Accrual of liability depends on statutory approval; both surtax and collaborator payments were held non-deductible before approval.

Surtax liability was not deductible in computing income because binding Supreme Court authority had already rejected that claim. Compensation and fees payable to a non-resident collaborator were also not deductible for the relevant assessment year, as the obligation to pay depended on prior approval and sanction by the Central Government and the Reserve Bank of India; without such approval in force during the year, no accrued liability arose. The legal principle stated is that where payment is contingent on statutory approval or sanction, the liability accrues only on the grant of that approval and cannot be deducted before that date.

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Issues: (i) Whether the surtax liability was allowable as a deduction in the computation of income. (ii) Whether the compensation and fees payable to the non-resident collaborator were deductible for the assessment year despite absence of approval or sanction for the relevant period.

Issue (i): Whether the surtax liability was allowable as a deduction in the computation of income.

Analysis: The controversy on surtax deduction stood covered by binding Supreme Court authority holding the issue against the assessee.

Conclusion: The surtax liability was not allowable as a deduction and the answer was against the assessee.

Issue (ii): Whether the compensation and fees payable to the non-resident collaborator were deductible for the assessment year despite absence of approval or sanction for the relevant period.

Analysis: The liability to pay the compensation depended upon approval and sanction by the Central Government and the Reserve Bank of India. Since no approval was in force for the relevant year, the liability had not accrued during that year. A deduction can be claimed only when the liability has actually accrued, and where accrual is contingent on statutory approval, it arises only upon such approval.

Conclusion: The compensation and fees were not deductible for the assessment year in question and the answer was against the assessee.

Final Conclusion: The reference was answered wholly in favour of the Revenue, with the deductions claimed by the assessee disallowed for the relevant year.

Ratio Decidendi: Where liability to make payment is contingent upon statutory approval or sanction, the liability accrues only on the grant of such approval and cannot be deducted before that date.

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