Messrs. Calcutta Company Ltd. Vs. The
Commissioner of Income-Tax, West Bengal  INSC 83 (12 May 1959)
BHAGWATI, NATWARLAL H.
DAS, SUDHI RANJAN (CJ) HIDAYATULLAH, M.
CITATION: 1959 AIR 1165 1960 SCR (1) 185
Income-tax-Assessment of land-developing
Company-Mercantile method of accounting adopted by assessee and accepted by
Income tax Officer-Accrued liability for future development expenses, if an
allowable deduction in the accounting year Indian Income-tax Act (XI Of 1922),
The appellant company carried on
land-developing business and sold land after development on a profit. The whole
of the development was not carried out before the land was sold nor the whole
of the sale price received in cash at the time of the sale. In the accounting
year in question the appellant sold a number of plots and received a portion of
the sale price but as it maintained its accounts in the mercantile method it
entered the whole price receivable, viz., Rs. 43,692-11-9, in credit side
though only Rs. 29,392-11-9 was actually received and debited a sum of Rs. 24,809,
being the estimated expenditure for the developments it had, by terms
incorporated in the deeds of sale, undertaken to carry out within six months
thereof, although no part of it was actually spent during that year. The
appellant claimed a deduction of the said sum of RS. 24,809 in computation of
the profits and gains of its business during the assessment year. The
Income-tax Officer, while accepting the method of accounting adopted by the
appellant, disallowed the 'claim on the ground that no expenses had actually
been incurred and the estimate was only a probable one. The Appellate Assistant
Commissioner as well as the Income-tax Appellate Tribunal confirmed the
disallowance on appeals and the High Court, on a reference under S. 66(1) of
the Income-tax Act held against the appellant. The question was whether the
deduction claimed was a legally allowable expense of the year in question.
Held, that the liability which was undertaken
by the appellant under the deeds of sale was an accrued liability and not a
contingent one. Although the time of six months was not of the essence of the
contract, the undertaking it had given was unconditional and absolute in terms
and the liability must be held to have accrued on the execution of the deeds of
sale though it was to be discharged at a future date.
Keshav Mills Ltd. v. Commissioner of
Income-tax, Bombay,  S-C.R. 950, referred to.
Peter Meychant Ltd. v. Stedeford (Inspector
of Taxes), (1948) 30 T.C. 496. distinguished.
24 186 The difficulty in estimating such a
liability for purposes of debit under the mercantile system of accounting could
be no ground for treating an accrued liability as a conditional one, since it
was always open to the Income-tax authorities to arrive a proper estimate
thereof having regard to all the circumstances of the case.
Gold Coast Selection Trust Ltd. v. Humnphrey
(Inspector Taxes), [19481 A.C. 459, referred to.
Regard being had, therefore, to the accepted
commercial practice and trading principles, the estimated deduction, even if it
did not come under any of the specific provisions Of S. 10(2) of the Act, was
certainly an allowable deduction under s. 10(1) of the Act, there being no
prohibition, either express or implied, against it in the Act and,
consequently, the question must be answered in the affirmative.
Badridas Daga v. The Commissioner of
Income-tax, (1958) 34 I.T.R. 10 ; Russel v. Town and Country Bank Ltd., (1888)
13 App. Cas. 418 ; Gyesham Life Assurance Society, v. Styles, (1892) 3 T.C.
185; Pondichcry Railway co Ltd. v. Commissioner of Income-tax, Madras, (1913)
L.R. 58 .A. 239 and Income-tax Commissioner v. Chitnavis, (1932) L.R. 59 I.A.
290, referred to.
Civil, APPELLATE JURISDICTION: Civil Appeal
No. 213 of 1955.
Appeal from the judgment and order dated June
26, 1953 of the Calcutta High Court in I.T.R. No. 34 of 1952.
A.V. Viswanatha Sastri, Y. C. Talukdar and
Sukumar Ghose, for the appellant.
K.N Rajagopal Sastri and. D. Gupta, for the
1959. May 12. The Judgment of the Court was
delivered by BHAGWATI J.-This appeal with a certificate under Art. 135 of the
Constitution read with s. 66A(2) of the Indian Incometax Act raises the question
as to whether the appellant ",as entitled to a deduction of Rs. 24,809 in
the computation of its profits and gains for the assessment year 1948-49.
