Payment made to the widow of the chairman of the board of directors of the assessee-company by way of compensation in view of the circumstances attending on the death of the said chairman was not admissible as an expense under s. 10(2)(xv) of the Indian IT Act.

G.K. MITTER, J.

1. THE main question which arises on this reference is whether a payment made to the widow of the chairman of the board of directors of the assessee-company by way of compensation in view of the circumstances attending on the death of the said chairman was admissible as an expense under s. 10(2)(xv) of the Indian IT Act. Incidental thereto is another question as to whether the said payment was related as an expenditure to the year of account of the assessee relevant to the asst. yr. 1951-52.

2. THE facts are as follows: The assessee is a company which keeps accounts on the mercantile system according to the calender year. The assessment year in question is 1951-52, the corresponding accounting year being the calender year 1950. On 26th March, 1950, Mr. Cameron, the chairman of the board of directors of the assessee-company, lost his life by the action of a riotous crowd while proceeding from Bandel to Calcutta. The travel was not occasioned by any business of the assessee. On 5th June, 1950, the board of directors of the assessee recorded in a resolution passed that it felt that "the company was under an obligation to pay to Mr. Cameron's widow a sum as compensation and that if compensation was not paid there was likely to be unfavourable criticism of the company and repercussions from other employees particularly in view of circumstances of Mr. Cameron's death. The chairman recommended that pending a decision as to what the full amount of compensation should be, an interim payment of Rs. 1,20,000 should be made to Mrs. Cameron....it was the feeling of all directors that the company was under a definite obligation to pay compensation". The above quotation is from the minutes of the board meeting of the assessee which further show that the chairman of that meeting had represented to the board that had Mr. Cameron lived he would, in the normal course of events, have served the company for some years to come. The above minutes do not show clearly any basis on which the board was going to fix the amount of compensation. It would appear, however, from the order of the Tribunal that the interim payment was related to an insurance policy effected by the company on Mr. Cameron's life to the extent of Rs. 1,20,000. At a further meeting of the said board of directors of the assessee-company held on 22nd Jan., 1951, reference was made to the above minutes and the question of the amount of compensation to be paid to Mrs. Cameron was discussed again. At this meeting the chairman said that "in his opinion a further and final payment of Rs. 2,00,000 would be fair and reasonable". The chairman also added that "he had consulted the company's auditors who agreed with his view. After full discussion by the board it was resolved that the sum of Rs. 2,00,000 should be paid to Mrs. Cameron as compensation". Again the quotations are from the minutes of the board meeting. When exactly the auditors were consulted over this matter does not appear from the record but a letter dt. 9th Dec., 1955, from M/s Price Waterhouse Peat and Co., the auditors of the assessee, addressed to the company shows that the question of fixation of compensation had been discussed prior to the date of the board meeting and that the auditors had opined that the sum of Rs. 3,20,000 based on approximately two years' total emoluments of the late Mr. Cameron was in the circumstances fair and reasonable. The ITO disallowed the payment of Rs. 2,00,000 as an expenditure on the ground that it was merely gratuitous although connected with the employment of Mr. Cameron by the company. The AAC upheld that order of the ITO and further held that the liability was not ascertained in the year of the account and could not therefore be allowed as an admissible expense in that year. Before the Tribunal it was argued on behalf of the assessee that the payment had been made to satisfy the other employees against such risks of life and therefore the expense so incurred was