2026 (4) TMI 127

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....71,519/- towards an LIC premium, intended to ensure an annual annuity of Rs. 15,000/- per month for the employee on retirement or attaining 70 years of age or on completion of 25 years of service, was not made in respect of services rendered by the partners and therefore, cannot be exempted from the a payment of income tax. The Tribunal further concluded that nomenclature is not a decisive factor and that the true nature of the transaction must be examined to determine its allowability. This conclusion of the Tribunal is now challenged by the assessee. 3. This Court, while considering the appeal challenging the order of the Tribunal reversing the finding of the appellate authority, has framed the following substantial questions of law:- ....

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.... monthly annuity of Rs. 15,000/- to the retired employee cannot be equated with a business expense for tax purposes. 5. The learned counsel appearing for the Department heavily harped on the judgment of the Hon'ble Supreme Court in the case of Indian Molasses Co.(P.) Ltd. V. Commissioner of Income-tax reported in [1957] 37 ITR 66 (SC). His prime contention is that the premium paid to the LIC is based on a contingency. The expenditure, which is deductible for income-tax purpose, must be towards a liability actually existing at that time. Whereas, in this case, the liability does not exist on the date of payment of the premium. Therefore, the learned counsel submitted that even though the Hon'ble Supreme Court's judgment is nearly 70 y....

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.... paid to the LIC is refundable in the event of non-fulfilment of the said contingency. Thus, the facts of the case in Indian Molasses Co.(P.) Ltd., where the trust created to ensure payment of annuity to the employee provides for an alternate if the contingency failed. Therefore, we are unable to accept the plea of the Department that the ratio in Indian Molasses Co.(P.) Ltd., applies to the facts of the present case. 10. However, we are also not oblivious to the fact that the Hon'ble Supreme Court, in the aforementioned case, observed not only the payment contingent, but the liability itself was contingent. It is a well accepted principle that an expenditure deductible for income-tax purposes toward a liability must actually exist at th....