The appellant deals in land and property and
carries on land developing business and in the course of the said business, it
buys land, develops it so as to make it fit for building purposes and sells it
at a profit in plots. The developments undertaken are in the main, 187 that
roads are to be laid out, a drainage system to be provided and street lights installed
and they are to be maintained till the sample are taken over by the
Muncipality. The whole of the development is not carried out before the land is
sold, nor the whole of the sale price received in cash at the time of the
sales. The procedure followed is that when a plot is sold, the purchaser pays
about 25 % of the purchase price in cash and undertakes to pay the balance with
interest at a certain rate in ten annual installments which he secures by
creating a charge on the land purchased. The appellant, in its turn, undertakes
to carry out the developments within six months from the date of the, sale but
this time is not of the essence of the contract and what the appellant
undertakes is to carry out the 'developments within a reasonable time. The tinderbox
is incorporated in the deed of sale itself, whereas the security is given by
the purchaser by means of a separate document.
In the accounting year relating to the
assessment year 194849 the appellant sold a number of plots and received a
portion of the sale price from the purchasers according to the scheme mentioned
above. The appellant maintains its accounts in the mercantile method under
which money not actually received but only treated as received on the basis
that it was due and receivable is entered in the books of account on the credit
side. Even though the appellant did not receive the whole of the price, viz.,
Rs. 43,692-11-9, it entered in the credit side of its books of account the
whole of that sum representing the full sale price of the lands sold during the
accounting year though only a sum of Rs. 29,392-11-9 was actually received in
cash from the purchaser and the balance of Its. 14,300 represented the unpaid
balance retained by the purchasers the payment of which was secured by creating
charge on the said lands as also the interest received or receivable in the
year of account tinder the deeds of charge. The whole of this sum of Rs.
43,692-11-9 was, however, credited in the books of account by the appellant
according to the mercantile system of accounting adopted by it.
188 In so far as under the terms of the deeds
of sale the appellant had undertaken to carry out the developments within six
months from the date of sale it estimated a sum of Rs. 24,809 as the
expenditure for the developments to be carried out in respect of the plots
which had been sold during the year and debited the same in its books of
account on the ground that the liability for the said sum of Rs. 24,809 had
actually arisen, the appellant being bound to provide the facilities it had
undertaken to do, even though no part of that amount represented any
expenditure actually made during that year.
In the course of its assessment to income-tax
for the year 1948-49, the appellant claimed a deduction of the said sum of Rs.
24,809 in the computation of the profits and gains of its business. The
Income-tax Officer disallowed that claim on the ground that the expenses had
not been actually incurred in the year of account and also on the ground that
the estimate had not been proved to be based on a consideration of the real
expenses which the Company would have to incur for the purpose. The Appellate
Assistant Commissioner, on appeal, confirmed the disallowance by the I.T.O. on
the ground that there was as yet no accrued liability and on the further ground
that as the development would be carried out in the future, the expenditure
estimated at current prices could not be allowed.
On appeal taken by the appellant before the
Income. tax Appellate Tribunal, the Tribunal, held that it was by no means
certain what the actual cost would be when the developments were carried out
and that although the appellant had undertaken to carry out certain
developments, it could bring expenses into account only when the expenses were
actually incurred. The Tribunal accordingly dismissed the appeal.
The appellant thereafter made an application
before the Tribunal requiring it to refer to the High Court under s.
66(1) of the Income-tax Act certain questions
of law arising out of its order. The Tribunal thereupon stated a case and
referred the following question to the High Court for its decision:189 Whether
on the facts and circumstances stated above, the sum of Rs. 24,809 can legally
be allowed as an expense of the year under consideration." The statement
of case drawn by the Tribunal was severely criticized by the High Court as
under: " Unfortunately, the treatment of the question by the authorities
below has been of a somewhat summary character, presumably because it was
raised and argued before them in a superficial form. But even if such was the
case, there is hardly any justification for the Tribunal failing to realise it
least what facts were required to be found and stated.
The statement of case is sketchy and bare and
like most of the statements we have to deal with during this session, has
hardly any appearance of a case seriously stated." In spite of the above
observations the High Court dealt with the question and after dealing
exhaustively with the arguments which were urged be-fore it by the learned
Counsel for the appellant answered the question in the negative. On an
application made by the appellant, however, the High Court granted the
requisite certificate under Art. 135 of the Constitution to appeal to this
Court and lience, this appeal.
