1. This is a reference under Section 66(1) of the Indian Income Tax Act, 1922, hereinafter called the Act.
2. The following questions have been referred us for our opinion :--
(1) Whether on the facts and in the circum-stances of the case the sum of Rs. 1,83,434/-was an expenditure effectively laid out or expended during the accounting year 1955 within the meaning of Section 10(2)(xv) of the Indian Income Tax Act?
(2) If the answer to question No. 1 is in the affirmative, then whether the said expenditure of Rs. 1,83.434/- represented a revenue expenditure?
3. The Tribunal submitted a statement of the case under the aforesaid section and the facts are briefly stated as follows :--
The assessee, the Indian Molasses Co. Pr. Ltd., Calcutta, is a private limited company. Its Managing Director Mr. J. B. R. Harvey, entered the service of the company in 1935. He was due to retire, had he lived, on September 20, 1955 on attaining the age of 55. He was a married man. When Mr. Harvey entered the service of the company, it was arranged that he would get a pension when he retired, but this arrangement was not reduced to writing. Pursuant to this arrangement, the company executed a trust deed elated September 16, 1948 appointing three trustees for the purpose of providing the pension and the deed recited that the assessee company was under an obligation to provide Mr. Harvey with a pension. In order to discharge the obligation the assessee company paid to the trustees in 1948, a sum of Rs. 1,09,643/- and undertook to pay to the trustees annually thereafter a sum of Rs. 4364 for each of the six consecutive years. The payments were made up to 1954 and the total amount came up to Rs. 1,35,827/-. Under the trust deed the trustees agreed to hold the aforesaid sum on trust and to spend the same in taking out a deferred annuity policy with the Norwich Union Life Insurance Society in the name of the trustees but on the life of Mr. Harvey to cover an annuity of 720 per annum payable to him for life from the date of his attaining the age of 55 years, provided that ft Mr. Harvey was to die before the age of 55 years, Mrs. Harvey was to receive an annual pension of 611-12s. On account of these payments the assessee company claimed deduction for the annual payments of Rs. 6364/-paid in each of the years previously in the assessment year 1949-50. These claims for deduction were disallowed up to the Supreme Court; the decision of the Supreme Court is reported in Indian Molasses Co. (Private) Ltd. v. Commissioner of Income Tax, West Bengal : 37ITR66(SC) which will be referred to in the appropriate places of our judgment.
4. What happened next was that in 1954 the assessee company agreed to grant an enhanced pension to Mr. Harvey due to the in-erased cost of living and with this end in viewexecuted a supplemental trust deed dated October 29, 1954 with the same trustees where-under the company paid a sum of Rs. 47,607, to the trustees who in their turn agreed to hold the same on trust for file purpose of taking out a longest annuity policy in the names of tile trustees but in favour of Mr. Harvey and his wife to cover an additional annuity (pension) of 186.14s 4d per annum during the Joint lives of Mr. and Mrs. Harvey from the date of Mr. Harvey's 55th birth day and during the life time of the survivor of these two persons with a provision for an increased annuity of 238.13s 4d per annum to Mr. Harvey in the event of Mrs. Harvey's death before Mr. Harvey's 55th birth day and for an increased annuity of . 213.13s 4d per annum to Mrs. Harvey in the event of Mr. Harvey's death before the age of 55. It was provided in the supplemental deed that the terms of the original deed would apply equally to the same. These are in brief the terms of the trust deeds which have been made Annexnres A and R of the Paper Book and for a decision of this case the terms as set forth above would be quite enough.
5. Mr. Harvey died in May 1955. The assessee claimed deduction of a total sum of Rs. 1,83,434/- in the computation of assessee's business profit for the accounting year ending December 31, 1955. It is an admitted position that the amount did not find place as a debit in the Profit and Loss Account in the accounting year but was claimed in the return filed by the assessee company as representing expenses for providing retiring benefits for the company's Managing Director Mr. J. B. R. Harvey. The Income Tax Officer found that it was not an admissible expenditure for the accounting year 1955 relating to the assessment year 1955-56. He simply stated that the amount could not be treated as an expenditure under Section 10(2)(xv) for the accounting period. The Appellate Assistant Commissioner in appeal supported the decision of the Income Tax Officer. He, however, held that the payment of this amount having been made long before the relevant accounting year it should not be treated to be an amount paid out or expended in the accounting year 1955 so that the assessee might be eligible to obtain deduction of the said amount as an admissible expenditure.
