Appeal No 395 of 1957
Appeal by special leave from the judgment and order dated December 21 1955 of the Calcutta High Court in Income tax Reference No 15 of 1954
A C Sampath Iyengar Dipak Dutta Choudhury and B N Ghosh for the appellant
MC Setalvad Attorney General for India R Ganapathy Iyer B H Dhebar and D Gupta for the respondent
May 5
The Judgment of the Court was delivered by HIDAYATULLAH J
The Indian Molasses Co Private Ltd Calcutta hereinafter called the assesses Company have brought this appeal with the special leave of this Court granted on November 9 1956 against the judgment of the High Court of Calcutta dated December 21 1955 in Income tax Reference 966 No 15 of 1954
The question of law referred to the High Court was  Whether on the facts and in the circumstances of the case and on a true construction of the Trust Deed dated 16th September 1948 and the Policy dated the 13th January 1949 the payments made by the assessee Company and referred to in paragraph 4 above constitute expenditure  within the meaning of that word in section 102xvof the Indian Income tax Act 1922 in respect of which a claim for deduc tion can be madesubject to the other conditions mentioned in that clause being satisfied 
The question was answered in the negative
The facts of the case are as follows One John Bruce Richard Harvey was the Managing Director of the assessee Company in 1948
He had by then served the Company for 13 years and was due to retire at the age of 55 years on September 20 1955
There was it appears an agreement by which the Company was under an obligation to provide a pension to Harvey after his retirement
On September 16 1948 the Company executed a Trust Deed in favour of three trustees to whom the Company paid a sum of pound 8208 19 0 Rs 109643 and further undertook to pay annually Rs 4364 pound 326 14 sh for six consecutive years and the trustees agreed to execute a declaration of trust
The trustees undertook to hold the said sums upon trust 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 Harvey under which pound 720 per annum were payable to Harvey for life from the date of his superannuation
It was also provided in the deed that notwithstanding the main clause the trustees would if so desired by the assessee Company take out instead a deferred longest life policy with the said Insurance Company in their names but in favour of Harvey and Mrs Harvey for an annuity of pound 558 1 0 per annum payable during their joint lives from the date of Harvey s superannuation and during the lifetime of the survivor provided further that if Harvey died before he attained the age of 55 years the 967 annuity payable to Mrs Harvey would be pound 611 12 0 during her life
It was further provided that should Harvey die before attaining the age of 55 years the trustees would stand possessed of the capital value of the Deferred Annuity Policy
upon trust to purchase therewith an annuity for Mrs Harvey with the above 2 Insurance Company or another Insurance Company of repute
The other conditions of the deed of trust need Dot be considered because they do not bear upon the controversy
In furtherance of these presents the trustees took out a policy on January 12 1949
In addition to conditions usual in such policies it provided for the following benefits Amount per annum of deferred Annuity pound 563 5 8 p a if both Mr and Mrs Harvey be living on September 201955
pound 720 0 0 p a if MrsHarvey should die before September 20 1955 leaving Harvey surviving her
pound 645 0 0 p a if Harvey should die before September 20 1955 leaving Mrs Harvey surviving him
There was a specialprovision which must be reproduced  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 ie Sept 20 1955 for the Capital sum of pound 10169 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
 Two other clauses of the second schedule of the Policy may also be quoted III If both the Nominees shall die whilst the Contract remains in force and unredressed and before the Option Anniversary the said funds and Property of the Society shall be liable to make repayment to 968 the Grantees of a sum equal to a return of all the premiums which shall have been paid under this Contract without interest after proof thereof and subject as hereinbefore provided
IV The Grantees shall before the Option Anniversary and after it has acquired a Surrender Value be entitled to surrender the Contract for a Cash Payment equal to a return of all the premiums at the yearly rate which have been paid less the first year s premium or five per cent
of the Capital Sum specified in the Special Provision of the First Schedule whichever shall be the lesser sum provided that if the Deferred Annuity has been reduced an equivalent reduction in the guaranteed Surrender Value as calculated above will be made
 The assessee Company paid the initial sum and the yearly premia for some years before Harvey died
In the assessment years 1949 50 1950 51 1651 52 and 1952 53 it claimed a deduction of these sums from its profits or gains under section 102xv of the Indian Income tax Act hereinafter called the Act which provides  Such profits or gains shall be computed after making the following allowances namely any expenditure not being in the nature of capital expenditure or personal expenses of the assessee paid out or expended wholly and exclusively for the purposes of such business profession or vocation
