Contingent liability becomes deductible expenditure only when the contingency ends and the liability crystallises.

Money set apart for a contingent liability is not expenditure until the contingency ends and the liability becomes actual. On that principle, the pension-related amount became expenditure in the accounting year when Mr. Harvey died, even though it had not been debited in the profit and loss account, and was therefore deductible as revenue expenditure for that year. A wider contention that payment to the widow could never qualify as deductible expenditure was not entertained because it had not been raised or decided before the Tribunal and lay outside the scope of the reference, involving a mixed question of law and fact.

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Issues: (i) Whether the sum of Rs. 1,83,434 became expenditure effectively laid out or expended in the accounting year 1955 within section 10(2)(xv) of the Indian Income-tax Act, 1922. (ii) Whether the objection that the pensionary payment to Mrs. Harvey was not deductible as revenue expenditure could be entertained on the reference as framed.

Issue (i): Whether the sum of Rs. 1,83,434 became expenditure effectively laid out or expended in the accounting year 1955 within section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The earlier payments to trustees were held not to be expenditure while the liability remained contingent, because the money was merely set apart and could, on the happening of a qualifying event, return to the assessee. On Mr. Harvey's death in the relevant year, the contingency ceased and the liability became an actual liability in that year. The amount therefore answered the description of expenditure for that accounting year, even though it had not been debited in the profit and loss account.

Conclusion: This issue is answered in favour of the assessee and in the affirmative.

Issue (ii): Whether the objection that the pensionary payment to Mrs. Harvey was not deductible as revenue expenditure could be entertained on the reference as framed.

Analysis: The point that payment to a widow could never qualify as deductible expenditure was neither raised nor decided before the Tribunal, and it involved a mixed question of law and fact. The reference was confined to whether the amount was expenditure in the accounting year and whether it was revenue in character, and the wider contention lay outside the scope of the question referred.

Conclusion: This issue is answered against the revenue and the objection was not entertained.

Final Conclusion: The liability crystallised as expenditure in the accounting year when the contingency ended, and the reference was answered wholly in favour of the assessee.

Ratio Decidendi: Money set apart for a contingent liability is not expenditure until the contingency ceases and the liability becomes actual; a new contention outside the question referred and involving a mixed question of law and fact cannot be entertained in a reference under section 66.

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