Accrued cess liability deductible under agricultural income tax where accounts follow the mercantile system and no payment bar exists.

Accrued cess payable on production of green tea leaves was deductible in computing agricultural income where the assessee kept accounts on the mercantile system. The Gauhati HC noted that the liability had arisen during the relevant year and that, in the absence of an express provision in the Agricultural Income-tax Act, 1939 requiring actual payment, section 43B of the Income-tax Act could not be invoked to disallow the claim. On the scheme of sections 8(2)(e), 8(2)(f)(vii) and 37 of the 1939 Act, the unpaid cess remained an allowable deduction. The disallowance by the assessing and appellate authorities was therefore unsustainable.

---

---

Issues: Whether cess payable on production of green tea leaves, though not actually paid during the accounting year, was deductible in computing agricultural income under the Agricultural Income-tax Act, 1939.

Analysis: The liability to pay cess had admittedly accrued during the relevant year. The assessee maintained accounts on the mercantile system, under which an accrued liability is ordinarily treated as expenditure. The disallowance was based on section 43B of the Income-tax Act, which requires actual payment for specified dues, but the Agricultural Income-tax Act, 1939 contained no corresponding provision. On the scheme of section 8(2)(e), section 8(2)(f)(vii) and section 37 of the Agricultural Income-tax Act, 1939, the unpaid cess could not be disallowed merely because it had not been paid during the year.

Conclusion: The deduction for cess payable was allowable, and the disallowance by the assessing and appellate authorities was unsustainable.

Final Conclusion: The assessee was entitled to deduction of the cess liability in computing agricultural income, and the impugned orders were set aside.

Ratio Decidendi: In the absence of an express statutory bar requiring actual payment, an accrued statutory liability maintained on the mercantile system is deductible for tax computation purposes.

---