Accrued statutory tax liability deductible despite pending challenge and interim stay under mercantile accounting

A statutory vehicle tax liability accrued during the accounting year was held deductible in computing income where the assessee followed the mercantile system and had made a corresponding provision in its accounts. The existence of a pending writ petition and an interim stay on collection did not extinguish or defer the accrued liability for that year. Applying the principle that an accrued statutory liability remains allowable notwithstanding a challenge to the demand, the deduction was held admissible in favour of the assessee and against the Revenue.

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Issues: Whether the vehicle tax demanded by the Regional Transport Office was an admissible deduction in computing the assessee's income for the relevant assessment year.

Analysis: The assessee maintained accounts on the mercantile basis and had made a provision for the tax liability arising from the demand notice. The existence of a pending writ petition and an interim stay against collection did not efface the liability for the year in which it had accrued. The principle that a statutory liability, if accrued during the accounting year, is deductible notwithstanding proceedings to contest the demand was applied.

Conclusion: The deduction was allowable, and the question was answered in favour of the assessee and against the Revenue.

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