INDIAN MOLASSES CO. (PRIVATE) LTD. versus THE COMMISSIONER OF INCOME-TAX, WEST BENGAL.

Citation: [1959] SUPP. 2 S.C.R. 964 · Decided: 05-05-1959 · Supreme Court of India · Bench: BHUVNESHWAR PRASAD SINHA · Disposal: Dismissed

Judgment (excerpt)

'959 
May 5. 
964 
SUPREME COURT REPORTS 
[1959] Supp. 
THE INDIAN MOLASSES CO. (PRIVATE) LTD. 
v. 
THE COMMISSIONER OF INCOME-TAX, WEST 
BENGAL. 
(B. P. SINHA, J. L. KAPUR and 
M. HIDAYATULLAH, JJ.) 
Income-tax-Deduction -
Business expendit11re-Payment of 
sums for getting annuities to provide pension-Liability depending 
on contingency-Expenditure, meaning of-Indian Income-tax Act, 
z922 (XI of z922), s. Io(2)(xv). 
With a view to provide a pension to H who was the manag-
ing director of the appellant company, after his retirement at 
the age of 55 years on September 20, 1955, the company executed 
a trust deed on September 16, 1948, in favour of three trustees 
to w horn the company paid a sum of Rs. l,09,643 and further 
undertook to pay annually Rs. 4,364 for six consecutive years. 
The trustees undertook to hold the said sums upon trust to spend 
the same in taking out a Deferred Annuity Policy with an Insur-
ance Society in the name of the trustees but on the life of H 
under which a certain sum of money was payable annually to H 
for life from the date of his superannuation. It was also pro-
vided in the deed that notwithstanding the main clause the 
trustees would, if so desired by the company, take out instead a 
different kind of policy for the benefit of both H and his wife, 
with a further provision for H's wife should H die before he 
attained the age of 55. On January 12, f949, the trustees took 
out a policy, wherein the amount of Deferred Annuity to be paid 
per annum was fixed according as whether both H and his wife 
were living on September 20, 1955, or one of them died earlier. 
The policy also contained, inter alia, two clauses: "(1) Provided 
the contract is in force and unreduced, the Grantees (i. e., the 
trustees) shall be entitled to surrender the Annuity on the Option 
Anniversary (i.e., Sept. 20, 1955) for the Capital sum of£ 10,169 
subject to written notice of the intention to surrender being 
received by the Directors of the Society within the thirty days 
preceding the Option Anniversary. (2) If both the Nominees 
shall die whilst the Contract remains in force and unreduced and 
before the Option Anniversary the said funds and Property of 
the Society shall be liable to make repayment to the Gran tees 
of a sum equal to a returu of all the premiums which shall have 
been paid under this Contract without interest after proof 'there-
of and subject as hereinbefore provided." 
The appellant company paid the initial sum and the yearly 
premia for some years before H died. 
For the assessment years 
1949-50, 1950-51, 1951-52 and 1952-53, the appellant claimed a 
deduction of these sums from its profits _or gains under s. l0(2)(xv) 
(2) S.C.R. SUPREME COURT REPORTS 
965 
of the Indian Income-tax Act, 1922, but the Income-tax authori-
z959 
ties disallowed the claim on the ground that the sums claimed 
did not amount to expenditure within the meaning of the section. 
The Indian 
The appellant's contention was that payment of pension was an 
Mo~asses Co. 
expenditure of a revenue character and so also the payment of a 
(Prwate) Ltd. 
lump sum to get rid of a recurring liability to pay such pension 
v. 
and that expenditure on insurance was not contingent, because The Commissioner 
though the contingency related to life and depended on it, the 
of Incorpe-tax, 
probabilities were estimated on actuarial calculations and, that 
West Bengal 
the expenditure was, therefore, real. 
Held, that expenditure which is deductible for the purposes 
of income-tax under s. ro(2)(xv) of the Indian Income-tax Act, 
1922, is one which must be towards a liability actually existing 
at the time, but the putting aside of money which may become 
expenditure on the happening of an event is not expenditure. 
In the present case, on the terms of the deed of trust, money 
was placed in the hands of trustees for the purchase of annui-
ties of different kinds, if required, but to be returned if the 
annuities were not bought, and the clauses in the policy taken 
out by the trustees showed that till September 20, 1955, the 
appellant had dominion through the trustees over the premia 
paid. The payment to the trustees was therefore towards a liabi-
lity depending on a contingency. Consequently, the amount 
claimed was not liable to be deducted as an expenditure under 
s. ro(2)(xv) of the Act. 
Cases on English Income-tax law reviewed. 
CIVIL 
APPELLATE 
JURISDICTION: 
Civil Appeal 
No. 395 of 1957. 
Appeal by special leav

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