- (1.) The respondent Company appointed one Harvey its Managing Director. Under the terms of agreement, Harvey was to retire on attaining the age of 55 years. The company arranged to provide a pension to Harvey on retirement, and executed a deed of trust on September 16, 1948 appointed three trustees to carry out that object. The respondent Company set apart in 1948 Rs. 1,09,643/- and in each of the six subsequent years Rs. 4,364/- and delivered the various amounts to the trustees who were authorised to take out a deferred annuity policy to secure an annuity of 720 per annum payable to Harvey for life from the date he attained the age of 55 years, and in the event of his death before that date an annuity of 611.12 annually to his widow.
(2.) In its return for the assessment year 1949-50 the Company claimed that in the computation of its taxable income Rs. 1,09,643/- paid in 1948 to the trustees under the deed of trust were allowable as an amount wholly and exclusively expended for the purpose of its business. In the subsequent years of assessment the Company claimed allowance of the annual payment of Rs. 4,364/-. The Income-tax Officer disallowed the claim. The Company disputed the decision and carried it to the Income-tax Appellate Tribunal. The Tribunal submitted a statement of case to the High Court of Calcutta on the question whether the payments "constituted 'expenditure' within the meaning of that word in Section 10 (2) (xv) of the Indian Income-tax Act, 1922, in respect of which a claim for deduction can be made subject to the other conditions mentioned in that clause being satisfied". The High Court answered the question in the negative. The view taken by the High Court was confirmed by this Court in appeal: Indian Molasses Co. (P.) Ltd. v. Commr. of Income-tax, West Bengal, (1959) 37 ITR 66 = (AIR 1959 SC 1049). This Court held that the expenditure deductible for income-tax purposes is one towards a liability actually existing at the time, but a sum of money set apart which may be deemed appropriated to a purpose for which it was intended on the happening of a future event was not expended within the meaning of Section 10 (2) (xv) of the Act, until the event occurs, and since the Company had dominion through the trustees over the funds and there was a possibility of a trust resulting in its favour, by setting apart the funds no "expenditure" within the meaning of Section 10(2) (xv) of the Indian Income-tax Act, 1922, may be deemed incurred.
(3.) During the pendency of those proceedings the Company arranged to give an "enhanced pension" to Harvey and executed a supplementary deed of trust on October 29, 1954 and set apart an additional sum of Rs. 47,607 to enable the trustees to take out an annuity policy in the names of the trustees in favour of Harvey and his wife to cover the "enhanced pension." The terms of the original trust deed were made applicable to the supplementary deed.;