COMMISSIONER OF INCOME TAX WEST BENGAL - I, CALCUTTA.versusASSOCIATED ELECTRICAL INDUSTRIES (INDIA) PRIVATE LIMITED.

                                                                    627

                                                                          A
                     WOO:SSIONER OF INCOME TAX
                     WEST BENGAL - I, CALCUTl'A.
                                   Vo
                  ASSOCIATED ELECTRICAL INDUSTRIES
                     (INDIA) PRIVATE LIMITED.
                                                                          B
                           OCTOBER 10, 1985

               [V.D. TUl2APURKAR AND R.S. PATHAK, JJ.]
                           '
      Indian    Income   Tax Act   1922   Sections   10(2)   (xv)   and
10(4)(c).                                                                 c
      Company - Pension and Life Assurance Plan for employees -
Company contributing to premium - Plan rules amended to make
direct payment of policy amount to members - Company having no
control over money - Expenditure incurred on contribution by
                                                                          D
company to Plan - Whether an allowable deduction•

      The asses see, is s' .firm carrying on the busine&s of
Electrical Engineers and Contractors. It put into effect a
pension and Life Assurance Plan for its Europe&n employees about
the year 1948 and took out policies with a Life Assurance Society
                                                                          E
in the name of those employees. Under the Plan, rules were framed
and the assessee paid his part of the contribution to the premium
and the employees whose lives were insured their portion of the
premium. The assessee claimed a deduction every year of the sums
paid by it by way of its contribution to the premium and the
Income-Tax Department allowed the sum as a deductible expenses.
However, for the first time, the Income-tax Officer disallowed
                                                                          F
the claim in respect of the assessment year 1956-57.

      The assessee 1s appeal to the Appellate Assistant Commis-
sioner, was dismissed on the · ground that the provisions of
Clause (c) of sub-a. (4) of s. 10 of the Act barred the allowance
claimed by the assessee as ·no· effective arrangements had been
                                                                          G
made by the assessee to secure that tax would be deducted at
source from the amounts paid fiDally to the employees by the
Society in terms of the policies.

      In further appeal, the Income-Tax Appellate Tribunal
allowed the appeal in part, holding that all the contributions
made in the relevant year by the assessee to the premium on the
                                                                          H
life policies of the Plan Members were not allowable as
     628              SUPREME COURT REPORTS       [1985] SUPP.3 s.c.R.


     deductions in the hands of the assessee, and what was allowable
     were the contributions made by the assessee to the policies of
     such employees who had actually been paid pensionary and
     retirement benefits by the Society.

           After compl,eting the assessment for the year 1956-57, the
     Income Tax Officer reopened the assessments of the assessee for
B    the assessment years 1948-49 to 1955-56 under s. 34 of the Act
     and disallowed the deductions which had been allowed earlier. On
     appeal by the assessee, the Appellate Assistant Comllissioner
     allowed the deductions claimed in respect of payments made by the
     Society to the employees in those years. The relevant rules under
     the Plan were amended on December 21, 1957 by the Board of
     Directors to provide that the amount due under the policies would
c    be paid to the Plan Members entitled thereto, leaving the
     assessee with no control over the moneys.

            For the assessment year 1959-60, the asseasee claimed a
     deduction of all the contributiona made by it towards the
     payments on the policies. The Income Tax Officer, however, only
     allowed the contribution made in the relevant previous year on
j)
     the ground that the offending rules had been amended but he did
     not allow the claim in respect of contributiona made in earlier
     years.

           The assessee appealed against the disallowance of the ciai.m
     respecting contr-ibutions made in earlier years and the Appellate
E    Assi~tant Collllliasioner, allowed only the total contribution made
     by the assessee to the Pension Fund and the payment made by the
     Society in the assessment years 1959-60 and 1960-i'il and rejected
     the remaining claim.

           The aasessee filed a second appeal before the Income Tax
F    Appellate Tribunal which held that the deductions were
     permissible under Clause (xv) of sub-Section (2) of section 10 of
     the Act, and that Clause (c) of sub-Section (4) of s. 10 of the
     Act did not come in the way, and allowed the appeal.

