RAY, J. - (1.) THE question referred to us is as follows : "Whether on the facts and in the circumstances of this case and on a proper construction of the trust deed dt. 10th Feb., 1950, the payments by the assessee company constituted an expenditure within the meaning of s. 10(2)(xv) of the Indian IT Act in respect of which a claim for deduction could be made."
(2.) THE assessee-company appointed Gerald Joseph Feenan Hook as the manager of the assessee company. On 19th Nov., 1948, an agreement was entered into between the assessee and Hook, where it was agreed that the company would pay the manager a pension for life of 1,000 sterling per annum in London from 1st April, 1955, and in the event of his death provide a similar pension for his wife. By a deed of trust dt. 10th Feb.,1950, between Lloyds Bank Ltd., who were made the trustees, and the assessee company, a provision was made that the said Hook would be paid a pension for life and other benefits stipulated in the aforesaid agreement between Hook and the company. In order to provide for such pension the company undertook to pay annually the rupee equivalent of 2,546-13-0 until seven such annual payments inclusive of the initial payment were made to the trustees or until Hook's death, if earlier. In pursuance of this agreement the company paid the sum of Rs. 33,955 in the year of account, which is the asst. yr. 1954-55, and the accounting year ending 31st Dec., 1953. The contention of the assessee before the Revenue authorities was that this payment was an expense admissible under s. 10(2)(xv) of the IT Act. Though the Revenue authorities in the asst. yr. 1950-51 to 1953-54, had allowed such expense to the assessee, the ITO held in the year of the present reference that there being no present liability for the payment of pension and the company being liable to pay pension only on the retirement of the manager, the amount paid to the trustee was not to meet any lump sum liability of the company and since the manager was in service in the material year the amount paid was that of a capital nature. The AAC held in favour of the assessee that the payments to the trustees though made in seven annual instalments should be regarded as a lump sum payment, because the instalments were paid on account of the particular kind of annuity policy which did not require that the amounts should be paid in lump sum but in certain instalments. the AAC further held that the company had not acquired any asset either in the shape of fund or an insurance policy under which the company would receive amounts equal to the pension payable to Hook, but the trustees were to pay the pension to the manager or his wife and the company got rid of the liability to pay the pension without acquiring assets under its own control with the result that the payment was on revenue account and not a capital disbursement.
(3.) BEFORE the Tribunal it was contended first that by cl. 14 of the 14th Nov.,1948 agreement, it was provided that on the dismissal of Hook the agreement was terminated and, therefore, in such circumstances pension was not payable to him and, secondly, it was contended, relying on the decision in Indian Molasses Co. Ltd. vs. CIT (1956) 29 ITR 565, that as nothing was provided for the contingency of the dismissal of Hook the trust would fail and the trustees could not provide for any annuity in such circumstnaces. the Tribunal held that though cl. 14 of the service agreement provided for dismissal of Hook, cl. 9 of the service agreement provided for payment of pension either on account of termination or earlier determination of service for any reason whatsoever and therefore even if Hook was dismissed he would be entitled to pension and there was no question of the trust amount reverting to the assessee and that there was no contingency. Counsel for the CIT contended before us first that a contingent liability was not deductible under s. 10(2)(xv) of the IT Act and he further contended that on the construction of the November, 1948 agreement there was no promise to pay pension in the event of the dismissal of Hook with the result that the liability to pay pension was contingent. Secondly, it was contended that if money was paid to Mrs. Hook in the event of the death of her husband it would not be an expenditure laid out or expended wholly and exclusively for the purpose of the business or trade of the assessee.;