6. The matter was taken in appeal before the Tribunal. It was contended on behalf of the assessee before the Tribunal that the Supreme Court in the decision referred to before, having held that the payment made in the earlier years to the trustees not being actual expenditure for those years but merely representing the putting aside of money which may become expenditure on the attaining of an event', the amount became an effective expenditure during the accounting period 1955 when Mr. Harvey died. It was also contended before the Tribunal that on the death of Mr. Harvey and Mrs. Harvey being alive the possibility of the money coming back to the company was irretrievable gone in 1953 and what was set apart became an expenditure in that year and as such was an admissiblededuction in computing the profit of the year. It is important to note in this admitted statement of case that the departmental representative argued that the Supreme Court only considered whether it was an expenditure but there was no finding as to whether the expenditure was laid out and expended wholly and exclusively for the purpose of the assessee's business and, therefore, it was further contended that the payment being in the nature of a lump sum payment for securing a pensionary benefit should be treated as a capital expenditure. The Tribunal upon hearing both the parties found that since Mr. Harvey died in March 1955 and Mrs. Harvey was alive, she became entitled to the benefits under the trust deeds in the accounting year ending on December 31, 1955 and that the money which according to the findings of the Supreme Court had been put aside, became expenditure on the happening of the event, that is, the death of Mr. Harvey. The Tribunal in the statement of the case quoted the relevant passage of the judgment of the Supreme Court on which it relied. The Tribunal therefore came to the conclusion that the payment of Rs. 1,83,434/-became an effective disbursement in the accounting year and was admissible as a deduction in computing the assessee's business pro-fits.
7. Let us now deal with the first question. On an analysis of the question it boils down to this position whether on the facts and circumstances of the case as appearing from the statement of the ease, the sum of Rs. 1,83,434 was an expenditure effectively laid out or expended during the accounting year 1955. Therefore, the position is like this: first of all whether it was an expenditure within the meaning of Section 10 (2) (xv) and secondly whether this expenditure should be deemed to be debited in the accounting year 1955.
8. As regards the scope of Sections 10 (2) (xv) of the Act, we may at once refer to the decision of the Supreme Court in : 37ITR66(SC) . In this decision their Lordships quoted with approval the analysis of the section as made by this Court. It runs as follows:
'It will be noticed that three ingredients of the clause lie on the surface of the language. In order that a deduction may be claimed under its provisions it must first be proved that there was an expenditure. Secondly, that the expenditure was not in the nature of capital expenditure. * * * * * And thirdly, that it was laid out or expended wholly and exclusively for the purpose of assessee's business. ** *
9. Thus it appears that in this clause there are three ingredients as pointed out by their Lordships of this Court and the frame of the question itself would go to show that an answer is sought as to whether the amount viz. the sum of Rs. 1,83,434/- was really an expenditure in the accounting year. As regards the second and third elements stated before, no answer to these elements is contemplated by the question as posed. Therefore, it is for ourdecision to consider whether the said amount was an expenditure in the accounting year within the meaning of Section 10 (2) (xv) of the Income Tax Act. Mr. Pal, appearing for the applicant Commissioner, argued before us in the first instance that the sum of Rs. 1,83,434 was not an expenditure effectively laid out or expended during the accounting year for the reasons,--that (1) it is admitted that in the accounts of the assessee this very sum does not appear at all in the accounting year as a debit; (2) it is also admitted that the balance-sheet does not show anywhere any amount regarding these payments to the trustees; and (3) the first payment out of the said amount of Rupees 1,83,434 was debited to the Profit and Loss Account of the assessee in the year 1948 and that other payments were shown as paid within 1949 to 1954, According to Mr. Pal, the Assistant Appellate Commissioner found that there was no liability for these amounts by the assessee for all these years, although the Company actually paid them to the trustees. Further, he argued, it cannot be said that this liability can be shown in the accounting year, as no payment was actually made in that year and therefore there was no incurring of liability in the accounting year. According to Mr. Pal, if it was liable, re-writing of those accounts in the accounting year was necessary. Now, keeping in view the arguments as made by Mr. Pal on this question, we have first of all to consider as to how the matter was approached and decided by the Tribunal. The Tribunal has found that the sole question was whether the assessee's claim for deduction of Rs. 1,83,434/- in the computation of the assessee's business profit for the accounting year 1955 was permissible under the law. It is an admitted position, as stated before, that the amount did not find place as a debit to the profit and loss account but was claimed in the return filed as representing expenses for providing retiring benefits for the company's Managing Director Mr. J. B. R. Harvey in terms as set forth in the foregoing paragraphs. It appears that before the Tribunal the Departmental representative argued that in the aforesaid Supreme Court decision there was no finding that the expenditure was laid out or expended wholly and exclusively for the purposes of the assessee's business and it was urged as such that the payment being a lump sum payment for securing pensionary benefits was a capital expenditure. In this Court Mr. Pal has conceded that even if a lump sum amount is paid towards pensionary benefit, that might be deductible as an expenditure towards any pensionary benefit to an employee. Accordingly, we are not concerned with the argument as pressed before the Tribunal in this regard. The Tribunal relied upon the decision of the Supreme Court which runs as follows (at p. 79 of 37 ITR): (at p. 1059 of AIR):--
'To be a payment which is made irrevocably, there should be no possibility of the money forming, once again, a part of the funds of the assessee Co. If this condition be not fulfilled and there is a possibility of there being a resulting trust in favour of the Co., then themoney has not been spent, i.e. paid out or away but that the amount must be treated as set apart to meet a contingency. There is a distinction between a contingent liability and a payment dependant upon a contingency. In our opinion the liability was contingent and not merely dependent upon a contingency.'