The question which really arises for our
determination in this appeal is whether having regard to the fact that the
appellant's method of accounting, viz., the Mercantile method was accepted by
the Income Tax Officer and the receipts appearing in the books of account
included the unpaid balance of the sale price of the plots in question, the
amount of liability undertaken by the appellant to earn those receipts was to
be deducted even if there had not been actual disbursement made by it during the
Put in other words, the question was whether
in view of the fact that the sum of Rs. 43,692-11-9 had been entered on the
credit side in the books of account even though it was not money actually
received but only money treated as received on the basis that it. was due and
receivable, the sum of Rs. 24,809 which had been entered as debit, being the
liability of the appellant 190 undertaken by it to earn those receipts, should
be deducted in determining the taxable profits and gains of the appellant.
The mercantile system of accounting is
well-known and this method has been explained in a judgment of this Court in
Keshav Mills Ltd. v. Commissioner of Income-tax, Bombay (1).
" That system brings into credit what is
due, immediately it becomes legally due and before it is actually received and
it brings into debit expenditure the amount for which a legal liability has
been incurred before it is actually disbursed. " The main ground on which
the claim of the appellant for deducting this sum of Rs. 24,809 ",as
disallowed by all the authorities below was that the expenditure was not
actually incurred in the year of account, it was by no means certain what the
actual cost would be when the developments "-are carried out and that there
was as yet no accrued liability but only a contingent liability undertaken by
the appellant, even though the undertaking was incorporated in the deeds of
The following were the developments
undertaken to be carried out by the appellant as appears from the order of the
Appellate Assistant Commissioner:" There was a condition in the Conveyance
deeds that the appellant does hereby covenant with the purchaser that the
appellant shall complete the construction of roads, drains, provide suitable
pucca surface drains on both sides of the roads and shall also make
arrangements for lighting up the said roads and shall maintain the said roads,
drains, lights till the same are taken over by the Municipal Besides provision
for roads, drains, etc., the ~Deed provides for filling up of low lands and
there is a clause in the Conveyance Deed which shows that the ~appellant's
shall at his own cost ~fi.11 the low lands and tank with earth and bring the
same to road level. " (~1) II9531 ~S.C.R. ~95o, 958~191 This undertaking
having been incorporated in the deeds of sale themselves there was certainly a
liability undertaken by the appellant to carry out these developments within
six months from the dates of those deeds. Time was of course not of the essence
of the contract and the appellant therefore was at liberty to carry out that
undertaking within a reasonable time. That, however, did not absolve it in any
manner whatever from carrying out the undertaking and the purchasers were in a
position to enforce the undertaking by taking appropriate proceedings in that
Reliance was placed on behalf of the Revenue
on the case of Peter Merchant Ltd. v. Stedeford (Inspector of Taxes) (1) in
which a distinction was drawn between an actual i.e., legal liability, which is
deductible, and a liability which is future or contingent and for which no
deduction can be made.
The facts of that case were that the Company
which carried on the business of managing factory canteens, had contracted with
a factory owner to maintain the crockery, cutlery and utensils used in the
canteen otherwise known as the light equipment in its original quantity and
quality. The cost of replacement was admittedly a proper deduction in computing
profits, as was also any sum paid to a factory owner in settlement of the value
of shortages on termination of the contract. Owing to war and. other
circumstances it was impossible or impracticable for the Company to obtain
replacements in some cases, and the obligations under the contracts with the
factory owners in those cases still remained to be performed. in the accounts
for the year deductions had been made both of the amounts actually expended on
replacements and the amounts which the company was liable to expend when the
equipment became available.
The Company claimed to be entitled to deduct
in computing its profits amounts representing at current prices, the liability
to effect replacements as soon as the required equipment became obtainable. The
former amounts were allowed as deductions, and the latter the Court of Appeal
(reversing the decision (1) (1948) 30 T.C. 496.
192 of the Court below) held not to be
deductible. The basis of the decision was that the real liability under the
contract was contingent, not actual, since the obligations of the company were
not such that it might be sued for the cost of 'replacements at current prices,
but only for possible damages for breach of contract in the event of the
factory owner preferring a claim under the contract, and since no legal
liability could arise until such a claim was made, the liability had-to be
regarded as contingent and not deductible.
It is clear from the above that on the facts
and circumstances of that case the Court held that it was not an accrued
liability but was merely a contingent one and if that was the case only the
sums actually expended could be deducted and not those which the company was
liable to expend in the future.
Simon in his " Income-tax ", Second
Edition, Vol. II, at p. 204 under the caption " Accrued Liability "
observes as under, after citing the case mentioned above:-.