 This claim was disallowed by the Department and the Appellate Tribunal
The Tribunal held that it was not necessary to decide if the expenditure was wholly or exclusively for the purposes of the Company s business and if so whether it was of a capital nature because in the Tribunal s opinion there was no expenditure at all
The reason why the Tribunal held this way may be stated in its own words  Clauses 1 and II do not contain any provision having a material bearing upon Clause 111
Therefore if it happens that both Mr and Mrs Harvey die before 20th September 1955 all the payments till made through the Trustees to the Insurance Society will come back to the Trustees and as there is not the 969 slightest trace of any indication anywhere that the Trustees should have any beneficient interest in these moneys there would be a resultant trust in favour of the Company in respect of the moneys thus far paid out
In other words what has been done amounts to a provision for a contingency which may never arise
Such a provision can hardly be treated as payment to an employee whether of remuneration or pension or gratuity and cannot be a proper deduction against the incoming of the business of the Company for the purpose of computing its taxable profits
In short there has been no expenditure by the Company yet there has been only an allocation of a part of its funds for an expenditure which may or may not have to be incurred in future  The Tribunal however referred the above stated question for the opinion of the High Court
The High Court noticed the limited scope of the question and pointed out that the Tribunal had stated at the end of the Statement of the Case  In the event of the High Court holding that there was an expenditure in this case it would still be necessary for the Tribunal whether the money was laid out or expended wholly and exclusively for the purposes of the assesses  business and if so whether the expenditure was in the nature of capital or revenue expenditure
 The learned Chief Justice of the Calcutta High Court Sarkar J concurring felt the difficulty of the ques tion
He analysed the ingredients of cl
xv and pointed out that the question referred to but one such ingredient
The Divisional Bench however did not call for an additional statement of fact or ask that the rest of the matter be referred so that the whole of the question involved might get disposed of It observed   This Court has always construed questions referred to it with a certain degree of strictness and has not allowed any point to be canvassed before it which had not been raised before the Appellate Tribanal and which was not covered by the Tribunal s 122 970 appellate order
I am therefore of opinion that the question should be taken as covering only the ground upon which the Tribunal held the payments to be not allowable as deductions as not embracing any other ground
 We must express our regret that the case took the course it did
The order of assessment was passed as far back as 1952 and seven years have now passed during which only one question out of three is before the Courts for decision
Section 102xv was analysed by the learned Chief Justice in these words  It will be noticed that three ingredients of the clause lie on the surface of its language
In order that a deduction may be claimed under its provisions it must be proved first that there was an expenditure secondly that the expenditure was not in the nature of a capital expenditure I am leaving aside the personal expenses and thirdly that it was laid out or expended wholly and exclusively for the purposes of the assessee s business I am leaving out profession or vocation
 We must not be understood as finding fault with the Divisional Bench
It decided the question as framed
It is the Tribunal which referred the question in this form keeping to itself the right to decide about the other ingredients of the clause later
Whether the question can be answered in the bland form it is posed is a matter to which we will have to address ourselves presently
But it appears to us that this is a very unsatisfactory way to go about the business
Perhaps the Tribunal decided this case in this way and referred the question it did because it felt that if this Court in Allahabad Bank Ltd vs Com missioner of Income tax West Bengal 1 was able to decide whether a particular outlay was  expenditure  without reference to the other ingredients of cl
xv the same could be done in this case also
That case however was very different in its facts
There certain contributions on trust for payment of pensions to employees were held not to be I expenditure  because on the original trust failing the money was 1  971 deemed to be held by the trustees on a resulting trust for the benefit of the maker
If the same can be said in this case namely that the money continued to belong to the assessee Company in the account years its payment to the trustees or the Insurance Company notwithstanding there may be a possibility of answering the question as was done in the decision of this Court cited earlier
But if such a clear cut proposition cannot be laid down then obviously there is considerable difficulty in deciding what is I expenditure  within the clause without reference to the rest of its provisions
