TMI Blog1974 (8) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... company was desirous of also prohibiting F. J. Stanes, the managing director, from engaging himself directly or indirectly after his retirement in any trade or business similar or competing with that carried on by the company. The company, therefore, entered into an agreement with the said Stanes with reference to the disposal of these 1,679 shares. As a machinery for carrying into effect these agreements, the company constituted a fund called the Stanes and Company Staff Pension Fund (hereinafter called "the fund"). Under one of the agreements the company agreed to pay from 1st April, 1939, into this fund for the benefit of F. J. Stanes a sum of Rs. 1,000 per month free of Indian tax as extra remuneration so long as the said F. J. Stanes shall remain a director of the company and after his retirement as pension during his lifetime and after his death to his wife till her lifetime. The amount of Rs. 1,000 is subject to reduction as and when the shares are transferred to the transferees approved by the company and such reduction is to be at the rate of Rs. 7 per month for each share so transferred and shall cease altogether when the last is transferred. It was further provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide pensions for all other employees and ex-employees of the company and their dependants. 6. The fund shall also be entitled to receive any payments made to it from time to time by the company or any other person or persons and to utilise the same or the interest or dividends on the fund's investments to provide pensions for ex-employees of the company and their dependants. 7. Except for the payments to the grantees the discretion of the trustees as to the persons entitled to benefit from the fund and the amounts to be paid out of the fund shall be final. 8. The trustees shall invest any moneys received by them as aforesaid in any investment for the time being authorised by law for the investment of trust funds, but nothing in these rules shall prohibit the trustees from purchasing shares in the company out of moneys received by them being moneys other than the excess dividends on the said 1,679 shares of the grantees referred to in rule 5 or from accepting gifts of such shares and retaining them in their existing form." As far as the office of trustees is concerned, it shall be ipso facto vacated upon a trustee ceasing to be a director of a company and the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntures in any of the companies under the management of Messrs. T. Stanes Co. Ltd., out of moneys received by them or from accepting gifts, or allotments by bonus issue or otherwise of such shares and retaining them in their existing form, and the trustees may from time to time sell, realise or vary such investments. 11. No pension shall be allotted to any employees, ex-employee or his dependants except on a recommendation from the directors of the company. 12. The fund is a non-contributory fund, and all moneys and investments of the fund having been contributed to the fund by the company, no employee or ex-employee or pensioner shall have any claim or right of property in the fund or any voice in its management, unless qualified as a trustee, and no pension is assignable." So far as the recommendation of the directors for pension as provided under rule 11 is concerned, the board of directors passed a resolution on the 30th September, 1953, setting out the qualifications necessary for an employee for allotment of pension and the criteria to be followed in respect of the same. The staff pension fund had its own accounts. For the assessment year 1959-60 in addition to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer disallowed the claim. On appeal by the assessee the Appellate Assistant Commissioner was of the view that whether there was any income from the fund or not the company will have to make the payments by way of pension to its employees in discharge of their contractual liability and the mere fact that the assessee had adjusted this payment in their books towards another income which they get from another fund, styled as the Stanes Company Ltd. Staff Pension Fund, does not change the nature of the payment. He, therefore, held that it is a deductible expenditure under section 10(2)(xv) of the Act. Revenue preferred an appeal to the Tribunal. The Tribunal held that the claim of the assessee arose out of the actual payment made to the employees and the ex-employees and by long usage and implementation this had become an obligation on the part of the assessee to grant pension to the employees and ex-employees. What the company received was only a contribution from the fund after payment to the two specified beneficiaries and income-tax and other outgoings. The assessee might have utilised these amounts for the payment of pension but the primary obligation was on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund does not affect or alter the situation. It is essentially an expenditure of the company and as such the deductions were rightly allowed. The fund was constituted, as seen from the original rules framed, for the purpose of (1) giving effect to the agreement dated March 14, 1939, made between the company and the Stanes; and (2) to provide pension for all the employees and ex-employees of the company and their dependants. Clause 6 of the original rules provide that the fund shall be entitled to receive any payments made to it from time to time by the company or any other person or persons and after meeting the expenses and pension to the Stanes the balance could be utilised for providing pension for the employees and their descendants. As seen from this clause, the payment of pension was to be by the fund itself though to the extent of the money available for distribution. While re-drafting the rules in 1952 the procedure for payment of pension was modified. Rule 9 required the fund to make over to the company the excess of income after meeting their expenses and the pension payable to the Stanes and their daughters and further provided that the whole or part of such money may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommendation from the directors of a company in any way change the position that it is a payment of pension by the fund and out of its own resources. But the obligation of the fund to pay the money was only to the extent of the money available after meeting its own expenses and payment of pension to the Stanes. We are, therefore, of the view that the amount paid as pension to the employees and their dependants is properly an expenditure of the fund and not that of the company. That is how the company has treated the same in their accounts. As we have already noted, for the assessment years 1959-60 and 1960-61, the receipt of the income by the fund was in excess of the payment of pension and the excess amount was transferred to the pension and gratuity reserve. The pension in these years was thus paid specifically from out of the sum received from the fund and in accordance with the rules and the payment was not de hors the rules and out of the funds of the company which the company could be said to have recouped from the income of the fund. Neither the income of the fund formed part of the income of the assessee nor its expenditure a part of the expenditure of the company. But, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile such is the case it cannot be denied that the payment was out of the business or commercial expediency and that it was wholly and exclusively spent for the purpose of the business. In this connection we have also to keep in mind that in order to make the company eligible for deduction of the amount paid by way of pension there need not be any particular scheme for payment of such pension governing the relationship of the employer and employee. In this connection we may also usefully quote a passage from the judgment of this court in Indian Overseas Bank Ltd. v. Commissioner of Income-tax, which reads as follows: "It is true that the assessee had no general scheme for payment of pension to its employees. But that is not conclusive of the question. Though there may be no pension scheme, still in exceptional cases, we do not see why a business concern may not enter into a contract of service providing for pension and properly claim deduction of pension paid. The principal question to be kept in view is whether the expenditure claimed is laid out for the purpose of the business, whether it is a legitimate business expenditure and whether it is in the interest of the business. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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