Judgment

SHAH, J.: 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 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.

4. Harvey died in May 1955 (before he was due to retire) and in the return of its taxable income for the assessment year 1956-57 the Company claimed that Rs. 1,83,434/- being the total amount paid by the Company to the trustees in terms of the original trust deed dated September 16, 1948 and the supplementary deed dated October 29, 1954 be allowed as a permissible expenditure in the computation of the Company s business profits in the previous year ending December 31, 1955. The Income-tax Officer disallowed the claim without assigning any reasons. In appeal the Appellate Assistant Commissioner confirmed the order observing that the amounts paid long before the commencement of the previous year were not admissible under Section 10 (2) (xv) of the Income-tax Act, 1922. The Income-tax Appellate Tribunal in appeal reversed the order and allowed the claim of the Company holding that the amount of Rs. 1,83,434/- was "effectively disbursed during the accounting year" and was on that account an admissible allowance in the computation of the Company s business pro