10. This decision was arrived at in an appeal preferred by the assessee company when their claim for deduction of the amounts in the previous accounting years was disallowed by this Court. Their Lordships further remarked as follows at p. 80 (of TTR): (at p. 1060 of AIR):--
'In our opinion the payment was nut merely contingent but the liability itself was also contingent. Expenditure which is deductible for Income Tax purposes is one which is towards a liability actually existing at the time, but the putting aside of money which may become an expenditure on the happening of an event is not an expenditure. In the present case, nothing more was done in the accounting years. The money was placed in the hands of the trustees and/or the Insurance Co. to purchase annuities of different kinds, if required, but to be returned if the annuities were not bought and the setting apart of the money was not a paying out or away of these sums irretrievably.'
11. On these findings by the Supreme Court the Tribunal came to the conclusion that after Mr. Harvey's death in 1955 it became absolutely certain that no sums that had been paid out by the Company could ever come back to it and that the contention of the Departmental representative that the expenditure itself was a capital expenditure has also no substance. The pension itself would be a revenue expenditure and the lump sum payment to get rid of the liability itself is a revenue expenditure.
12. Now, adverting to the argument of Mr. Pal, it appears that he wants to impress upon us that the expenditure which was in fact made in the previous accounting years cannot be brought forward in the accounting period to show that they were accrued liabilities in the accounting year. His contention further is that liability and disbursement must co-exist and once such a payment or expenditure was made in the previous year it could not be debited to the accounting year, as it amounts to a rewriting of the account which cannot be allowed under the provisions of the Income-tax laws. It is to be seen whether in view of the decision of the Supreme Court such a position is at all tenable. We have already quoted the relevant portion of the judgment of the Supreme Court to show how this amount was treated by the Supreme Court. It will be borne in mind that there is an observation by the Supreme Court that if there is a possibility of any resulting trust in favour of the company, then the money has not been spent or paid away. This observation would snow that the setting apart of the money by the assessee company in the previous relevant accounting years was not deemed to be payment by their Lordships, that is to lay so long asMr. Harvey was alive there was a possibility of a resulting trust, e. g. if Mr. Harvey was dismissed from the service or resigned the money already set out for the purpose of the pensionary benefit of Mr. Harvey would automatically come back to the assessee. In the circumstances, we cannot accept the argument of Mr. Pal that the amounts set apart should be deemed to have been paid or expended during the previous accounting years.
13. Further, we are of the view that as there is an observation by the Supreme Court that expenditure which is deductible for income tax purposes is one which is towards the liability actually existing at the time, it may be said that the liability actually accrued in the accounting year ending with 31-12-55 when it is found that there was no possibility of the money coming back to the assessee. We have already shown clearly that the Supreme Court decision does not contemplate that the money which was set apart should be treated as paid out or expended and It is reasonable to hold that when the liability actually came into existence it should be dealt with under the provisions of Section 10 (2) (xv) of the Act as an expenditure and we should think that it comes under the first element of Section 10 (2) (xv) of the Act as stated before. In this connection, Mr. Pal has referred to us a decision reported in Commissioner of Income Tax, Madras v. Gajapathy Naidu : 53ITR114(SC) . The decision of the Supreme Court as staled in the head-note is given below:
'The provisions of the Indian Income Tax Act 1922 have to be construed on their own terms without drawing any analogy from the English statute whose terms may superficially appear to be similar.
When an Income Tax Officer proceeds to include a particular income in the assessment, he should ask himself, inter alia, two questions, viz. (i) what is the system of accountancy adopted by the assessee, and (ii) if it is the mercantile system, subject to the deeming provisions, when has the right to receive accrued? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he should include the said income in the assessment of the subsequent assessment year. No power is conferred on the Income Tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year on the ground that the income arose out of the earlier transaction. Nor is the question of reopening of accounts relevant in the matter of ascertaining when a particular income accrued or arose.
