirmed
\nthe decision.  He pointed out that this was not a case of  a
\ncompany\t providing an annuity or pension for an employee,  ”
\nfor  ”\t(to quote him) ” the wife of Mr.  Alexander  Charles
\nHoward\thad nothing whatever to do with the Company  “.\t If,
\ntherefore,
\n(1)  [1932] 1 K. B. 124; 16 Tax Cas. 253.\n<\/p>\n
(2)  (1946) 27 Tax CaS. 296.\n<\/p>\n
980<\/span><\/p>\n
the original annuity was not chargeable to revenue, the\t sum
\nof pound 4,500 paid to avoid it, could not also be.
\nThe other case is Southern Railway of Peru Ltd. v. Owen (1).
\nIn  that  case,\t the English company was  bound\t to  provide
\ncompensation  to  all its employees on\tthe  termination  of
\ntheir services.\t Legislation to this effect was deemed to be
\na  part\t of the contract of service.  Such  right  arose  on
\ndismissal  or  on  termination\tof  the\t employment  by\t the
\nemployer  after\t proper\t notice.  The  compensation  was  an
\namount\tequal  to  one\tmonth’s salary\tfor  every  year  of
\nservice.   There  were, however,  certain  exceptions  under
\nwhich the compensation was not payable.\t The company  sought
\nto deduct an amount equal to the burden cast on it each year
\nbut  the  claim was refused.  It was held by  majority\tthat
\nthough\t‘the  company  was entitled to\tcharge\tagainst\t one
\nyear’s\treceipts  the  cost  of\t making\t provision  for\t the
\nretirement payments which would ultimately be payable as  it
\nhad the benefit of the employees services during that  year,
\nprovided  the present value of the future payments could  be
\nfairly estimated ‘, since the factor of discount was ignored
\nin making the deduction, the claim could not be entertained.
\nThese  two  cases  illustrate  the  propositions  that\t the
\nrecurring liability of a pension which is compressed into  a
\nlump payment should itself be a legal obligation, and  that,
\nif  contingent,\t the present value of  the  future  payments
\nshould\tbe fairly estimable.  If the pension itself  be\t not
\npayable as an obligation, and if there be a possibility that
\nno such payment may be necessary in the future, the whole of
\nthe amount cannot be deducted but only the present value  of
\nthe  future  liability,\t if  it can  be\t estimated.   It  is
\nsignificant  that the case in Sun Insurance Office v.  Clark
\n(2) was applied to the last corollary.\n<\/p>\n
So  far,  we have dealt with the principles  which  underlie
\nleading cases decided in England, some of which were in\t the
\nforefront of the arguments.  We have already stated that the
\nEnglish decisions should be read with considerable  caution.
\nUnder  the  English Income-tax Act, the law is stated  in  a
\nnegative
\n(I) [1957] A.C. 334.\n<\/p>\n
(2) [1912] A.C. 443.\n<\/p>\n
981<\/span><\/p>\n
form.\tSection 137 of 15 & 16, Geo. 6 & I Eliz. 2,  c.\t 10,
\nwhich  prescribes the general rules regarding deductions  is
\nexpressed  in the negative, and r. (a) which was  applicable
\nto the cited cases reads as follows:\n<\/p>\n
”  Subject to the provisions of this Act, in  computing\t the
\nprofits\t or gains to be charged under Case I The Case 11  of
\nschedule D, no sum shall be deducted in respect of-\n<\/p>\n
(a)  any  disbursements or expenses, not being money  wholly
\nand exclusively laid out or expended for the purposes of the
\ntrade,\tprofession  or vocation.” In  these  several  cases,
\nemphasis  was  sometimes  laid on the  words  ”\t wholly\t and
\nexclusively  “,\t sometimes on ” laid out or expended  ”\t and
\nsometimes on ” for the purposes of the trade…”. It was the
\nnature of the liability or the time of payment or the  value
\nof  the payment or all of them which determined whether\t the
\namount should be deducted or not.\n<\/p>\n
Clause\t(xv)  of  s. 10(2) of the Act,\twith  which  we\t are
\nconcerned, reads as follows:\n<\/p>\n
10.  ” Business-(1) The tax shall be payable by an  assessee
\nunder  the head I Profits and gains of business,  profession
\nor  vocation’  in  respect of the profits or  gains  of\t any
\nbusiness, profession or vocation carried on by him.
