TMI Blog1962 (3) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... pril, 1955, and in the event of his death, a similar pension to his wife for her life. A copy of the agreement is annexure A and is a part of the statement of case. 3. By clause 14 of this service agreement, it was stipulated that in case the manager should commit a breach of any of the stipulations on his part to be observed and performed as were therein contained or if he should in any way misconduct himself or neglect his duties as aforesaid then and in any of such cases it should be lawful for the company by resolution of the directors to dismiss the manager summarily from his employment as such manager as aforesaid and terminate this agreement without any notice or payment of salary or commission for any period beyond the date of such dismissal. 4. By a deed of trust dated 10th February, 1950, between Lloyds Bank Limited, who were made the trustees, and the assessee company, a provision was made that the said Mr. Hook would be paid a pension for life and the other benefits stipulated in the agreement between Mr. Hook and the assessee company. In order to provide for such pension, the company undertook to pay annually the rupee equivalent of 2,546-13-0 until seven suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him and the trust deed was silent as regards what would happen for such contingency. Reliance was placed upon the case of Indian Molasses Co. Ltd. v. Commissioner of Income-tax [1956] 29 I.T.R. 565. Following that decision it was argued that as the trust deed did not provide for the contingency the trust would fail in the aforesaid contingency and the trustees were not entitled to vary the terms of the trust and could not provide for any annuity in such circumstances. 7. The Tribunal held that though clause 14 of the service agreement provided for the dismissal of Mr. Hook, in certain circumstances, clause 9 of the service agreement provided for payment of pension either on account of termination or earlier determination of the service for any reason whatsoever. Therefore, even if Mr. Hook was dismissed, he was entitled to pension and there was no question of the trust amount reverting to the assessee. The contingencies that were present in the case cited on behalf of the department were absent in the instant case, as whether Mr. Hook retired or was dismissed, he was entitled to the pension. The order of the Appellate Tribunal is made a part of this statement of case and is anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 31, 1953. The contention of the assessee before the revenue authorities was that this payment was an expense admissible under section 10(2)(xv) of the Income-tax Act. Though the revenue authorities in the assessment years 1950-51 to 1953-54, had allowed such expense to the assessee, the Income-tax Officer held in the year of the present reference that there being no present liability for the payment of pension and the company being liable to pay pension only on the retirement of the manager, the amount paid to the trustee was not to meet any lump sum liability of the company and since the manager was in service in the material year the amount paid was that of a capital nature. The Appellate Assistant Commissioner held in favour of the assessee that the payments to the trustees though made in seven annual installments should be regarded as a lump sum payment, because the installments were paid on account of the particular kind of annuity policy which did not require that the amounts should be paid in lump sum but in certain instalments. the Appellate Assistant Commissioner further held that the company had not acquired any asset either in the shape of fund or an insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was so required and the Commissioner had not raised the contention as to this fact before the revenue authorities. I shall first deal with the content as to whether there was any contingent liability, namely, whether there was any agreement to pay pension in the event of dismissal. In clause 7 of the agreement it is stated that the engagement of the manager shall be determined (a) if the manager shall cease to be the director of the company and (b) if the company shall at any time give the manger six months' notice determining his engagement. In clause 8 of the agreement it is stated that if the agreement shall be terminated under clause 7(a) the manager shall be entitled to salary and commission up to the end of six months after the date of determination and if the agreement is terminated under clause 7(b) the manager shall at the option of the company work out his notice or receive salary and commission lieu of notice. In clause 9 it is stated that in the event of the manager being compelled to retire at an earlier date than the 31st March, 1955, by reason of ill-health or if his services are terminated prior to 31st March, 1955, under clause 7 or for any other reason w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that in the event of dismissal the company shall have the right to sue for damages. This right to sue for damages cannot co-exist with the obligation to pay pension. It is in my opinion indicative of the inherent intention of the parties that dismissal will extinguish payment of pension. Counsel for the assessee contended that in clause 8 the phrase if the agreement shall be terminated under clause 7 occurred and yet it is provided in clause 9 that pension will be payable in the event of such termination of the agreement and therefore it was not the intention of the parties that pension would be wide out in the event of termination of the agreement. This contention of the assessee is fallacious inasmuch as termination of the agreement under clause 7 means determination of engagement of services and it specifically provided for payment of salary and commission in clause 8 and again provides for payment of pension in clause 9 in the event of termination under clause 7, whereas in clause 14 it is stated that the company shall have the right to dismiss and terminate the agreement without any notice or payment of salary and commission. The termination of agreement under clause 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly and exclusively for the purpose of the business and relied on the decision of the Supreme Court in Indian Molasses case [1959] 37 I.T.R. 66; [1959] Suppl. 2 S.C.R. 964, where the contention of payment to the wife as being not wholly and exclusively for the purpose of bonuses was not allowed to be raised. He also referred to the decisions of the Supreme Court in Commissioner of Income-tax v. Chandulal Keshavlal Co. [1960] 38 I.T.R. 601; [1960] 3 S.C.R. 38 and Commissioner of Income-tax v. Royal Calcutta Turf Club [1961] 41 I.T.R. 414; [1961] 2 S.C.R. 729 for the proposition that the question whether the item of expenditure was wholly and exclusively laid out for the purpose of business depends on facts. Counsel for the Commissioner distinguished Indian Molasses case* on the reasoning that there the Tribunal had merely found expenditure did not find the other ingredients in section 10(2)(xv) in order to allow the expenditure as a deduction and the case had to go back to the Tribunal to decide all the elements present in section 10(2)(xv), whereas in the present case the Tribunal allowed the deduction and did not leave anything to be done by the revenue authority. Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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