The meaning of the word 'accrue'' or 'arise' under Section 4 (I) (b)(i) of the Income Tax Act 1922 cannot be extended so as to take any amount received in a later year though the receipt was not on the basis of a right accrued in the earlier year. Such amounts are in law received by the assessee only in the year in which they are paid.'
14. It was further held that the amount which the assessee received on account of a transaction of a previous year ought to be included in the profits of the year of accountrelevant to the assessment year subsequent to the period when the right to receive the money accrued and that it could not be related back to the earlier year during which the assessee actually supplied certain commodities. This decision refers to the interpretation of the words 'accrue' or 'arise' under Section 4 (1) (b) (i) and it is clear from this decision that an asses-see cannot take advantage of the fact that a particular amount received in a later accounting year should be referred back to the earlier years when the right to receive the same accrued. On this principle Mr. Pal argues that in so far as there was a payment in the earlier years it could not be shown as an expenditure in the accounting year We do not think that the decision relied on by him will, in any way help the Revenue in the instant case. If accrual of an income takes place in a subsequent year due on account of transactions in previous years, that is no reason to hold why the setting apart of the money which ripens into actual liability on the happening of an event in the accounting year should not be debited to that particular year for the purpose of assessment of income tax. As such, it appears to us that the amounts which, according to the Supreme Court decision, cannot be said to have been paid or expended during the previous accounting years can by virtue of the observation made in : 37ITR66(SC) , be also treated as an expenditure in the accounting year when the liability really accrued.
15. Accordingly our conclusion in this regard is that the money which was paid to the Trustees in the previous accounting years was not money paid. It was clearly set apart for the purpose of meeting the liability which had already ripened in the relevant accounting year. Therefore the position in law is that the putting aside of the money in the previous years is not an expenditure within the meaning of Section 10 (2) (xv) of the Act, but it was really so when the liability became fait accompli in the accounting year in question.
16. Undoubtedly the money was not shown as an Expenditure in the Profit and Loss Account in the relevant accounting year. Mr. Pal has urged that unless this was done, the assessee was not entitled to claim deduction. We cannot agree with him on this point as it was decided by the Supreme Court that in law the putting aside of the money in previous years cannot be treated as 'Expenditure' and accordingly when in fact the money was deemed to have been spent, we do not find any reason why it should not be treated as such in the Accounting year, although it was not shown in the Profit and Loss Account. We were not shown any authority for the proposition that no deduction as to expenditure can be allowed unless it is shown in the Profit and Loss Account.
17. For all these reasons we find that the Question No. 1 must be answered in favour of the assessee and in the affirmative.
18. The second question is a ticklish one in view of the submissions made by Mr. Pal. Mr. Pal has submitted before us that it we refer to thetrust deeds it will appear that the pensionary benefit was made in favour of the widow of Mr. Harvey and if an expenditure was made towards payment of the pension to the wife of an employee, that cannot be treated as a revenue expenditure within the meaning of Section 10 (2) (xv). Section 10 (2) (xv) clearly envisages that any capital expenditure cannot be deductible within the meaning of that provision. Mr. Pal has argued before us that the entire matter has to be considered on the background of the facts disclosed. He argues that the question whether the amount of Rs. 1,83,434/- is a revenue expenditure involves a question whether payment to the widow in the circumstances of the case comes within this category and was an expenditure for the purpose of the business. His second branch of argument on this question is that the payment of pension to the widow was provided for in the relevant trust deeds and three alternative provisions were made in the trust deeds for the payment of pension either to the Harveys together or to Mr. Harvey alone or to Mrs. Harvey alone. On a clear reading of the trust deeds Mr. Pal submits that the Tribunal allowed the whole sum without considering this particular aspect, though it was directly involved in the question on the very terms of the trust deeds. According to him in the accounting year the only liability that was fastened upon the assessee was the liability to pay the pension to Mrs. Harvey. Accordingly, the Tribunal went wrong in law in treating the amount in question generally as a pensionary liability. The legal position, according to him, is different when the pension is paid to an employee or to the widow of the employee and in this respect he submits that the settled law is that payment by an assessee towards pension of a widow cannot be treated to be revenue expenditure.
19. First of all on this question we are called upon to decide whether the submission made by Mr. Pal can be entertained. It is to be found that before the tax authorities as also before the Tribunal it was not specifically argued that the pensionary benefit which accrued to Mrs. Harvey on account of payment by the assessee was not an expenditure within the meaning of Section 10 (2) (xv). In the forum below they pinpointed their argument to this effect that the payment being a lump sum payment for securing pensionary benefits was a capital expenditure. It was also argued before the tax authorities that such payment could not be said to be an expenditure within the accounting year. Undoubtedly the trust deeds are before us and it is also true that we can refer to these documents to consider as to whether a wrong interpretation of the same has been made by the Tribunal, but it is nowhere stated in the admitted statement of the case nor in the judgment of the Appellate Tribunal that this point was specifically agitated. It seems to us that there being no finding in this regard, by the Tribunal the question as now agitated by Mr. Pal cannot be said to have arisen out of the order of the Tribunal within the meaning of Section 66 of the Act. We shall discuss later on whether the submissionsmade by Mr. Pal that this aspect of the matter it a pure question of law and can also be gone into by this Court although not specifically raised before the Tribunal.