           The Appellate Tribunal at the instance of the Revenue, made
G    a reference to the High Court which answered the question of law
     in favour of the assessee and against the Revenue.

            In the appeal, by the Revenue to this Court it was
      contended on behalf of the Revenue (l) that the expenditure
      cannot be said to have been incurred during the accounting year
 H
                             I

                    C.I.T.   v.II ASSOCIATED ELECTRICAL            629


relevant to the assessment year 1959-60 as the assessee had made          A
payments by way.of contribution to the premium in earlier yesrs
and no part of the amount in question could be said to have been
made in the relevant accounting year, and (2) that the bar of
Clause (c) of sub-section (4) of section 10 of the Act operated
as there was no scope for assuming that tax had been deducted at
·s~ce_ by    the assessee.                                                B

         Dismissing the Appeal,

      HELD:. l.(a) Payments in ..the instant case were made as
contribution' to the premium in the earlier years, at a time when
the rules. permitted the assessee to receive. back the aloounts           .c
contributed by it under the Plan. lt cannot be said then that
when   those payments were made they · could be regarded as
expenditure laid out or expended within the terms of Clause (xv)
of su~ection (2).of section 10 _of the Act. [632 H - 633 AJ

      2.(b) Pursuant to the resolution by the Board of Directors          D
on December 21,' 1957 the rules were revised and amended. As a
result, payment;. made earlier over which, ·under the ·original
rules, the assessee had maintained its control, now passed from
that control to · the Plan Members. The entire amount Jlll.lSt be
regarded as having been ·expended by · the assessee during the
accounting period relevant to the assessment. year 196~1.                 E
[633 B - CJ             .

       Indian !!glasses Co. (P) Ltd· v. C,,,,,.,fsstooer of lDccme Tm<,
West lleDgal, [1959J .37 l.T.R •. 66, Conmfssioner of Inc.- Tm<,
Citln1tta v. Anderson Wright Ltd., [1962] 46 l.T.R. 715, Qimis-
aioner of lDcQme-Tax, West Bengal. - l v. Ind1an llolaaaes Co. P.
Ltd., [1970] 78 1.T.R. 474 and Cmrnfssiooer of Income-Tm<, Kanpur         F
V• Lakabmf. Ratan Cotton HUla Co •. Ltd.. [ 1976 J 104 l. T.R. 319
distinguished.

         2. A f1nding ·of fact has been recorded in the instant case
 by the Appellate Assistant Comnissioner; 'and thereafter confirmed
 in appeal .by the ·Appellate Tribunal, that Jax had been deducted        G
 at source - by the · assessee when making payment of its
 contributions to the premium due on the life policies. Tbat
 finding of fact was never challenged·and this Court cannot permit
 it -to be assailed now. [633 DJ                           ·    ·


 1973.
         ClVlL' APPELLATE JURISDICTION : . Civil Appeal No. • 1404 of
                                                                          H    •
         From the Judgment and Order.dated 17.2.1971 of the Calcutta
 l!igb Court in Income Tax Reference No.• 148 of 1965.
    630                SUPREME COURT REPORTS       [1985] SUPP.3 s.c.R.

A
            S.T, Desai, and Miss A. Subhashlni for the Appellant.

            A,K, Sen, T.A, Rsmachandran and D,N, Gupta for the Respon-
    dent.

B           The Judgment of the Court was delivered by

          PATHAK, J, This appeal by special leave is directed against
    the judgment of the Calcutta High Court answering the following
    question of law against the Revenue on a reference made by the
    Income-tax Appellate Tribunal :-

