Contractual liability for development expenditure was not contingent, defeating revision and any reference question under income-tax law.

Expenditure for development work and electrification was held not to be a contingent liability where the obligation arose under binding sale agreements, even though payment was made in later years. The Court applied the principle that a liability incurred under a definite contractual obligation is allowable in computing taxable income, and on that basis found the Commissioner's revision under section 263 unsustainable on the facts. It further held that, in view of the settled legal position, no statable question of law arose from the Tribunal's order, so the reference application under section 256(2) failed.

---

---

Issues: Whether the estimated expenditure of Rs. 4,25,000 towards development work and electrification constituted a contingent liability so as to justify revision under section 263 of the Income-tax Act, 1961, and whether any statable question of law arose for reference under section 256(2).

Analysis: The liability to incur the expenditure was held to be certain under the sale agreements and was not rendered contingent merely because the actual expenditure was incurred in later years. The Court followed the principle that a liability incurred under a binding obligation can be allowed as a deduction in computing taxable income, and held that the Commissioner's assumption of jurisdiction under section 263 was not sustainable on the facts. In view of the settled legal position, no question of law arose from the Tribunal's order.

Conclusion: The estimated expenditure was not a contingent liability, the order under section 263 was not justified, and the application under section 256(2) was rejected.

---