The National Mutual Life Association Of Australasia, Ltd., V. The Commissioner Of Income Tax: Case Stated

1948 Present : Jayetileke S.P.J. and Canekeratne J.
 
THE NATIONAL MUTUAL LIFE ASSOCIATION OF
AUSIRALASIA, LTD., Appellant, and THE COMMISSIONER
OF INCOME TAX, Respondent.
 
S. C. 69-Income Tax : Case Stated.

Income Tax-Ascertainment of profits of insurance companies-Revenue and capital expenditure-Interpretation of section 42 of the Income Tax Ordinance (Capl 188).
 
The National Mutual Life Association of Australasian, Ltd., carrying on life insurance business in Ceylon through a branch office in Colombo, established a Staff Superannuation Scheme early in 1917, and paid pensions to its employees in accordance with the provisions of that Scheme. It contributed sums out of its profits and the employees made contributions under that Scheme. The contributions made by the Association to the fund of this Scheme amounted up to the early part of 1944 to a sum of about £65,000. About February, 1944, a valuation of the Assets and Liabilities of the Superannuation Fund was made and a deficit of actual liabilities over assets of £150,000 was disclosed. The Association paid the sum of £150,000 to four persons called the Trustees of the Staff Superannuation Fund on February 23, 1944 ; the sum was paid in order to prevent annual sums having to be paid later and to be able to fulfill its promises to its employees.
 
Held, that the payment 6f the sum of £150,000 was an ordinary business expense and that, under section 42 of the Income Tax Ordinance, a fair proportion of the sum was deductible from the insurance company's profit for the year of assessment 1945-1946 as expenses of the head office.
 
CASE stated under the provisions of the Income Tax Ordinance.
 
H. V. Perera, K.C., with D. W. Fernando, for the assessed, appellant.- The old Staff Superannuation Scheme of 1917 was, according to the documents marked in the case, superseded by the fresh scheme of 1944. This is therefore a case of a conversion of an old scheme into a new one. The old scheme existed even before 1944 ; the sum of £150,000 is not an initial contribution to start a scheme. Section 9 of the Income Tax Ordinance (Cap. 188) defines the word " profits " ; the profits contemplated by that section are the profits which should be ascertained for a particular year by deducting only such outgoings and expenses as are incurred in the production of the income. The assessee concedes that the expenditure referred to in this case is not incurred in producing the income, but it is submitted that this is in the nature of a recurring expenditure, not an initial contribution, because the obligations under the old scheme already existed in 1944.
 
Section 10 of the Income Tax Ordinance is ancillary to section 9- section 9 includes certain things while section 10 excludes certain other things. The " premia " referred to in section 42 cannot be considered " income ". It is difficult to say in any particular case whether a certain

item is revenue or capital expenditure.-See Sundaram on Income Tax (4th Ed.) at p. 387. The special cases contemplated in sections 21, 22, &c., do not have any bearing on the interpretation of section 42. For a definition of " income " see Commissioner of Inland Revenue v. Australian Mutual Society, Annotated Tax Cases Vol. 26 at p. 261. The case of Atherton v. British Insulated and Helsby Cables Ltd. (1924-1926) 10 Tax Cases 155 is distinguishable from the present case as firstly it is not an initial contribution, and, secondly, in the present case the liability is one which already existed under the old scheme of 1917.
 
Whether a certain expense is a legitimate expense is a question of fact. It is not disputed that where an expenditure is incurred for an enduring benefit of a business it should be considered capital and not revenue expenditure. But in section 42 one is dealing with some arbitrary metho

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