\n(2)  Such  profits or gains shall be computed  after  making
\nthe following allowances, namely-\n<\/p>\n
(xv) any  expenditure not being an allowance of\t the  nature
\ndescribed in any of the clauses (i) to (xiv) inclusive,\t and
\nnot  being in the nature of capital expenditure or  personal
\nexpenses  of  the assessee laid out or expended\t wholly\t and
\nexclusively for the purpose of such business, profession  or
\nvocation.”\n<\/p>\n
This section, though it enacts affirmatively what is  stated
\nin   the   negative  form  in  the   English   statute,\t  is
\nsubstantially in pari materia with the English enactment and
\nwould have justified our considering the English authorities
\nas aids to the interpretation thereof
\nBut  there is no case directly on what is I expenditure\t and
\nif the authorities under the English statute
\n982<\/span>
\nwere  to  be  of real assistance, the whole  of\t the  matter
\nshould\thave been before us.  The question, however,  limits
\nthe  approach  to  whether the\tpayments  made\ttowards\t the
\npolicy\twere expenditure within cl.(xv). I  Expenditure’  is
\nequal  to  I  expense’ and ‘expense’ is money  laid  out  by
\ncalculation  and intention though in many uses of  the\tword
\nthis element may not be present, as when we speak of a\tjoke
\nat  another’s expense.\tBut the idea of I spending’  in\t the
\nsense of I paying out or away’ money is the primary  meaning
\nand  it\t is  with that meaning that  we\t are  concerned.   I
\nExpenditure’ is thus what is ‘paid out or away’ and is some-
\nthing which is gone irretrievably.\n<\/p>\n
To  be an allowance within cl. (xv), the money paid  out  or
\naway  must  be (a) paid out wholly and exclusively  for\t the
\npurpose\t of  the business and further (b) must\tnot  be\t (i)
\ncapital\t expenditure,  (ii) -personal expense  or  (iii)  an
\nallowance  of the character described in cls. (i) to  (xiv).
\nBut whatever the character of the expenditure, it must be  a
\npaying\tout  or away, – and we are not\tconcerned  with\t the
\nother  qualifying aspects of such expenditure stated in\t the
\nclause either affirmatively or negatively.
\nSo,  the question is whether in a business sense the  amount
\nwas  spent, that. is to say, paid out or away.\t To  discuss
\nthis, we must go to the terms of the policy.\n<\/p>\n
No  doubt, under the general terms of the policy an  annuity
\nwas  to be provided for the Harveys.  We are  not  concerned
\nwith Mrs. Harvey, because she had no claim to the annuity or
\npension any more than Mrs. Howard bad in Alexander Howard  &
\nCo.  Ltd. v. Bentley (1) already discussed by us  elsewhere.
