PANKAJA MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is the Pankaja Mills Limited. In relation to the assessment year 1952-53, the account year of which ended with the 31st December, 1951, the assessee company debited a sum of Rs. 70,000 by way of bonus. THE Income-tax Officer disallowed this deduction from the income returned, stating that it could be allowed only as and when actually paid. THE Appellate Assistant Commissioner agreed with this contention and the further appeal to the Appellate Tribunal also failed. In these circumstances, on the application of the assessee, the question :

(2.) IT is in respect of these liabilities that the company purported to make a provision in the accounts relevant to the assessment year and sought to deduct a sum of Rs. 70,000 from its returned income. The question accordingly is whether the assessee company is entitled to deduct these amounts even in advance of actual payment. We have already stated that the department and the Tribunal have taken the view that the amounts are not deductible until they were actually paid. If that conclusion is correct, the deduction would be allowable only in respect of the assessment year 1953-54.

(3.) IT is clear from the above decision that if a legal liability had been incurred, it is open to the assessee adopting the mercantile system of accounts to debit the estimated expenditure even before the amount was actually expended.