Contingent liability and scope of reference: deduction arises only when liability becomes fixed, and wider statutory objections may be heard.

Amounts merely set apart to meet a contingent pension obligation do not become deductible expenditure until the liability is fixed; here, the sums were treated as expended only on Harvey's death, when the obligation ceased to be contingent. A referred question of law is not confined to the narrow point argued below if the wider issue was in controversy and falls within the reference; the High Court could therefore entertain the Commissioner's contention that the allowance failed to satisfy all statutory conditions. However, the record lacked findings on whether the expenditure was laid out wholly and exclusively for business, so admissibility could not be finally decided and the matter required further disposal.

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Issues: (i) Whether the amounts set apart under the trust arrangements became expenditure only on Harvey's death for the purposes of section 10(2)(xv) of the Indian Income-tax Act, 1922; (ii) Whether the High Court could entertain the Commissioner's contention that the allowance was inadmissible because the statutory conditions of section 10(2)(xv) were not satisfied, and whether the question referred permitted that enquiry.

Issue (i): Whether the amounts set apart under the trust arrangements became expenditure only on Harvey's death for the purposes of section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: Amounts merely set apart to meet a contingent obligation do not constitute expenditure when set apart if the company has not yet incurred an existing liability. The sums became fixed against the pension obligation only when Harvey died, because until then the obligation remained contingent and the earlier appropriation did not amount to expenditure within the meaning of section 10(2)(xv).

Conclusion: The amounts were to be treated as expended when Harvey died, and not at the earlier dates when they were set apart.

Issue (ii): Whether the High Court could entertain the Commissioner's contention that the allowance was inadmissible because the statutory conditions of section 10(2)(xv) were not satisfied, and whether the question referred permitted that enquiry.

Analysis: A referred question of law is not confined to the narrow aspect actually argued before the Tribunal if the issue itself was in controversy and the aspect sought to be urged is within its scope. The earlier reference did not determine all conditions of admissibility under section 10(2)(xv), and the Tribunal had not recorded findings on whether the expenditure was laid out or expended wholly and exclusively for business purposes. The High Court therefore erred in refusing to consider the Commissioner's contention, but the record was insufficient for a final answer on admissibility.

Conclusion: The High Court could entertain the contention, but the question of admissibility could not be finally answered on the existing record.

Final Conclusion: The appeal succeeded in part on the legal scope of the reference, but the matter had to go back to the Tribunal for appropriate disposal in light of the Court's observations.

Ratio Decidendi: Where a question of law is already in issue before the Tribunal, a further aspect of that question may be urged before the High Court if it falls within the scope of the reference, and an expenditure is deductible only when all statutory conditions for allowance are established on the record.

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