20. It will appear from the application of the Revenue before the Tribunal under Section 66 (1) that they suggested a question as Question No. 2 for being referred to the High court:
Q. 2. If the answer to Question No. 1 be in the affirmative then whether the said expenditure for providing an annuity to Mrs. Harvey was wholly and exclusively laid out for the purpose of the business of the assessee and therefore admissible under Section 10 (2) (xv) of the Income Tax Act.
This question was not submitted to this Court for its opinion by the Tribunal, presumably because of the fact that it did not arise out of the order of the Tribunal. Now, the matter for consideration is if this question was not referred whether the question No. 2 as posed is wide enough to include the submission that the payment of pension to Mrs. Harvey could not be deductible within the meaning of Section 10 (2) (xv) of the Act as revenue expenditure. In this connection Mr. Pal has referred us to the well-known case reported in Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd. : 42ITR589(SC) . In this case a question arose inter alia whether the assessee's contention for the first time raised before the High Court that the fourth proviso to Section 10 (2) (vii) did not apply to the assessment as it was in force on April 1, 1948 and the liability of the company had to be determined as on April 1, 1946, when the Finance Act came into force. The High Court allowed this question to be considered by it and when the matter came up before the Supreme Court it was held that the High Court had jurisdiction to entertain the company's contention raised for the first time before it that the fourth proviso to Section 10 (2) (vii) of the Act did not apply to the assessment as the contention was within the scope of the question as framed by the Appellate Tribunal and was really implicit therein. Mr. Pal, on the basis of this observation of the Supreme Court, has argued before us that although no specific question in the instant case was mooted, the question as raised by him can be gone into as one of the aspects of question No. 2. On a perusal of this judgment it appears to us that their Lordships affirmed the decision of the Bombay High Court taking the view that such a point of law which was raised by the assessee, for the first time before the High Court could be taken into consideration, as the question was wide enough to include the point. The question which came up before the Bombay High Court runs as follows-
'Whether in view of the fact that the fourth proviso to Section 10 (2) (vii) of the Indian Income Tax Act did not apply to the assessment for the assessment year 1945-46 and under the law in force as applicable to that assessment year the sum of Rs. 9,26,532 which accrued in the previous year relevant to that assessment year was not taxable at all and thefact that having regard to the assessee's method of accounting the said sum should not be assessed in any other year, the assessment in respect of the said sum in the subsequent assessment year 1946-47 was valid In law?'
It if necessary to quote certain observations of their Lordships of the Supreme Court in the aforesaid case which may be helpful for decision of the instant reference. At p. 812 of the report (ITR): (at pp. 1645-1646 of AIR) it hat been observed as follows:--
'All that Section 66 (1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal.' Further their Lordships have said:'It is no doubt true that some times the questions are framed in such general terms that, construed literally, they might take in questions which were never in issue. In such cases, the true scope of the reference will have to be ascertained and limited by what appeal's on the statement of the case. In this connection, it is necessary to emphasize that, in framing questions, the Tribunal should be precise and indicate the grounds on which the questions of law are raised. Where, however, the question it sufficiently specific, we are unable to see any ground for holding that only those contentions can be argued in support of it which had been raised before the Tribunal. In our opinion, it is competent to the court in such a case to allow a new contention to be advanced, provided it is within the framework of the question at referred:'
From this observation it appears clear that the question as referred to before, was sufficient to allow a new contention on the point of law as aforesaid which fell within the framework of the question. Further, it appears that their Lordships summed up their decision at p. 611 (of ITR): (at p. 1845 of AIR) by enumerating four points to show as to what would constitute a question arising out of the order of the Tribunal. In point No. 4 it has been said that when a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it, In the instant case it has been seen that no such question of law was raised before the Tribunal, nor was there any finding by the Tribunal to the effect that on proper construction of the trust deeds, the pensionary benefits given to Mrs. Harvey would come within the ambit of Section 10 (2) (xv). Furthermore, it appears in terms of the Supreme Court decision that such a question was not in issue before the Tribunal and as such we may say at once that the question which is now sought to be argued by Mr. Pal cannot be availed of by him in view of the limited nature of the question. It is apparent that the Supreme Court considered in the Scindia Steam Navigation case, 1981 42 ITR 589: (AIR 1981 SC 1838) thatthe question was wide enough because a pure question of law was raised for the first time by me assessee which, according to the Supreme Court, could cover the question which was raised before the High Court by the Tribunal Such is not the case here. Further, we maysay in this connection that the question whether a pension granted to the widow of an employee would be an allowable expenditure raises a mixed question of law and fact. There is no finding on this mixed question of law and fact by the Tribunal, and following the observation of the Supreme Court, it may be said that the question does not arise out of the order of the Tribunal.