Of course to find the meaning of the word I expenditure  a dictionary is ill that is needed but to go further and to decide whether the outlay in this case was I expenditure  the context in which the word is used in the clause cannot successfully be left out
Mr Sampath Iyengar for the assessee Company complained before us of the narrowness of the question though before the High Court be was opposed to any extension of the ambit of the question
The following passage from the judgment of the Chief Justice shows the respective attitudes of the Department and the assessee Company before the Bench  Mr Meyer contended that language entitled him to argue not only that there had been no expenditure in fact at all but also that even assuming that there bad been an expenditure in the sense of a physical spending still the expenditure was not such as could be claimed as an allowance under the clause against the profits of the relevant accounting year in view of the fact that it was in any event an expenditure made to meet a contingent liability
Mr section Iyengar who appeared on behalf of the assessee objected to the scope of the question being so enlarged and he referred to the appellate order of the Tribunal which had proceeded on a single ground
 The learned Attorney General who appeared for the Department at once conceded the difficulty of answering the question but contended that the question in its present form could be answered though he agreed that if it could not the Court would be free to say so
972 We cannot help saying that though the Tribunal may be at liberty to decide a case as appears best to it there is considerable hardship to the tax payers if questions of law are decided piecemeal and repeated references to the High Court are necessary
The jurisdiction of the High Court is advisory and consultative and questions of interpretation of the law in this attenuated form can well be avoided
This will tend to cut down the duration of litigation
In deciding that the payment of the lump sum and premia was not expenditure  different views were expressed as the case progressed
The Income tax Officer held that in the absence of a written agreement covering the conditions of service remuneration etc the arrangement could only be taken as a provision for a gratuity more so as there was a provision in the deed of trust for payment of an annuity to Mrs Harvey in the event of Harvey s demise
According to him there were so many alternative arrangements for the disbursement of the money laid out that it was impossible to say what shape the annuity would ultimately take and till certain events happened the I expenditure  was not effective
Following therefore the case in Atherton vs British Insulated and Helsby Cables Ltd 1 and distinguishing Hancock vs General Reversionary and Investment Co Ltd 2 the claim for deduction was rejected by the Income tax Officer
The Appellate Assistant Commissioner considered that in the absence of an agreement the payment must be regarded as an ex gratia payment of a capital nature so Iona as the trust intervened
The Appellate Assistant Commissioner also commented upon the existence of a provision for Mrs Harvey s pension which could not be a part of the agreement
He was thus of the opinion that the case fell within the rule laid down in Atherton s case 1
This opinion of the Tribunal which has already been reproduced earlier was shortly that there was no expenditure  yet and this was only an allocation of funds for an I expenditure which might or might not be incurred in the future
The High Court analysed the terms of the deed of 1 2 973 trust and pointed out that there were two contingencies in which money was likely to revert to the assessee Company
The first contingency was if both Harvey and Mrs Harvey died before September 20 1955
The second contingency was due to an omission in el
III to provide for a pension to Harvey if Mrs Harvey died before the above date
In that event the trust would have failed unless a policy was taken out under 61
The High Court held that if any of these two circumstances happened then there would have been a resulting trust in favour of the assessee Company and it would have been entitled to get back all the money laid out by it
We must say here that the High Court was in error as to the second of the two contingencies because the policy which was taken out provided for all the three alternatives and pension was payable to both or either survivor though in different sums
Even in the trust deed the three alternative pensions were provided as follows pound 720 if the annuity was payable to Harvey alone or pound 558 1 0 during the joint lives of both or survivor or pound 611 12 0 to Mrs Harvey if Harvey died before September 20 1955
The special provision in the policy however covered the first contingency of both the prospective annuitants dying before September 20 1955 and if that happened the assessee Company would have if it chose to surrender the policy got back the sum of pound 10169 subject to a written notice of the intention to surrender being received by the Insurance Company within thirty days preceding September 20 1955
The High Court then observed in addition that there was no  instant necessity  for the expenditure nor was the money laid out for a business purpose of an instant character  nor did it bring in a present asset which would always remain an asset in that form the money having gone for ever 