"In cases, however, where an actual
liability exists, as is the case with accrued expenses, a deduction is
and this is not affected by the fact that the
amount of the liability and the deduction will subsequently have to be varied.
A liability, the amount of which is deductible for income-tax purposes, is one
which is actually existing at the time of making the deduction, and is distinct
from the type of liability accruing in Peter Merchant8 Ltd. v. Stedeford (inspector
of Taxes) which although allowable on accountancy principles, is not deductible
for the purpose of income-tax. " Approaching the question before us in the
light of the observations made above we have got to determine what was the
nature of the liability which was undertaken by the appellant in regard to the
development of the lands in question, whether it was an accrued liability or
was one which was contingent on the happening of a certain event in the future.
There is no doubt that the undertaking to
carry out the developments within six months from the dates of 193 the deeds of
sale was incorporated therein and that undertaking was unconditional, the
appellant binding itself absolutely to carry out the same. It was not dependent
on any condition being fulfilled or the happening of any event, the only
condition being that it was to be carried out within six months which in view
of the fact that the time was not of the essence of the contract meant a
reasonable time. Whatever may be considered a reasonable time under the
circumstances of the case, the setting up of that time limit did not prescribe
any condition for the carrying out of that undertaking and the undertaking was
absolute interims. If that undertaking imported any liability on the appellant
the liability had already accrued on the dates of the deeds of sale, though
that liability was to be discharged at a future date. It was thus an accrued
liability and the estimated expenditure which would be incurred in discharging
the same could very well be deducted from the profits and gains of the
Inasmuch as the liability which had thug
accrued during the accounting year was to be discharged at a future date the
amount to be expended in the discharge of that liability would have to be
estimated in order that under the mercantile system of accounting the amount
could be debited before it was actually disbursed.
The difficulty in the estimation thereof
again would not convert an accrued liability into a conditional one, because it
is always open to the Income-tax authorities concerned to arrive at a proper
estimate thereof having regard to all the circumstances of the case. That it
can be so done is illustrated by Gold Coast Selection Trust Ltd. v Humphrey
(Inspector of Taxes) (1) where a particular asset which could not be
immediately realised in a commercial sense was valued in money for income-tax
Purposes in the year of its receipt and it was observed by Viscount Simon:"
It seems to me that it is not correct to say that an asset, such as this block
of shares, cannot be valued in money for income-tax purposes in the (1) 
A.C. 459, 469.
25 194 year of its receipt because it cannot,
in a commercial sense, be immediately realized. That is no reason for saying
that it is incapable of being valued, though, 'if its realization cannot take
place promptly, that may be a reason why the money figure set against it at the
earlier date should be reduced in order to allow for an appropriate interval.
Supposing, for example, the contract conferring the asset on the taxpayer
included a stipulation that the asset should not be realized by the transferee
for five years, and that if an attempt was made to realise it before that time,
the property in it should revert to the transferor. This might seriously reduce
the value of the asset when received, but it is no reason for saving that when
received it must be regarded as having no value at all.
The Commissioners, as its seems to me, in
fixing what money equivalent should be taken as representing the asset, must
fix an appropriate money value as at the end of the period to-which the
appellant's accounts are made up by taking all the circumstances into
consideration." As in the case of assets received during the accounting
year which could not be immediately realized in a commercial sense, so in the
case of liabilities which have already accrued during the accounting year,
though they may not have to be discharged till a later date. It will be always
open to the Income-tax authorities to fix an appropriate money value of that
liability as at the end of the accounting period by taking all the
circumstances into consideration and the estimate of expenses given by the
assessee would be liable to scrutiny at their hands having regard to all the
facts and circumstances of the case.
The High Court was, therefore, clearly in
error when it stated:" In view of all the circumstances of the case it
must in my opinion, be held that the amounts of sale-price, not received in
cash, were also received and for the purpose of earning the receipts the
assessee spent, besides giving the lands, nothing more than a promise. Since
the whole amount was actually received in the year of account before and 195
without making the promised expenditure, no question of allowing a deduction of
any expenditure from such receipts of the year arises." If then the
estimated expenses which would have to be incurred in duly discharging that
liability which was undertaken by the appellant and was incorporated in the deeds
of sale could be deducted in accordance with the mercantile system of
accounting adopted by the appellant and accepted by the I.T.O., is there
anything in the Income-tax Act which would prevent this debit being allowed as
a deduction in the computation of the profits and gains of the appellant's
business? The appellant, had, it appears, claimed this deduction as and by way
of expenditure wholly laid out for the purposes of its business under s.
