Mercantile system deduction for industrial adjudication liability arises only when the award finally quantifies the amount.

Under the mercantile system, a liability for dearness allowance that depended on later industrial adjudication became deductible only when finally quantified by the award. The Income-tax Act did not permit the expense to be carried back and reopened in an earlier previous year merely because the liability related to that period. The earlier view supporting retrospective deduction was not accepted in light of the later Supreme Court ruling. The sums were therefore not allowable in the assessment years claimed and were deductible only in the year of final determination.

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Issues: Whether the sums claimed as dearness allowance were allowable deductions in the relevant assessment years when the liability was quantified only by later industrial adjudication.

Analysis: The liability under the mercantile system did not become deductible merely because it related to an earlier previous year. The controlling principle applied was that where the amount payable depended upon settlement or industrial adjudication, the liability arose only when finally determined by the award. The scheme of the Income-tax Act did not permit reopening of accounts to relate the expense back to earlier years. The earlier view that such liability could be carried back to the year to which it related was not accepted in light of the later Supreme Court ruling.

Conclusion: The sums were not allowable as deductions in the assessment years claimed and were deductible only in the year when the liability was finally determined. The questions were answered against the assessee.

Ratio Decidendi: Under the mercantile system, a deduction for an industrially adjudicated liability is allowable only in the year in which the liability is finally ascertained and not in the earlier year to which it may relate.

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