HIDAYATULLAH J.: - (1.) THE following Judgment of the court was delivered by
(2.) 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 9/11/1956, against the judgment of the High court of Calcutta dated De 21/12/1955, in Income- tax Reference, 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 16/09/1948, and the Policy dated the 13/01/1949, the payments made by the assessee Company and referred to in paragraph 4 above constitute 'expenditure' within the meaning of that word in section 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 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 20/09/1955. There was, it appears, an agreement by which the Company was under an obligation to provide a pension to Harvey after his retirement. On 16/09/1948, the Company executed a Trust Deed in favour of three trustees to whom the Company paid a sum of pound 8,208-19-0 (Rs. 1,09,643) and further undertook to pay annually Rs. 4,364.00 (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 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 12/01/1949. In addition to conditions usual in such policies, it provided for the following benefits: JUDGEMENT_1049_AIR(SC)_1959Html1.htm 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 (i.e., Sept. 20, 1955) for the Capital sum of pound 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.` 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 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 havebeen 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 s. 10(2)(xv) 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 20/09/1955, all the payments till made through the Trustees to the Insurance Society will come back to the Trustees and as there is not the 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., agreeing) felt the difficulty of the question. 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 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. `
(3.) 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 10(2)(xv) 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. v. Commissioner 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 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. S. 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. ` ;