COMMISSIONER OF INCOME-TAX, WEST BENGAL vs. INDIAN MOLASSES (P) LTD.

CIVIL APPEAL No. 2555/1966Supreme Court[1971] 1 S.C.R. 77312 August 1970Bench: 3 JudgesAuthor: J.C. SHAH, K.S. HEGDE, A.N. GROVER10 pages
AI SummaryRemanded

What were the facts?

The respondent company appointed a managing director who was to retire at age 55. The company arranged to provide a pension to him or his widow. A trust deed was executed on September 16, 1948, and amounts were paid to trustees to secure an annuity policy. On October 29, 1954, enhanced pension terms were agreed upon, and an additional sum was set apart. The director died in May 1955 before reaching 55. For assessment year 1956-57, the company claimed the total amount paid to trustees as permissible expenditure in the previous year. The Appellate Tribunal held the setting apart of funds was expenditure and revenue in nature but did not consider if it was wholly and exclusively for business purposes or authorized under Section 10(4A). The Tribunal referred two questions to the High Court, which ruled in favor of the company. The Department's plea that the expenditure must be wholly and exclusively for business and authorized under Section 10(4A) was not permitted by the High Court as it was not expressly raised before the Tribunal.

What did the Supreme Court hold?

The Supreme Court held that the amounts set apart became subject to the obligation to pay the pension only upon the director's death in May 1955, thus deeming them expended in the accounting year 1955. Regarding the second question, the Court found that an amount is a permissible allowance under Section 10(2)(xv) if it is expenditure not covered by other clauses, not capital or personal, laid out wholly and exclusively for business purposes, and authorized under Section 10(4A). The Court clarified that the expression 'question of law arising out of such order' in Section 66(1) is not restricted to only those questions expressly argued before the Tribunal. If a question of law is raised, even if an aspect was not argued, that aspect can be urged before the High Court. The second question referred did not exclude an inquiry into whether the expenditure was wholly and exclusively for business purposes. Therefore, the High Court was in error in refusing to allow this argument. Since the Tribunal gave no finding on whether the expenditure was wholly and exclusively for the purpose of business, the Court declined to answer the second question and left it to the Tribunal to dispose of the appeal under Section 66(5) after considering this aspect.

What were the issues?

1. Whether the amounts set apart by the company constituted expenditure within the meaning of Section 10(2)(xv) of the Indian Income-tax Act, 1922, in respect of which a claim for deduction can be made, subject to other conditions being satisfied? (Question of law) 2. Whether the amounts represented revenue expenditure and not capital expenditure? (Question of law) Assessee's Contentions: The assessee argued that the amounts set apart constituted expenditure within the meaning of Section 10(2)(xv) and were revenue in nature. They also contended that the High Court erred in refusing to allow the plea that the expenditure was not wholly and exclusively for business purposes, as this aspect was implicitly covered by the question referred to the High Court under Section 66(1). Revenue's Contentions: The revenue contended that the High Court was wrong in refusing to permit the plea that the expenditure was not wholly and exclusively for the purpose of business and authorized under Section 10(4A), as these aspects were not expressly raised before the Tribunal. They argued that the High Court should have considered these points.

Which sections of the Income-tax Act were involved?

Section 10(2)(xv),Section 10(4A),Section 66(1),Section 66(5)

AI-generated summary — verify with the full judgment below

B c 0 E F G It 773 COMMISSIONE,R OF INCOME.TAX, WEST BENGAL v. JNDIAN MOLASSES (P) LTD.

August 12, 19]0 ••! [J.C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.J Income-tax Act (II of 1922), '"· 10(2)(.iv), 10(4A). 66(1) 111111 06(5)-lntredients of ·'· Hl(2) (xv )-Amounts paid to 'tru"t"" for 11.rr 011 tht happrning of a /uturt event-Wiren deemetl lo he expemliture 11nder s.10(2)(xv). 'Question of law wising out of it.• order' in s.66(! ), scope of-A.•pect 1101 •xprossly raisedj be/or• tbe Tribunal-When coultl be 11rR•d llf/Ore High Court on reftrence.

Ht1h Court wrung/111/y refu.ring pltt1 to he 11rgetl--Prot·td11rt to he follow1d by Supflme Court . . The respondent-company appointed a manaaina dire,tor who was 10 retire at the aae of 55. The company arranged to provide a pension tC\ him on retirement, or a pension to his widow if he died hefore attaining the aae of 55. 1t executed a trust deed c.n September 16. 1948, and paid to the trustees certain amoup.ts to enable the trustees to take out an an11uit\ policy to cover the pension. On Octohcr 29. 1954, the company arrangetl to 1ivc enhanced pension to the director or his wife and set <ipart an additional

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