10(2)(xv) of the Income-tax Act. On an interpretation of that provision,
the-High Court was inclined to hold, though it did not decide the question,
that to the extent that a definite liability had accrued about which all
preliminary proceedings causing the accrual of the liability in a concluded
form had already been gone through although the actual disbursement had not yet
taken place, s. 10(2)(xv) would cover accrued liabilities though the amount may
not actually have been expended on the footing that the liability being
certain, the amount was as good as spent and on that basis there would be room
in the clause for debits which are proper debits under the mercantile system of
accounting. It, however, distinguished the present case on the ground that the
liability here was a floating liability, the measure of which depended upon the
will of the appellant and the discharge of which rested only in a promise and
that the expenses were entirely at large and the development work itself merely
Apart, however, from the question whether s.
10(2) (xv) of the Income-tax Act would apply to the facts of the present case,
the case is in our opinion, well within the purview of s. 10 (1) of the
Income-tax Act. The appellant here is being. assessed in respect of the profits
and gains of its business and the profits and gains of the business cannot be
determined unless and until he expenses or the obligations which have been
incurred are set off against the receipt's The expression profits and gains has
to be understood in its commercial sense and there can be no computation of
such profits and gains until the expenditure which is necessary for the purpose
of earning the receipts is deducted there from whether the expenditure is
actually incurred or the liability in respect thereof has accrued even though
it may have to be discharged at some future date. As was observed by Lord
Herschell in Bussel v. Town and County Bank, Ltd.('):
" The duty is to be charged upon I a sum
not less than the full amount of the balance of the profits or gains of the
trade, manufacture, adventure, or concern'; and it appears to me that that
language implies that for the purpose of arriving at the balance of profits all
that expenditure which is necessary for the purposes of earning the receipts
must be deducted, otherwise you do not arrive at the balance of profits,
indeed, otherwise you do not ascertain, and' cannot ascertain, whether there is
such a thing as profit or not. The profit of a trade or business is the surplus
by which the receipts from the trade or business exceed the expenditure necessary
for the purpose of earning those receipts. That seems to me to be the meaning
of the word " profits " in relation to any trade or business. Unless
and until you have ascertained that there is such a balance, nothing exists to
which the name " profits can properly be applied." A similar opinion
was expressed in the Gresham Life Assurance Society V. Styles (2) :" When
we speak of the profits or gains of a trader we mean that which he had made by
his trading. Whether there be such a thing as profit or gain can only be
ascertained by setting against the receipts the expenditure or obligations to
which they have given rise." These are no doubt observations from the
English cases dealing with English statutes of Income-tax, but the general
principles which can he deduced there from (1) (1888) 13 App. Cas. 418, 424 (2)
(1892) 3 T. C. 185 197 are, nevertheless, applicable here and it was stated by
Lord Macmillan in Pondicherry Railway Co., Ltd. v. Commissioner of Income-tax,
Madras (1) " English authorities can only be utilised with caution in the
consideration of Indian Income-tax cases owing to the difference in the
relevant legislation, but the principle laid down by Lord Chancellor Halsbury
in Gresham Life Assurance Society v. Styles (supra), is of general application
unaffected by the specialities of the English Tax system. " The thing to
be taxed", said his Lordship, "is the amount of profits or gains
". The word " profits ", I think, is to be understood in its
natural and proper sense in a sense which no commercial man would
misunderstand."' It may be useful to observe at this stage that prior to
the amendment of the Indian Income-tax Act in 1939, bad and doubtful debts were
not treated as deductible allowance for the purpose of computation of profits
or gains of a business, The Privy Council in the Income-tax Commissioner v.
Chitnavis observed:" Although the Act nowhere in terms authorises the
deduction of bad debts of a business, such a deduction is necessarily
allowable. What are chargeable to income-tax in respect of a business are the
profits and gains of a year; and in assessing the amount of the profits and
gains of a year account must necessarily be taken of all losses incurred
otherwise you would not arrive at the true profits and gains." The High Court
in disallowing the claim of the appellant in the present case only considered
the provisions of s. 10 (2)(xv) of the Act and came to the conclusion that on a
strict interpretation of those provisions the sum of Rs.
24,809 was not an allowable deduction. Its
attention was drawn by the learned Counsel for the appellant to the provisions
of s. 10(1) of the Act also but it negatived this argument observing that under
the Indian Act, the profits must be (1) (193i) L. R. 58 1. A. 239, 252.