21. In so far as this aspect of the matter is concerned Mr. Pal has further argued that the discussion of the point raised by him and a finding thereon by this Court would come within the ambit of point No. 1 as well, stated at p. 611 (of ITR): (at p. 1645 of AIR) of the said Supreme Court judgment. It runs as follows:--
'(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.'
We have already said that such a question was aot raised at all before the Tribunal and the mere fact that the trust Deeds were before it cannot give rise to a conclusion that any question as to non-deductibility of an expenditure made towards the pension of an employee's widow was actually raised.
22. In this connection Mr. Pal appearing for the assessee company has referred us to a decision reported in Kamlapat Motilal v. Commissioner of Income-tax, U. P. and V. P. : 45ITR266(SC) . It has been observed at p. 270 as follows :--
'It is obvious that Sub-section (4) of Section 66 cannot do service for Sub-section (2) thereof. If the assessee was dissatisfied with the order of the Tribunal refusing to state a case on certain questions the clear duty of theassessee was to move the High Court under Sub-section (2) of Section 66 within the time allowed by law.'
We have already said that a question was suggested before the Tribunal specifically on this point, but it was never pursued by an application under Section 66 (2) of the Act and as such it cannot be said that this question No. 2 is wide enough to include a question whether the pension paid to a widow of an employee should he a revenue expenditure. The matter involved in the question simply is whether the expenditure made in the accounting year is a revenue expenditure. As such we are of opinion that the question is of a limited nature and it cannot be agitated that it is of a capital nature.
23. Mr. Pal has argued that this should prima Facie be treated as a capital expenditure and a decision in favour of the Revenue should be made for the reason that the matter raises a pure question of law, inasmuch as there are certain English and Indian decisions to show that a payment of pension to a widow should be in the nature of capital expenditure. In thefirst instance, he has cited before us the case reported in Alexander Howard and Co. Ltd. v. Bentley (1948) 30 Tax Cas 334. The headnote of the case runs as follows:--
'The appellant company was formed in 1933 to take over a business carried on by H. who became governing director. In the discussions leading up to the formation of the company, the questions of the sale, the remuneration to be paid to H. and an annuity to be paid to his widow, were all discussed and decided at the same time. H originally demanded a salary of 3000 per annum, but later agreed to accept 2000 per annum provided that an annuity was secured to his widow. The articles of association of the company, and the service agreement entered into by H. provided for the payment of his widow (if any) of an annuity of 1000 per annum so long as his legal personal representatives held at least 10,000 shares. The directors later considered that the obligation to pay this annuity would be detrimental to the company, if it wanted to dispose of its business, and in 1943 H surrendered all right to the annuity in consideration of the payment to Mm by the company of 4500.
On appeal against an assessment to Income Tax under Case 1 of Schedule D for the year 1944-45, the company contended that the sum of 4500 was allowable as a deduction in computing its profits for Income Tax purposes. The Special Commissioners dismissed the appeal.
Held by the High Court that the deduction claimed was not allowable.'
It will appear from the judgment of Singleton, J. that he accepted the findings of fact made by the Commissioners. The Commissioners' finding runs as follows:
'by 1943 two of Mr. A.C. Howard's brothers had ceased to be directors but Mr. A.C. Howard and his brother Mr. F.V. Howard were still directors. The reasons which prompted the board of directors of the Appellant Company then to obtain the release of the annuity were that the existence of the contingent annuity would be detrimental to the Appellant Company, if it wanted to dispose of its business; the question had frequently been discussed prior to June, 1943, and there was no special reason making it particularly advisable at that date to redeem the annuity beyond the fact that something might have happened to Mr. A.C. Howard which would have made the annuity payable. The amount of 4500 was based upon the actuarial valuation and was considered by the board to be a fair figure.'
In paragraph (3) the Commissioner found as follows:
'In these circumstances we find that the sum paid by the Appellant Company to redeem the annuity was paid to free the Company from a contingent obligation which Mr. Howard admitted in evidence would be a big handicap in the event of a sale of the business and which would decrease the value of the assets, and we find that the Company secured an enduring advantage thereby. Accordingly we hold that it is not allowable as a deduction on revenue account and we dismiss the appeal.'
