Accrued statutory liability governs deduction under the mercantile system despite book omission or pending challenge.

Additional royalty fixed by the Government was treated as a statutory liability recoverable as land revenue, so it accrued during the relevant year and was deductible under the mercantile system. The Court held that omission to make a book provision did not defeat the deduction because accrual depends on the legal obligation, not accounting entries. Pendency of a writ petition challenging the revised rate also did not make the liability contingent, since the obligation remained enforceable unless set aside. The Tribunal's view that the item was uncertain and followed a cash basis for this liability was unsustainable, and the deduction was allowed.

---

---

Issues: Whether the additional royalty liability claimed by the assessee was a contingent liability or a statutory liability, and whether the absence of provision in the books or the pendency of the writ petition disentitled the assessee to deduction.

Analysis: The royalty revised by the Government was a liability fixed by a statutory authority and recoverable as land revenue. The Court treated royalty as a tax and relied on the principle that, under the mercantile system, a deduction depends on the legal obligation accrued during the relevant year and not on the assessee's book entries. The mere fact that the assessee disputed the revised rate in writ proceedings did not convert an accrued statutory liability into a contingent one. The finding of the Tribunal that the liability was uncertain and that the assessee had adopted a cash system for this item was held to be unsustainable.

Conclusion: The additional royalty liability was held to be a certain statutory liability and not a contingent liability, and the assessee was entitled to the deduction.

Final Conclusion: The reference was answered in favour of the assessee on all material questions, and the disallowance made by the Tribunal was set aside.

Ratio Decidendi: A liability imposed by law and accrued during the accounting year is deductible under the mercantile system notwithstanding its omission from the books or the fact that its quantum is under challenge.

---