The High Court pointed out that there was always a possibility of a resulting trust in favour of the Company and the money could not therefore be held to have been ex pended
The conclusion of the High Court therefore was that the assessee Company must be held to have 974 set apart I tentatively  a sum of money in order that it might be available for the payment of a I gratuity  to Harvey and Mrs Harvey but there being I no provision for the application of the money in the event of those contingencies not occurring and no annuity being payable to any one  there was no I expenditure  in any real and practical sense of the term 
The arguments in this appeal have ranged as they did before the High Court over a very wide field
No useful purpose will be served in following them through all their convolutions
The main points urged on behalf of the assessee Company are that payment of pension is an expenditure of a revenue character and so also the payment of a lump sum to get rid of a recurring liability to pay such pension
This is illustrated from some English cases and reference is made also to Ch
IX B of the Act
It is also submitted that in so far as payment by the assessee Company was concerned it was in point of fact made and this was I expenditure  within the dictionary meaning of the word
The argument of the Department is that by I expenditures meant a laying out of money for an accrued liability and not for a contingent liability which contingency may or may not take place that the present arrangement was only a setting apart of money for a Contingent liability and till the liability became real there was no expenditure
The assessee Company however contends that expenditure on insurance is not contingent because though the contingency relates to life and depends on it the probabilities are great being estimated on actuarial calculations and the expenditure is real
Both sides rely on a large number of English decisions
We shall now consider the arguments in detail and refer to those authorities which are relevant
In dealing with cases expounding the English In
come tax law it must always be borne in mind that the scheme of legislation there is not the same as in our country
No doubt a certain amount of assistance can with caution be taken from them but the  problems under our Income tax laws must be resolved in the ultimate analysis with reference to our laws
975 It has been ruled under the English statute that sums paid to an employee as pension or gratuity are deductible as money laid out and expended for the purpose of trade profession or vocation
See Smith vs Incorporated Council of Law Reporting for England and Wales 1
It has also been ruled that a single payment to avoid the recurring liability of an employee s pension is also a proper deduction
The leading case on the subject is Hancock vs General Reversionary and Investment Co Ltd 1
In that case the taxpayer was under a liability to pay a pension to a retired actuary and pension had in fact been paid for some years
Subsequently the tax payer purchased an annuity for the employee which he accepted in place of his pension
The sum paid in purchasing the annuity was allowed as a deduction in computing the tax payer s profits it being held that it was money wholly and exclusively laid out or expended for the purposes of the trade profession or vocation
On the other hand a sum which a company put into a fund for the relief of invalidity etc was held not to be an admissible deduction and the case last cited was distinguished
See Rowntree  Co Ltd vs Curtis 3
Pollock M R drew pointed attention to the words of Lush J in the earlier case where lie observed at p 698 It seems tome as impossible to hold that the fact that a lump sum was paid instead of a recurring series of annual payments alters the character of the expenditure as it would be to hold that if an employer made a voluntary arrangement with his servant to pay the servant a year s salary in advance instead of paying each year s salary as it fell due he would be making a capital outlay and added that Lush J had described the actuarial payment made in Hancock s case 2 as a pension in another form which could not be said of the invalidity claims for which were wholly uncertain
Warrington L J pointed out that the test to apply was first 1  2 3  976 whether there was an expenditure which he held there was and next whether it could be said to be wholly and exclusively for the purposes of the trade which in his opinion could not be said of the expenditure in that case
The words of the learned Lord Justice on the first proposition have a bearing upon the present case and may be reproduced hereat p 703  I am inclined to agree with Mr Latter in his contention that the money has actually been expended
There is nothing like a resulting trust in favour of the company although there is that provision which I have already called attention to in the trust deed that one of the things which might be done would be to abrogate altogether the trust or the provisions of the deed and to substitute other rules and provisions
