Mercantile deduction for disputed arrear rent and cess accrues only when liability becomes settled and enforceable.

Under the mercantile system, arrear rent and cess became deductible in the year the liability was finally settled and enforced by agreement, not merely because the claim related to earlier periods. The enhanced liability had remained disputed for years and became real, ascertained, and enforceable only when the agreement was executed during the previous year relevant to assessment year 1976-77. The deduction was therefore allowable in that year, even though the obligation was historically referable to earlier statutory periods.

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Issues: Whether the arrear rent and cess payable under the agreement executed during the relevant previous year had accrued and become admissible as a deduction in the assessment year 1976-77.

Analysis: The liability for enhanced rent and cess had been in dispute for years, including the State Government's own doubt about retrospective enhancement. The dispute was settled only when the agreement was executed during the previous year relevant to the assessment year 1976-77, and the agreement fastened the enhanced liability on the assessee for the first time in an enforceable form. On a mercantile basis, deduction is allowable when the liability becomes ascertained, real, and enforceable, not merely when the underlying statutory claim is historically referable to earlier years.

Conclusion: The liability accrued in the previous year relevant to the assessment year 1976-77, and the deduction was allowable in that year in favour of the assessee.

Ratio Decidendi: Even a statutory liability for earlier periods is deductible in the year in which it is finally settled and becomes real and enforceable, if the assessee maintains accounts on the mercantile system.

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