Assessee-firm had a contractual obligation recorded in the partnership deed to provide post-retirement benefits to an employee, who was also a partner. To fulfil this obligation, it entered into an arrangement with LIC and paid a premium to secure a monthly annuity, payable on retirement or on attaining 70 years of age or on completion of 25 years of service. Assessee claimed premium payment as a deductible business expenditure. The AO disallowed the claim. CIT(A) allowed the claim. On appeal, the Tribunal affirmed the order of the AO. On appeal, the Court held that payment made towards LIC premium to ensure a monthly annuity for a retired employee in terms of an agreement entered into between partners should be classified as an expenditure towards a liability actually existing at the time of payment and not a contingent liability. Order of the Tribunal set aside.