Statutory carrier liability accrues on loss event, making a reasonable provision deductible despite later settlement negotiations.

A statutory liability of a common carrier under the Carriers Act accrues when the loss or non-delivery event occurs, and under the mercantile system that accrual is not postponed by continued negotiations or later settlement for a lower amount. Applying Kedarnath Jute Manufacturing Co. Ltd., the Court treated the provision as deductible in the relevant previous year because legal liability, not merely book entries or final quantification, governs the timing of deduction. Any subsequent remission or reduction in settlement would fall for adjustment under section 41(1) of the Act.

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Issues: Whether a provision made in the books by a common carrier, based on claims for loss or non-delivery of goods in the relevant previous year, is deductible in that year when the liability is statutory under the Carriers Act, notwithstanding continued negotiations and later settlement for lesser amounts.

Analysis: The liability of a common carrier under section 9 of the Carriers Act is statutory and absolute, subject only to rebuttal or special contract. In the mercantile system, a statutory liability accrues when the event giving rise to it occurs, and its quantification at a later stage does not defer accrual. The principle governing such deductions is that entries in the books are not decisive, but the legal liability arising in the relevant year is. The Court applied the rule in Kedarnath Jute Manufacturing Co. Ltd. and held that the assessee's continued negotiations with claimants did not negate accrual of liability in the relevant previous year. Any lesser payment on settlement would be dealt with under section 41(1) of the Act.

Conclusion: The provision was allowable as a deduction in the year in which it was made, and the question was answered in the affirmative in favour of the assessee.

Final Conclusion: The statutory and absolute nature of the carrier's liability made the loss-related provision deductible in the relevant assessment year, subject to adjustment of any subsequent remission or reduction under the Act.

Ratio Decidendi: Under the mercantile system, a statutory liability accrues in the year in which the event creating the liability occurs, and the subsequent quantification or settlement of the amount does not defer deductibility if the provision is made on a reasonable basis.

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