\nThat consideration involves a finding on whether an  annuity
\nto  Mrs. Harvey was an expense made wholly  and\t exclusively
\nfor  the purpose of the business, and that is not  a  matter
\nopen to us by the limited question posed.  In any event, the\n<\/p>\n
-provision  for a pension or annuity to Mrs.  Harvey  cannot
\nrank higher than an annuity to Harvey, and the matter can be
\nconsidered  on the limited aspect that a pension or  annuity
\nto Harvey was also contemplated.\n<\/p>\n
(1)  (1948) 3o Tax Cas, 334.\n<\/p>\n
983<\/span><\/p>\n
In the years of account the assessee Company did hand out to
\nthe  trustees,\tthe  sums of money for\twhich  deduction  is
\nclaimed.  But was the money spent in so far as the  assessee
\nCompany was concerned ? Harvey was then alive and it was not
\nknown if any pension to him would be payable at\t all.’Harvey
\nmight not have the lived to be 55 years.  He might even have
\nabandoned c his service or might have been dismissed.\tTill
\nSeptember  20,\t1955,  the  assessee  Company  had  dominion
\nthrough\t the grantees over the premia paid, at least in\t two
\ncircumstances.\t They  are  to\tbe  found  in  the   special
\nprovision,  and the third clause of the second\tschedule  of
\nthe policy.  These provisions have been quoted already,\t but
\nmay again be reproduced:\n<\/p>\n
” Special provision:\n<\/p>\n
Provided  the  contract\t is  in\t force\tand  unseduced,\t the
\nGrantees  shall be entitled to surrender the Annuity on\t the
\nOption\tAnniversary  for  the Capital sum  of  pound  10,169
\nsubject\t to  written notice of the  intention  to  surrender
\nbeing  received by the Directors of the Society\t within\t the
\nthirty days preceding the Option Anniversary.” –
\nCl.  (III):  ”\tIf both the Nominees shall  die\t whilst\t the
\nContract  remains  in  force and unreduced  and\t before\t the
\nOption\tAnniversary  the  said funds  and  Property  of\t the
\nSociety shall be liable to make repayment to the Grantees of
\na sum equal to a return of all the premiums which shall have
\nbeen  paid under this Contract without interest after  proof
\nthereof and subject as hereinbefore provided.”
\nTo be a payment which is made irrevocably there should be no
\npossibility of the money forming, once again, a part of\t the
\nfunds  of  the assessee Company.  If this condition  be\t not
\nfulfilled  and\tthere  is a possibility\t of  there  being  a
\nresulting trust in favour of the Company, then the money has
\nnot been spent, i. e., paid out or away, but the amount must
\nbe  treated as set apart to meet a contingency.\t There is  a
\ndistinction  between  a contingent liability and  a  payment
\ndepending  upon a contingency.\tThe question is\t whether  in
\nthe  years  of\taccount,  one  can  describe  the   assessee
\nCompany’s liability as contingent or merely depending
\n984<\/span>
\nupon  a\t contingency.\tIn our opinion,\t the  liability\t was
\ncontingent and not merely depending upon a contingency.
\nThat such a distinction is real was laid down in the  speech
\nof  Lord Oaksey in Southern Railway of Peru\tLtd. v. Owen
\n(1),  and  was recognised generally in the speeches  of\t the
\nother Law Lords.  Now, the question is what is the effect of
\nthe I payment of premia in the\t present case ?
\nLearned counsel for the assessee Company referred us to\t the
\nprovisions of Chapter IX-B of the Act, particularly ss. 58R,
\n58S  and 58V thereof.  We regret we are not able to see\t bow
\nthese  provisions help in the matter.  We are not  concerned
\nwith  the provisions of this Chapter, because the  allowance
\ndoes not fall within any of the provisions, and we have only
\nto decide the question whether the amounts -paid to purchase
\nthe policy involved an expenditure in the accounting years.