c                "Whether on the facts and in the circumstances of the
                 case the Tribunal was right in holding that the
                 difference between Rs. 2,09,920.88 np. and the amount
                 that had been allowed by the Appellate Assistant
                 Commissioner was a business expenditure incurred by
                 the assessee in the relevant previous year and in
                 allowing the same as a deductible expenditure"?
D
         The assessee, who is the respondent before us, carries on
    business as Electrical Engineers and Contractors with its Head
    Office in Calcutta and branches in different parts of the
    country. The aasessee put into effect a Pension and Life
    Assurance Plan for its European employees in about the year 1948,
E   Pursuant to the Plan it took out policies with the Scottish
    Widows' Fund and Life Assurance Society in the nsme of those
    employees. Under the Plan rules were framed, and the assessee
    paid his part of the contribution to the premium in respect of
    the policies taken with the Society. The employees whose lives
    were insured also paid their portion of the premium and thereupon
F   became Plan Members. 'The original rules under the Plan enabled
    the assessee to obtain receipt of the moneys assured in certain
    circumstances and .the assessee had also a right to direct a
    particular mode of disposal of the funds of the Plan. The
    assessee claimed a deduction every year of the sums paid by it by
    way of its contribution to the premium in respect of the said
G   policies. Originally, the aDDunt so contributed by the assessee
    towards payment of the premium was allowed by the Income-tax
    Department as a deductible expense. For the first time, however,
    the Income-tax Officer disallowed the claim in respect of the
    assessment year 1956-57. On appeal by the assessee against the
    assessment, the Appellate Assistant Commissioner found that the
H   assessee had treated its contribution to the premium as part of
    the salary of the respettive employees on whose lives the
           C,I.T. v. ASSOCIATED ELECTRICAL [PATHAK, J, J       631

                                                                      A
policies had been taken and had also deducted tax at sour.:e from
the salary, and the contributions made by the asseseee constitu-
ted a revenue expenditure falling 111.thin the terms of cl. (xv) of
sub-s. (2) of s. 10 of the Indian Income Tax Act 1922. The
Appellate Assistant Commissioner, however, dismissed the appeal
on the ground that the provisions of cl.(c) of sub-s. (4) of •·       B
10 of the Act barred the allowance claimed by the assessee inas-
1111Ch as no effective arrangements had been made by the assesaee
to secure that tax .would be deducted at source from the amounts
paid finally to the eq>loyees by the Society in terms of the
policies. '!lie Income-tax Appellate Tribunal allowed in part the
second appeal preferred by the assessee, holding that all the         c
contributions made in the relevant year by the aseessee to the
premium on the life policies of the Plan Membera were not allow-
able as deductions in the hands of the assessee, and what was
allowable were the contributions made by the asseasee co the
policies of such eqiloyees who had actually been paid pensionsry
and retirement benefits by the Society.                               D

     After coq>leting the assessment for the year 1956-57, tbe
Income-tax Officer reopened the assessments of the   aa••-    for
the assessment years 1948-49 to 1955-56 under a. 34 of tbol Act
and disallowed the deductions which had been allowed earlier. On
appeal by the assesaee againat the several aasessmente, the
Appellate Assistant Commissioner followed the approach adopted 111
the Appellate Tribunal in the appeal for the asses1111m1t year
1956-57, and allowed the deductions claimed in respect of pay-
ments made by the assessee on policies respecting which payments
had been made by the Society to the eqiloyees in those years.
     Subsequently, the relevant rules under the Plan which were       F
construed as enabling the assessee to receive the moneys assured
or to enjoy the power of control over tlisposal of the Fund were
amended on December 21, 1957 by the Board of Directors of the
assessee. ln the result, the rules now provided that the amounts
due under the policies would be paid to the Plan Members entitled
thereto. The assessee was left with no control over the moneys.       G

     For the assessment year 1959-60, with which we are
concerned, .and for which the relevant previous year is the year
November 1, 1957 to October 31, 1958, the assessee cl.simed a
deduction of all the contributions made by it towards the payment
on the policies. The Income-tax Officer allowed Rs. 27 ,069, being
the contribution made in the relevant previous year, on the           H
footing that the offending rules had been amended, but he did not
    632                SUPREME COURT REPORTS        [1985] SUPP.3 s.c.R.

