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.

Judgment

HIDAYATULLAH J. : The Indian Molasses Co. (Private Ltd., Calcutta, (hereinafter called the assessee 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 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 16-9-1948, and the Policy dated 13-1-1949, the payments made by the assessee Company and referred to in paragraph 4 above constitute expenditure within the meaning of that word in S. 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.

2. 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 20-9-1955. There was it appears, an agreement by which the Company was under an obligation to provide a pension to Harvey after his retirement. On 16-9-1948, the Company executed a Trust Deed in favour of three trustees to whom the Company paid a sum of £ 8,208-19-0 (Rs. 1,09,643) and further undertook to pay annually Rs. 4,364 (£ 326-14sh) 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 £ 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 £ 558-1-0 per aunum 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 £ 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 Insurance Company or another Insurance Company of repute. The other conditions of the deed of trust need not be considered, because they do not bear upon the controversy.

3. In furtherance of these presents, the trustees took out a policy on 12-1-1949. In addition to conditions usual in such policies, it provided for the following benefits :

Amount per annum of deferred Annuity. £563-5-8 p. a. if both Mr. and Mrs. Harvey be living on September 20, 1955.

£720-0-0 p. a. if Mrs. Harvey should die before September 20, 1955 leaving Harvey surviving her.

£645-0-0 p. a. if Harvey should die before September 20, 1955 leaving Mrs. Harvey surviving him.

There was a special provision 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 £ 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 unreduced and before the Option Anniversary the said funds and Property of the Society shall be liable to make rep