Actual expenditure test under income tax law: contingent payments and reversible insurance sums were not deductible.

Amounts paid to trustees and under an insurance policy were held not to be "expenditure" for deduction purposes under section 10(2)(xv) of the Indian Income-tax Act, 1922. The provision requires actual outlay of money that is irretrievably spent; a mere setting aside of funds for a future liability does not qualify. Because the sums could revert to the assessee in certain contingencies, and the policy terms showed a possible resulting trust and power of surrender, the liability remained contingent rather than finally incurred. The payments were therefore not deductible and the issue was resolved in favour of the Revenue.

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Issues: Whether the amounts paid by the assessee to trustees and towards the insurance policy constituted "expenditure" within section 10(2)(xv) of the Indian Income-tax Act, 1922 so as to qualify for deduction.

Analysis: The allowance under section 10(2)(xv) requires an actual expenditure, meaning money paid out or away and gone irretrievably. A mere setting apart of funds to meet a future event does not satisfy that requirement. On the policy terms, the money could return to the assessee in certain contingencies, and until the annuity became an actual, irrevocable outlay, the liability remained contingent. The existence of a possible resulting trust and the power of surrender showed that the sums had not been finally spent for the accounting years in question.

Conclusion: The payments did not constitute expenditure within section 10(2)(xv) and were not deductible; the finding was against the assessee and in favour of the Revenue.

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