But it seems to me that cannot be said to be a resulting trust in favour of the company having regard to the other objects which are pointed out as those to which the scheme was directed Similarly a sum of money paid to the trustees to form a nucleus of a pension fund for the benefit of some of its employees by a company was also not held to be an admissible deduction in Atherton s case 1
Viscount Cave L C recalled the test laid down in a rough way by Lord Dunedin in Vallambrosa Rubber Co vs Farmer 2 at p 192 that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing which is going to recur every year  but added that it was not and was not meant to be a decisive test
The Lord Chancellor observed however that  when an expenditure is made not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade I think that there is very good reason in the absence of special circumstances leading to an opposite conclusion for treating such an expenditure as properly attributable not to revenue but to capital 1 2 977 Again in Morgan Crucible Co Ltd vs The Commissioners of Inland Revenue 1 the payment to an insurance company to take out a policy was held not to be an admissible deduction
There the company operated a scheme for payment of pensions to retired or incapacitated employees reserving to itself the uncontrolled discretion to vary or cease payment of pensions
When pensions were paid they were deducted but when the company took out a policy without informing their employees for payment to itself of annuities equal to the pensions it was held that by this the company had acquired an asset and this was in the nature of a capital asset
Rowlatt J in distinguishing Hancock s case 2 observed that unlike that case the liability to pay pensions was not got rid of and that the company had acquired an asset
The learned Judge continued at p 317  It is true they have got an asset which would give them in all probability nothing on balance because they use it to pay these pensions but they have got an asset they had not any pension fund to pay these pensions with and now they have got an insurance company which will in the future not extinguish the liability but countervail it and they have got the command of this policy to the extent that they are entitled to get their capital money say  capital money  without prejudice back from the insurance company on surrendering the policies
 From these cases there are deducible certain principles of a fundamental character
The first is that capital expenditure cannot be attributed to revenue and vice versa
Secondly it is equally clear that a payment in a lump sum does not necessarily make the payment a capital one
It may still possess revenue character in the same way as a series of payments
Thirdly if there is a lump sum payment but there is no possibility of a recurrence it is probably of a capital nature though this is by no means a decisive test
Fourthly if the payment of a lump sum closes the 1   317
2 123 978 liability to make repeated and periodic payments in the future it may generally be regarded as a payment of a revenue character Anglo Persian Oil Co Ltd vs Dale 1 and lastly if the ownership of the money whether in point of fact or by a resulting trust be still in the tax payer then there is acquisition of a capital asset and not an expenditure of a revenue character
Side by side with these principles there are others which are also fundamental
The Income tax law does not allow as expenses all the deductions a prudent trader would make in computing his profits
The money may be expended on grounds of commercial expediency but not of necessity
The test of necessity is whether the intention was to earn trading receipts or to avoid future recurring payments of a revenue character
Expenditure in this sense is equal to disbursement which to use a homely phrase means something which comes out of the trader s pocket
Thus in finding out what profits there be the normal accountancy Practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits
But the Income tax laws do not take every such allowance as legitimate for purposes of tax
A distinction is made between an actual liability in praesenti and a liability de futuro which for the time being is only contingent
The former is deductible but not the latter
The case which illustrates this distinction is Peter Merchant Ltd vs Stedeford 2
No doubt that case was decided under the system of Income tax laws prevalent in England but the distinction is real
What a prudent trader sets apart to meet a liability not actually present but only contingent cannot bear the character of expense till the liability becomes real
We may here refer to two other cases
In Alexander Howard  Co Ltd vs Bentley 3 a business of blouse and gown manufacture was carried on by one A C Howard
His three brothers were employed by him as salaried managers
In 1933 A C Howard remarried 1  2 3 979 and under pressure from his brothers a company was formed and the directors were authorised to enter into an agreement to purchase the business
A C Howard was the governing director of the company and his three brothers permanent directors
The company also entered into a service agreement with them and article 107 thereof provided   After the death of the said Alexander Charles Howard and during such time as his legal personal representatives shall hold at least Ten Thousand Shares in the Company any widow surviving him shall receive out of the profits of the Company an annuity of One Thousand Pounds per annum during her life This service agreement was executed on January 3 1934
