Contingent pension liabilities and widow benefits were not deductible as business expenditure without existing liability or business nexus.

A provision for pension under a trust deed was treated as a contingent future liability rather than an existing business liability, so it was not deductible under section 10(2)(xv) of the Indian Income-tax Act. The principle applied was that a sum set aside for a liability that may arise only on a future event is not expenditure actually incurred for tax deduction purposes. The proposed pension for the manager's widow also failed the business-purpose test because she was not an employee and had no business nexus with the company, so it was not expenditure laid out wholly and exclusively for the purposes of the business.

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Issues: (i) Whether the assessee's payments under the trust deed for provision of pension constituted deductible expenditure under section 10(2)(xv) of the Indian Income-tax Act when the liability was contingent on the manager's retirement and not shown to be an existing liability at the time of payment. (ii) Whether the provision for pension payable to the manager's widow could be said to be expenditure laid out wholly and exclusively for the purposes of the assessee's business.

Issue (i): Whether the assessee's payments under the trust deed for provision of pension constituted deductible expenditure under section 10(2)(xv) of the Indian Income-tax Act when the liability was contingent on the manager's retirement and not shown to be an existing liability at the time of payment.

Analysis: The governing principle applied was that an amount set apart to meet a liability that is not presently existing, but may arise on the happening of a future event, is not expenditure within section 10(2)(xv). On the construction of the service agreement and trust deed, the obligation to pay pension did not survive dismissal and the arrangement did not create an immediate, unconditional liability. The payment was therefore treated as a provision against a contingent future liability rather than as expenditure actually incurred.

Conclusion: The payments were not deductible as expenditure under section 10(2)(xv); this issue was decided against the assessee.

Issue (ii): Whether the provision for pension payable to the manager's widow could be said to be expenditure laid out wholly and exclusively for the purposes of the assessee's business.

Analysis: A payment can qualify only if it is made for the purposes of the business, and the payment contemplated for the widow did not satisfy that test. The widow was not an employee and had no business connection with the company, so the proposed benefit to her could not be characterised as trade expenditure incurred wholly and exclusively for business purposes.

Conclusion: The provision for the widow's pension was not allowable as business expenditure; this issue was decided against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue and the assessee's claim for deduction failed.

Ratio Decidendi: A payment is deductible under section 10(2)(xv) only when it is made in discharge of an existing business liability and is wholly and exclusively incurred for the purposes of the business; a provision for a contingent liability or for a benefit to a non-employee without business nexus is not allowable.

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