Accrued liability for forest compensation requires crystallised quantification; provisional intimation alone does not allow deduction.

Forest compensation under the Orissa Forest Contract Rules, 1966 was not deductible as an accrued liability because the amount had not been quantified or crystallised within the accounting year. The rule required assessment by the Divisional Forest Officer, with an appeal to the Conservator of Forests, so mere interim reports or intimation of infractions did not create a definite enforceable liability. As the claim remained disputed and unascertained, it was contingent rather than accrued. The deduction was therefore disallowed and the reference answered in favour of the Revenue.

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Issues: Whether the amount claimed towards forest compensation was deductible as an accrued liability for computing taxable income.

Analysis: The compensation liability under rule 17 of the Orissa Forest Contract Rules, 1966 was not fixed merely on the service of interim reports or intimation of infractions. The rule contemplated assessment of compensation by the Divisional Forest Officer, with a right of appeal to the Conservator of Forests. Since the amount had not been quantified within the accounting year and the claim itself was disputed, the liability had not crystallised into a definite and enforceable figure. A liability that is contingent or unascertained cannot be treated as an accrued deduction for income-tax purposes.

Conclusion: The claim was not allowable as an accrued liability and the answer to the referred question was in the negative, in favour of the Revenue.

Final Conclusion: The assessed compensation could be deducted only when it became quantified and crystallised in accordance with the governing forest rules, not on the basis of provisional intimation alone.

Ratio Decidendi: For deduction in computing income, a liability must be actual and crystallised during the relevant year; a contingent or merely estimated liability, pending statutory quantification, is not deductible.

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