Accrued liability for annuity premium allowed as deduction; deferred payment did not make the obligation contingent.

Premium paid to LIC for a monthly annuity linked to a retired partner-employee's service conditions was held to relate to an existing contractual liability, not a contingent liability. The Court found that the obligation to provide the assured annuity had accrued when the premium was paid, and that deferment of actual payment until retirement did not make the expenditure uncertain. In the absence of any refundable premium or alternate arrangement suggesting a shifting liability, the amount was treated as incurred toward an accrued liability under mercantile accounting and was allowable as a deduction. The assessee succeeded, the Tribunal's order was set aside, and the appellate authority's view was restored.

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Issues: Whether the premium paid to LIC to fund a monthly annuity for a retired partner-employee was a contingent liability or an expenditure for an existing liability, and therefore allowable as a deduction.

Analysis: The contractual obligation to provide the assured annuity existed at the time the premium was paid. The mere fact that payment of the annuity would arise on retirement or on fulfilment of the specified service conditions did not make the premium itself contingent. The Court distinguished the earlier principle relied on by the Revenue, and held that the facts did not show any alternate arrangement or refundable premium that would make the liability uncertain. Applying the principle that an accrued liability, though discharged later, is allowable in mercantile accounting, the Court accepted that the expenditure was incurred toward an existing liability.

Conclusion: The premium was not a contingent liability and was allowable as a deduction. The assessee succeeded, and the order of the Tribunal was set aside while the appellate authority's view was restored.

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