A   allow' the claim in respect of contributions made in earlier
    years. The assessee appealed against the disallowaoce of the
    claim respecting contributions made in earlier years. Before the
    Appellate Assistant Colllllissioner, a statement was filed by the
    assessee showing the total contribution made by the assesses to
    the Pension Fund, and the payment made by the Society in the
B   assessment years 1959-60 and 1960-61 amounting to L8932-7-9 and
    L3315-8-3d. The Appellate Assistant Colllllissioner allowed these
    amounts only and rejected the remaining claim. The assessee filed
    a second appeal before the Income Tax Appellate Tribunal and
    restricted the claim to the amount that stood disallowed out of
    Rs. 2,09,920.88 after deduoting therefrom the equivalent of the
    two sterling payments. The assessee contended that on amendment
C   of the rules the amount representing the balant6 out of
    Rs. 2. 09, 920. 88 was liable to be considered as ao outgoing from
    the assessee during this year and shou1d, therefore, be
    considered as an allowable business expenditure. The appeal was
    allowed by the Appellate Tribunal, which held that the deductions
    were permissible under cl. (xv) of sub-s.(2) of s.10 of the Act
    and cl.(c) of sub-s. (4) of s. 10 of the Act did not come in the
D   way.

          At the instance of the Commissioner of Income-tax,. the
    Appellate Tribunal made a reference to the Calcutta High Court
    for its opinion on the question of law set forth earlier. The
    Higi:> Court has answered the question of law in favour of the
E   assessee and against the Colllllissioner of Income-tax.

          In this appeal, learned counsel for the Commissioner of
    Income-tax contends that the expenditure cannot be said to have
    been incurred during the accounting year relevant to the assess-
    ment year 1959-60 inasmuch as the assessee had made payments by
F   way of contribution to the premium in earlier years and no part
    of the amount in question could be said to have been paid in the
    relevant accounting year. Learned counsel has cited I:adian
    &lasses Co, (P) Ltd. v. Cqqmfssiouer of Iucome-Tas, West Beogal,
     [1959] 37 I.T.R. 66, C<mnteei.ooer of Incaae-tax, Calcutta v.
    Aoderson Wright Ltd., (1962] 46 I.T.R. 715, c.:-issiooer of
G   l.ncoole-'Ialr., West Bengal-I v. I:adian Molasses eo. p. Ltd •• [1970]
    78 I.T.R. 474 aod Cqqmfsslooer of Iucome-Tai<, l.an{lUr v. Laksbmi
    Katan Cotton Milla eo. Ltd., (1976] 104 I.T.R. 319. The conten-
    tion appears to us to be without substance. It is true that the
    payments were made.as contributions to the premium in the earlier
    years. But they were made at a time when the rules permitted the
H   assessee to receive back the amounts contributed by it under the
           C.I.T. v. ASSOCIATED ELECTRICAL (PATHAK, J.]        633

                                                                      A
Plan. According to the construction put on the rules it was
deemed that the asseseee continued to retain its hold on those
amounts. It cannot be said then that when those payments were
made they could be regarded as expenditure laid out or expended
within the terms of cl. (xv) of sub-s.(2) of s.10 of the Act. The
control over the moneys passed on December 21, 1957 when pursuant
to a resolution by the Board of Directors the rules were revised
                                                                      B
and amended. On that .day, payments made earlier over which, under
the original rules, the assessee had maintained its control, now
passed from that eontrol to the· Plan Members. The entire 8lllQUllt
ID.1st be regarded as having been expended by the assessee during
the accounting period relevant to the assessment year 1959-60. In
the circumstances, the cases relied on by learned counsel for the
Commissioner of Income-tax- can be of no assistance to the
Revenue.
                                                                      c
      It was further cont.!nded by learned counsel for the
Commissioner of Income-tax that the,bar of cl.(c) of sub-s.(4) of
s .10 of the Act operated in the instant case es there was uo
scope for assuming that tax had been deducted et source by the
assessee. It appears to be too late in the day for such a
                                                                      D
contention, because a finding of fact has been recorded by the
Appellate Assistant Conmf.ssioner, and thereafter confirmed in
appeal by the Appellate Tribunal, that tax had been deducted et
source by the assessee when making payment of its contributions
to the premium due on the life policies. That finding of feet was
never challenged, and we cannot permit it to be assailed now.
                                                                      E
     In the result, we hold that the High Court is right in
answering the question referred to it in the affirmative, in
favour of the assessee and against the Commissioner of
Income-tax.
                                                                      F
     The appeal is dismissed with costs.




N.V.K.                                           Appeal dismissed.