\nNext  learned  counsel relied upon Joseph v.  Law  Integrity
\nInsurance Company, Limited (2), Prudential Insurance Company
\nv.  Inland  Revenue Commissioners (3 ) and  In\tre  National
\nStandard  Life Assurance Corporation (4) to show that  there
\nwas  no contingent liability but a liability depending on  a
\ncontingency, namely, the duration of life, the probabilities
\nof  which  were\t estimated on  actuarial  calculations.\t  No
\ndoubt, these cases deal with insurance of human life but the
\nobservations therein are not material here.  In the first of
\nthese  cases,  it was held that the kind of  policies  which
\nwere  issued were policies of insurance on human lives,\t and
\nthat  the  company  was carrying on  the  business  of\tlife
\ninsurance contrary to its memorandum of association and\t the
\npolicies  were ultra vires the company.\t The  policies\twere
\nalso  illegal  within s. I of the Assurance  Companies\tAct,
\n1909..\tIn this context, the definition that I a  policy  of
\nlife insurance’ means I any instrument by which the  payment
\nof  monies, by or out of the funds of an assurance  company,
\non the
\n(1)  [1957] A.C. 334.\n<\/p>\n
(3)  [1904] 2 K.B. 658.\n<\/p>\n
(2)  [1912] 2 Ch. 581.\n<\/p>\n
(4)  [1918] 1 Ch. 427, 430.\n<\/p>\n
985<\/span><\/p>\n
happening  of any contingency depending on the\tduration  of
\nhuman  life,  is  assured or secured was  referred  to.\t The
\npolicies  issued by the company, though ostensibly called  I
\ninvestment  policies’ were held to be really life  insurance
\npolicies.  The next case arose under s. 98 of the Stamp Act,
\n1891.\t It   was  held\t that\t a  contract   by   which in
\nconsideration  of  the\tpayment\t by a  person  of  a  weekly
\npremium,  a sum certain was payable to him on his  attaining
\nthe  age  of  65 or, in the event of his  dying\t earlier,  A
\nsmaller sum was to be paid to his executors, was a policy of
\ninsurance  upon a contingency depending upon a\tlife  within
\nthe meaning of the section.  In the last case, the  question
\narose under s. 30 of the Assurance Companies Act, 1909,\t and
\nit  was decided that a certificate-holder held a  policy  on
\nhuman  life  because  money  was payable  not  only  at\t the
\nexpiration  of\ta certain number of years but  all  premiums
\nwere   repayable  in  the  event  of  death  to\t the   legal
\nrepresentative.\n<\/p>\n
These cases may help to determine the nature of the contract
\nwith the insurance company but cannot help in the solving of
\nthe  question whether the payments to the insurance  company
\nwere expenditure.  That insurance of human lives involves  a
\ncontingency relating to the duration of human life is a very
\ndifferent proposition from the question whether the  payment
\nin the present case to the trustees was towards a contingent
\nliability or towards a liability depending on a contingency.
\nIn  our opinion, the payment was not merely  contingent\t but
\nthe liability itself was also contingent.  Expenditure which
\nis  deductible\tfor  income-tax purposes  is  one  which  is
\ntowards\t a liability actually existing at the time, but\t the
\nputting\t aside of money which may become expenditure on\t the
\nhappening  of an event is not expenditure.  In\tthe  present
\ncase, nothing more was done in the account years.  The money
\nwas  placed  in the hands of trustees and\/or  the  insurance
\ncompany\t to  purchase  annuities  of  different\t kinds,\t  if
\nrequired,  but\tto  be returned if the\tannuities  were\t not
\nbought and
\n124<\/span>
\n986<\/span>
\nthe setting apart of the money was not a paying out or\taway
\nof these sums irretrievably.\n<\/p>\n
In  our opinion, the question was correctly answered by\t the
\nCalcutta High Court.  We, therefore, dismiss the appeal with
\ncosts.\n<\/p>\n
Appeal dismissed.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India The Indian Molasses Co. (Private) … vs The Commissioner Of Income-Tax, … on 5 May, 1959 Equivalent citations: 1959 AIR 1049, 1959 SCR Supl. (2) 964 Author: Hidayatullah Bench: Hidayatullah, M. PETITIONER: THE INDIAN MOLASSES CO. (PRIVATE) LTD. Vs. RESPONDENT: THE COMMISSIONER OF INCOME-TAX, WESTBENGAL. DATE OF JUDGMENT: 05\/05\/1959 BENCH: HIDAYATULLAH, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-131103","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nThe Indian Molasses Co. 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