In 1943 by a deed of release A C Howard released to the company all right to a claim in respect of the annuity in consideration of the payment to him of a sum of pound 4500
This amount was based upon the findings of an actuary
The taxpayer submitted that the sum paid in redemption of the annuity was a proper charge against revenue and was deductible
The Commissioners held against the company on two main grounds
They held that in order to decide whether the sum paid to obtain release of the annuity was properly allowable as a deduction they had to decide first whether the annuity itself would have been properly chargeable to revenue Anglo Persian Oil Co Ltd vs Dale 1 and Bean vs Doncaster Amalgamated Collieries Ltd 2 per Lord Simon at pp
311 312 and they held next that the redemption of the annuity freed the company from a contingent liability and the company had
thus secured only an enduring advantage
Singleton J before whom the case came in appeal affirmed the decision
He pointed out that this was not a case of a company providing an annuity or pension for an employee  for  to quote him  the wife of Mr Alexander Charles Howard had nothing whatever to do with the Company 
If therefore 1  2 980 the original annuity was not chargeable to revenue the sum of pound 4500 paid to avoid it could not also be
The other case is Southern Railway of Peru Ltd vs Owen 1
In that case the English company was bound to provide compensation to all its employees on the termination of their services
Legislation to this effect was deemed to be a part of the contract of service
Such right arose on dismissal or on termination of the employment by the employer after proper notice
The compensation was an amount equal to one month s salary for every year of service
There were however certain exceptions under which the compensation was not payable
The company sought to deduct an amount equal to the burden cast on it each year but the claim was refused
It was held by majority that though the company was entitled to charge against one year s receipts the cost of making provision for the retirement payments which would ultimately be payable as it had the benefit of the employees services during that year provided the present value of the future payments could be fairly estimated  since the factor of discount was ignored in making the deduction the claim could not be entertained
These two cases illustrate the propositions that the recurring liability of a pension which is compressed into a lump payment should itself be a legal obligation and that if contingent the present value of the future payments should be fairly estimable
If the pension itself be not payable as an obligation and if there be a possibility that no such payment may be necessary in the future the whole of the amount cannot be deducted but only the present value of the future liability if it can be estimated
It is significant that the case in Sun Insurance Office vs Clark 2 was applied to the last corollary
So far we have dealt with the principles which underlie leading cases decided in England some of which were in the forefront of the arguments
We have already stated that the English decisions should be read with considerable caution
Under the English Income tax Act the law is stated in a negative I  2  981 form
Section 137 of 15  16 Geo
6  I Eliz 2 c 10 which prescribes the general rules regarding deductions is expressed in the negative and r a which was applicable to the cited cases reads as follows  Subject to the provisions of this Act in computing the profits or gains to be charged under Case I The Case 11 of schedule D no sum shall be deducted in respect of a any disbursements or expenses not being money wholly and exclusively laid out or expended for the purposes of the trade profession or vocation
 In these several cases emphasis was sometimes laid on the words  wholly and exclusively  sometimes on  laid out or expended  and sometimes on  for the purposes of the trade 
It was the nature of the liability or the time of payment or the value of the payment or all of them which determined whether the amount should be deducted or not
Clause xv of section 102 of the Act with which we are concerned reads as follows 10
 Business 1 The tax shall be payable by an assessee under the head I Profits and gains of business profession or vocation  in respect of the profits or gains of any business profession or vocation carried on by him
2 Such profits or gains shall be computed after making the following allowances namely xv any expenditure not being an allowance of the nature described in any of the clauses i to xiv inclusive and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business profession or vocation
 This section though it enacts affirmatively what is stated in the negative form in the English statute is substantially in pari materia with the English enactment and would have justified our considering the English authorities as aids to the interpretation thereof But there is no case directly on what is I expenditure and if the authorities under the English statute 982 were to be of real assistance the whole of the matter should have been before us