(2) (1932) L. R. 59 I. A. 290, 296.
198 determined by the method of making the
statutory deductions from the receipts and any deduction from the business
receipts, if it was to be allowed, must be brought under one or the other of
the deductions mentioned in s. 10(2) and that there was no scope for any
preliminary deduction under general principles. It was, however, held by this
Court in Badridas Daga v. The Commissioner of Income-tax(1) " It is to be
noted that while s. 10(1) imposes a charge on the profits or gains of a trade,
it does not provide how those profits are to be computed. Section 10(2)
enumerates various items which are admissible as deductions, but it is well
settled that they are not exhaustive of all allowances which could be made in
ascertaining profits taxable under S.
10(1)." Venkatarama Aiyar, J., who
delivered the Judgment of this Court then proceeded to discuss the cases of
Commissioner of Income-tax v. Chitnavis(2), Gresham Life Assurance Society v.
Styles (3) and Pondicherry Railway Co. v. -Income-tax Commissioner(4), and
observed:" The result is that when a claim is made for a deduction for
which there is no specific provision in s. 10(2), whether it is admissible or
not will depend on whether, having regard to accepted commercial practice and
trading principles, it can be said to arise out of the carrying on of the
business and to be incidental to it. If that is established, then the deduction
must be allowed, provided of course there is no prohibition against it, express
or implied, in the Act.
Turning now to the facts of the present case,
we find that the sum of Rs. 24,809 represented the estimated expenditure which
had to be incurred by the appellant in discharging a liability which it had
already undertaken under the terms of the deeds of sale of the lands in
question and was an accrued liability which according to the mercantile system
of accounting the appellant was entitled to debit in its books of account (1)
(1958) 34 I.T.R. 10, 14.
(2) (1932) L.R. 59 I.A. 290, 296.
(3) (1892) 3 T.C. 185.
(4) (1931) L.R. 58 I.A. 239, 252.
199 for the accounting year as against the
receipts of Rs.
43,692-11-9 which represented the sale
proceeds of the said lands. Even under s. 10(2) of the Income-tax Act, it
possibly be urged that the word " expended
was capable of being interpreted as " expendable "or to be expended
" at least in a case where a liability to incur the said expenses had been
actually incurred by the assessee who adopted the mercantile system of
accounting and the debit of Rs. 24,809 was thus a proper debit in the present
case. We need not however base our decision on any such consideration. We are
definitely of opinion that the sum of Rs. 24,809 represented the estimated
amount which would have to be expended by the appellant in the course of
carrying on its business and was incidental to the same and having regard to
the accepted commercial practice and trading principles was a deduction which,
if there was no specific provision for it under section 10(2) of the Act was
certainly allowable deduction, in arriving at the profits and gains of the
business of the appellant under section 10(1) of the Act, there being no
prohibition against it, express or implied in the Act.
It is to be noted that the appellant had led
evidence before the Income-tax authorities in regard to this estimated
expenditure of Rs. 24,809 and no exception was taken to the same in regard to
the quantum, though the permissibility of such a deduction was questioned by
them relying upon the provisions of s.10(2) of the Act.
It therefore follows that the conclusion
reached by the High Court in regard to the disallowance of Rs. 24,809 was wrong
and it should have answered the referred question in the affirmative.
Before we conclude, we are bound to observe
that having accepted the receipts of Rs. 43,692-11-9 in their totality even
though a sum of Rs. 29,392-11-9 only was actually received by the appellant in
cash, thus making the' appellant liable for income-tax on a sum of Rs. 14,300
which had not been received by it during the accounting year, it was hardly
open to the Revenue to urge that the sum of Rs.
24,809 should not have been allowed as a
permissible deduction before 200 arriving at the profits or gains-of the
appellant which were liable to tax. Consistently enough with this attitude, the
Revenue ought to have expressed its willingness to treat only a sum of Rs.
29,392-11-9 as the actual receipt of the appellant during the accounting year
and made up the computation of the profits and gains of the appellant's business
on that basis. The Revenue, however, did nothing of the sort and insisted upon
having its pound of flesh, asking us to delete the whole of the item of Rs.
24,809 from the debit side of the account which it was certainly not entitled
We accordingly allow the appeal, set aside
the judgment of the High Court and answer the referred question in the
affirmative. The respondent will of course pay the appellant's costs