Mr. Pal has contended before us that the Commissioners really came to two findings, namely, that an annuity for the benefit of the widow of an employee was not an admissible deduction and, further, that the company which had paid out the sum of 4500 for avoiding the contingent liability of paying the pension after the death of Mr. Howard was also accordingly not an admissible deduction. We should confine our attention to the decision made by the High Court in this case. At p. 341 Singleton, J. has quoted the observation of the Commissioners which runs as follows:
'In order to decide whether the sum paid to obtain the release of the annuity is properly allowable as a deduction, we are obliged to consider whether or not the annuity itself would have been properly chargeable to revenue account.'
The learned Judge observed:
'That is quite right: they set out that question, but, so far as I can find, they do not answer it directly.'
Accordingly, we cannot accept the contention of Mr. Pal that the Commissioners also decided on the point whether an annuity was not an admissible deduction. Singleton, J. observed further at p. 342 as follows:--
'Again, I am not sure that it is wholly right to say that the provision of the annuity had no connection with the services to be rendered by Mr. Howard, but I have referred to the findings generally and they may be summarised In this way on this part of the case. They, the Commissioners, did not find that the annuity was part of the consideration for the sale of the business.'
From this observation it is also, clear that Singleton, J., did not make any clear finding whether an annuity as made out on the facts of the case was admissible as deduction or not. This decision was made on the ground that theassessee's claim for deduction was to be negatived on the ground that the company obtainedan additional advantage of an enduring character, inasmuch as they were not required to pay the annuity to the widow of Mr. Howard. Mr. Pal, however, relies upon the observation of Singleton, J., which runs as follows:
'The way in which I look at the case is this. Mr. Alexander Charles Howard owned a business; he decided to hand that business over to a company upon terms as to remuneration for himself and his brothers as managing directors and upon terms as to dividend provided for in the agreement together with further terms as to commission, and one provision he wished to be made was a pension or annuity for his widow in the event of his death, and to that term his brothers agreed. The position, in my view, is different from the case of a company providing an annuity or pension for an employee, for the wife of Mr. Alexander Charles Howard had nothing whatever to do with the company. There were various reasons entering Into the mind of Mr. Alexander Charles Howard as to why he wanted to provide for her in that way but it cannot be said that in theevent of the annuity becoming payable to herit would have been money wholly or exclusively laid out or expended for the purpose of trade.'
24. Mr. Pal contends that this observation would go to show that not only Singleton J., came to the conclusion on the first aspect of the case as stated before, but also on the ground that the payment of pension to a widow cannot form part of a deductible expenditure. The question is whether this observation by Singleton J., can be construed to be an abstract proposition in law which may be used against the assessee's claim in the instant case. Mr. Pal has referred us to the observation of the Supreme Court as reported in : 37ITR66(SC) . Their Lordships at p, 78 (of TTR): (at P 1058 of AIR) observed as follows:
'No doubt, under the general terms of the policy an annuity was to be provided for the Harveys. We are not concerned with Mrs. Harvey because she had no claim to the annuity or pension any more than Mrs. Howard had in (1948) 30 Tax Cas 334, already discussed by us elsewhere. That consideration involves a finding on whether an annuity to Mrs. Harvey was an expense made wholly and exclusively for the purpose of the business and that is not a matter open to us by a limited question posed. In any event, the provision for a pension or annuity to Mrs. Harvey cannot rank higher than an annuity to Mr. Harvey and the matter can be considered on the limited aspect that a pension and annuity to Harvey was also contemplated.'
25. We do not think that this observation can also be considered as a proposition of law as their Lordships were not called upon to decide, in view of the limited question posed, whether the annuity paid to Mrs. Harvey was an expense made wholly and exclusively for the purpose of business. We may observe here that in spite of this observation by Supreme Court, no steps were taken on behalf of the Revenue to agitate this point before the Tribunal and as their Lordships have not decided as to whether the annuity is deductible or not on the analogy of Alexander Howard's case, (1948) 30 Tax Cas 334, we consider that such an observation is of no assistance to the Revenue. Nor do we think that simply by making this observation their Lordships have enunciated any abstract proposition of law as to whether an annuity available to the widow of an employee comes within the ambit of Section 10(2)(xv).