The question however limits the approach to whether the payments made towards the policy were expenditure within clxv
I Expenditure  is equal to I expense  and expense  is money laid out by calculation and intention though in many uses of the word this element may not be present as when we speak of a joke at another s expense
But the idea of I spending  in the sense of I paying out or away  money is the primary meaning and it is with that meaning that we are concerned
I Expenditure  is thus what is paid out or away  and is some thing which is gone irretrievably
To be an allowance within cl
xv the money paid out or away must be a paid out wholly and exclusively for the purpose of the business and further b must not be i capital expenditure ii personal expense or iii an allowance of the character described in cls
i to xiv
But whatever the character of the expenditure it must be a paying out or away and we are not concerned with the other qualifying aspects of such expenditure stated in the clause either affirmatively or negatively
So the question is whether in a business sense the amount was spent that
is to say paid out or away
To discuss this we must go to the terms of the policy
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 bad in Alexander Howard  Co Ltd vs Bentley 1 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 the limited question posed
In any event the provision for a pension or annuity to Mrs Harvey cannot rank higher than an annuity to Harvey and the matter can be considered on the limited aspect that a pension or annuity to Harvey was also contemplated
1 983 In the years of account the assessee Company did hand out to the trustees the sums of money for which deduction is claimed
But was the money spent in so far as the assessee Company was concerned  Harvey was then alive and it was not known if any pension to him would be payable at all Harvey might not have the lived to be 55 years
He might even have abandoned c his service or might have been dismissed
Till September 20 1955 the assessee Company had dominion through the grantees over the premia paid at least in two circumstances
They are to be found in the special provision and the third clause of the second schedule of the policy
These provisions have been quoted already but may again be reproduced  Special provision Provided the contract is in force and unseduced the Grantees shall be entitled to surrender the Annuity on the Option Anniversary for the Capital sum of pound 10169 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 Cl
III  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 Grantees of a sum equal to a return of all the premiums which shall have been paid under this Contract without interest after proof thereof and subject as hereinbefore provided
 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 Company
If this condition be not fulfilled and there is a possibility of there being a resulting trust in favour of the Company then the money has not been spent i e paid out or away but the amount must be treated as set apart to meet a contingency
There is a distinction between a contingent liability and a payment depending upon a contingency
The question is whether in the years of account one can describe the assessee Company s liability as contingent or merely depending 984 upon a contingency
In our opinion the liability was contingent and not merely depending upon a contingency
That such a distinction is real was laid down in the speech of Lord Oaksey in Southern Railway of Peru Ltd vs Owen 1 and was recognised generally in the speeches of the other Law Lords
Now the question is what is the effect of the I payment of premia in the present case  Learned counsel for the assessee Company referred us to the provisions of Chapter IX B of the Act particularly sections 58R 58S and 58V thereof
We regret we are not able to see bow these provisions help in the matter
We are not concerned with the provisions of this Chapter because the allowance does not fall within any of the provisions and we have only to decide the question whether the amounts paid to purchase the policy involved an expenditure in the accounting years
Next learned counsel relied upon Joseph vs Law Integrity Insurance Company Limited 2 Prudential Insurance Company vs Inland Revenue Commissioners 3  and In re National Standard Life Assurance Corporation 4 to show that there was no contingent liability but a liability depending on a contingency namely the duration of life the probabilities of which were estimated on actuarial calculations
No doubt these cases deal with insurance of human life but the observations therein are not material here
In the first of these cases it was held that the kind of policies which were issued were policies of insurance on human lives and that the company was carrying on the business of life insurance contrary to its memorandum of association and the policies were ultra vires the company
The policies were also illegal within section I of the Assurance Companies Act 1909
In this context the definition that I a policy of life insurance  means I any instrument by which the payment of monies by or out of the funds of an assurance company on the 1  3 2 4  430
985 happening of any contingency depending on the duration of human life is assured or secured was referred to
