Calcutta High Court allows deduction for railway siding maintenance liability

The High Court of Calcutta ruled in favor of the assessee, a resident company engaged in limestone business, allowing a deduction of Rs. 2,06,953 for liability towards maintenance of railway siding for the assessment year 1976-77. The Court held that even though the liability accrued in earlier years, it should be allowed as a deduction for the relevant part of the accounting year. The Court emphasized that the liability was known and ascertained, and upon receiving the bill from the railways, the assessee could debit the amount against the current year's profits.

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Issues Involved:
The issue involves the admissibility of a deduction claimed by the assessee for interest, maintenance charge, and depreciation payable to the Central Railway for the assessment year 1976-77.

Summary:
The High Court of Calcutta addressed the question of law referred by the Tribunal regarding the deduction claimed by the assessee for the assessment year 1976-77. The assessee, a resident company engaged in the business of raising limestone and manufacturing lime, claimed a deduction of Rs. 2,06,953 for liability towards maintenance of railway siding. The Income-tax Officer rejected the claim, stating that the liability should have been provided for in accordance with the mercantile method of accounting. However, the Commissioner (Appeals) allowed the claim, considering the liability ascertained when communicated by the Railway authorities in May 1975. The Tribunal concluded that while the liability accrued in earlier years, it should be allowed as a deduction for the relevant part of the accounting year for the assessment year 1976-77.

The Tribunal found that the liability for interest, maintenance charges, and depreciation was known and ascertained, though not quantified accurately. The High Court noted that the claim was in respect of siding charges for a specific period and was not a statutory liability. Upon receiving the bill from the railways, the assessee was entitled to debit the amount against the current year's profits. Consequently, the Court answered the question in the negative, favoring the assessee. The judgment was delivered by Justice Suhas Chandra Sen, with agreement from Justice Bhagabati Prasad Banerjee.

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