26. Mr. Pal has in this connection referred to us the case reported in : 46ITR715(Cal) , Commissioner of Income Tax, Calcutta v. Anderson Wright Ltd. In this decision 'it appears that it was decided, relying on the Supreme Court decision in : 37ITR66(SC) , that as an expenditure was not incurred to meet any actual existing liability but only amounted to setting apart of money for contingent and future liability, it was not allowable under Section 10(2)(xv). It was also held that the provision for payment of pension to the wife was not, in any event, an expenditure incurred for the purpose of this business and was not allowable. It will appearthat before this Court (G.K. Mitter and Ray JJ.) it was argued on behalf of the assessee that the Commissioner should not be allowed to contend that the payment to Mrs. Hook in the event of the death of her husband was not an expenditure wholly and exclusively for the purpose of the business, because it was a question of fact as to whether it was so required and the Commissioner did not raise the contention as to this fact before the Revenue authorities. As to this contention made by the assessee, it appears that their Lordships did not come to a decision but in the concluding portion of the judgment Ray J., observed as follows:
'In my opinion, the contention on behalf of the Commissioner does not challenge any finding of fact but assails the contention of the Tribunal on the ground that the payment of pension to the wife is not incurred wholly and exclusively for the purpose of the business. To my mind, it appears that the Tribunal was not justified in allowing the deduction inasmuch as there is no finding of fact to support the contention that payment of pension to Mrs. Hook was incurred wholly and exclusively for the purpose of business and secondly, that the decision in Howard's case is an authority for the proposition that provision for payment of pension to the wife is not an expenditure for the purpose of trade.'
27. We refrain from making any observation as to the conclusions arrived at by their Lordships of this Court as the question which has arisen before us is whether it has been decided in Howard's case (1948) 30 Tax Cas 334, as a proposition of law that an annuity payable to the widow is not an allowable expenditure.
28. At the next place we may refer to a decision of another Division Bench of this Court reported in : 49ITR57(Cal) , Andrew Yule and Co. v. Commissioner of Income Tax, Calcutta. Their Lordships had to decide in this case whether a compensation paid to the widow of an employee of the assessee on account of his accidental death should be treated as a deductible expenditure under Section 10(2)(xv) of the Act. Their Lordships negatived the contention of the assessee. It has been observed by G.K. Mitter J., as follows fat P. 70):
'Mr. Meyer relied on the above Howard's case, (1948) 30 Tax Cas 334, in support of his contention that the payment to the widow of an employee can never be deductible as an expense under Section 10(2)(xv). I doubt whether the proposition in such wide terms is justified.
Speaking for myself, I cannot hold that the payment of compensation to the widow of Mr. Cameron on the facts of this case is an expense laid out wholly for the purpose of the assessee's business. The Company certainly behaved very generously towards the widow of a person who has served it faithfully and efficiently for many years. His death in the circumstances attending it was a great tragedy. The loss of this valuable life certainly affected both the assessee and Mr. Cameron's dependants very seriously. It cannot be denied that the payment of the compensation was likely to engender a feeling in the minds of other servants of the assessee that the Company would look after their dependants if anything untoward happened to them. However this may be, I fail to see how the payment can be sought to be an expense incurred for the Company's business. If Mr. Cameron had met his death in the course of a trouble for the purpose of the Co.'s business, the more so if the conditions in the country were so unsettled at the time as would lead one to hold that Mr. Cameron was taking a risk in the interest of the Co., reasonable compensation paid to his widow for the loss of his life might be a justifiable expense. Nothing of the kind however happened here. Mr. Cameron's death had nothing to do with the object or purpose of the Company'.
29. From the above it is quite clear that their Lordships expressed a doubt whether the observation made in Howard's case, (1948) 30 Tax Cas 334, was an abstract proposition of law. Furthermore, there is an observation by their Lordships that compensation paid to a widow might be allowable expenditure under Section 10(2)(xv) of the Act if the employees met with his death while proceeding to perform his duties for the assessee Co. In view of these observations, it cannot be said that Howard's case (1948) 30 Tax Cas 334, contemplates an abstract proposition of law negativing the assessee's claim in respect of such payments to the widows of the employees.
30. In view of this decision in the above case we consider that in the earlier decision referred to before no abstract proposition of law was enunciated by Ray J., and that his Lordship perhaps entered into this aspect as the question posed there was large enough to bring it within its scope.
31. In the above premises, we are of the opinion that the observation of Singleton J., in Howard's case (1948) 30 Tax Cas 334, cannot be taken as an abstract principle of law which were based on the findings of fact arrived at by the Commissioners.
32. Apart from this, we have already stated that as the point now urged before us did not arise out of the order of the Tribunal, this cannot be agitated here, nor can it be said that the points as raised is covered by question No. 2. Moreover, we have already observed that the point as raised by Mr. Pal involves a mixed question of fact and law and unless there is a finding by the Tribunal in this regard, specially with regard to the facts, we cannot say that the point as raised by Mr. Pal arises out of the order of the Tribunal.
33. In the above premises, question No. 1 is answered in the affirmative and question No. 2 is also answered in the affirmative. The applicant Commissioner of Income Tax, West Bengal, Calcutta will pay costs to the respondents.
34. I agree.