The policies issued by the company though ostensibly called I investment policies  were held to be really life insurance policies
The next case arose under section 98 of the Stamp Act 1891
It was held that a contract by which in consideration of the payment by a person of a weekly premium a sum certain was payable to him on his attaining the age of 65 or in the event of his dying earlier A smaller sum was to be paid to his executors was a policy of insurance upon a contingency depending upon a life within the meaning of the section
In the last case the question arose under section 30 of the Assurance Companies Act 1909 and it was decided that a certificate holder held a policy on human life because money was payable not only at the expiration of a certain number of years but all premiums were repayable in the event of death to the legal representative
These cases may help to determine the nature of the contract with the insurance company but cannot help in the solving of the question whether the payments to the insurance company were expenditure
That insurance of human lives involves a contingency relating to the duration of human life is a very different proposition from the question whether the payment in the present case to the trustees was towards a contingent liability or towards a liability depending on a contingency
In our opinion the payment was not 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 expenditure on the happening of an event is not expenditure
In the present case nothing more was done in the account years
The money was placed in the hands of trustees andor the insurance company to purchase annuities of different kinds if required but to be returned if the annuities were not bought and 124 986 the setting apart of the money was not a paying out or away of these sums irretrievably
In our opinion the question was correctly answered by the Calcutta High Court
We therefore dismiss the appeal with costs
Appeal dismissed


Summary:
The appellant was the lessee under Praga Industries and took on lease buildings and machinery for five years with option of renewal
The subject matter of dispute for adjudication was with regard to the questions about 1 the quantum of bonus payable to the workmen for the year 1954 and 2 fixation of scale of wages with graded annual increments for different categories of workmen
In view of the fact that the lease in its favour was due to expire shortly the appellant had suggested to the Tribunal that the question of classifying the workmen into skilled and unskilled workmen and providing for systematic grades of pay with increments may conveniently be deferred to a future date the 21 162 respondents agreed to this proposal and so both the parties represented to the Tribunal that they would be satisfied if an interim order was made providing for the increment in the wages of the workmen
Accordingly the Tribunal refrained from fixing any wage structure and as an interim measure ordered increment of wages at 4 per cent
and directed the appellant to grant such an increment every year until the workmen were classified and their pay scales were introduced to reach a particular maximum
The above increment applied to the monthly time and piece rated workmen
The appellant challenged the propriety of the course adopted by the Tribunal and contended that the Tribunal was asked to fix a wage structure but instead it had passed merely an interim order which was irregular
The appellant also contended that the claim for the additional bonus for the year 1954 by the workmen was not justified as the financial position of the appellant was not satisfactory and it was in debts and had not even paid rent due to the lessor and in fact had ploughed back the amount of rent due into the business as working capital
The appellant also resisted the direction for payment of bonus on the ground that the award involved an unfair distribution of the available surplus and claimed rehabilitation charges for the leased property and machinery and interest on the amount of unpaid rent
Held that where the parties themselves represented to the Tribunal that the question of classifying respondents into skilled and unskilled workmen and providing for systematic grades of pay with increments may be conveniently deferred to a future date and they would be satisfied with a reasonable interim order providing for increment in the wages of the workmen it was not open to the parties to challenge the award based on such representation at a later stage
That although generally a wage structure with annual increments was not provided for piece rate workers who are paid for the work they do the rate of wages fixed for such workers could legitimately be revised on a proper case being made out in that behalf
Held further that where an amount earmarked as due for payment for some other purpose was utilised as working capital it should carry interest even though shown as liability in the profit and loss account and the same should be taken into consideration for arriving at the surplus available for the purposes of bonus
That no prior charges for rehabilitation could be allowed where land machinery and building for business were taken on lease
Where new machinery was purchased the amount of rehabilitation was covered by the depreciation allowed