Law: Income Tax Act, 1922

Section: 251,257

Income-tax-----Business expenditure---Fund created for payment of pension to managing director and family---Surplus to be utilised for payment of pension to employees and dependants---Excess receipts over payments of specific pension carried to balance sheet---Excess payments over receipts charged to profit and loss account---Amount paid as pension to employees out of excess receipts from fund---Not allowable as deduction. On the basis of certain agreements entered into between the appellant company and S, its managing director, the Stanes and Co. Staff Pension Fund, created chiefly for payment of pension to S. and his family, was to receive certain monies calculated on certain basis. The balance left after payment of the pension to S and his family was to be utilised by the fund for payment of pension to the other employees. The accounts of the fund were shown as part of the assessee's accounts. The surplus over the payments made was credited to the pension and gratuity fund and shown in the balance-sheet. The deficit was paid by the appellant and charged to its profit and loss account. The appellant claimed the actual amounts of pension paid as a deduction in its income-tax assessments. The Appellate Tribunal allowed the claim but the High Court, on a reference, held that the income or expenditure of the fund was neither the income nor the expenditure of the appellant and hence the amounts of pension paid by the appellant to the extent of the amount available with the fund was not allowable as an expenditure m the hands of the appellant. On appeal to the Supreme Court: Held affirming the decision of the High Court, that there was no infirmity in the of the High Court and no ground to interfere. Decision of the Madras High Court in C.I.T. v. T. Stanes and Co. Ltd. (1976) 105 ITR 251 affirmed. ORDER Civil Appeals Nos.581-586 of 1976: The following question was referred to the High Court by the Income-tax Appellate Tribunal under section 66(1) of the Indian Income-tax Act, 1922 (see…

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