Antecedent tax liability taken over with business assets is not a deductible expense merely because it is paid later.

Payment of arrears of motor vehicle tax relating to earlier years was not deductible in computing the assessee's income, because the liability remained an antecedent burden of the original obligor and did not become an allowable expense merely when the business assets and liabilities were taken over. The alleged understanding with the State Government also did not create a fresh liability during the relevant accounting year; later discharge of an old tax obligation did not convert it into a deduction for that year. The claimed deduction was therefore disallowed and the reference answered in favour of the Revenue.

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Issues: (i) Whether the amount paid towards arrears of tax under the Kerala Motor Vehicles (Taxation of Passengers and Goods) Act could be allowed as a deduction in computing the assessee's income for the assessment year 1973-74; (ii) Whether the liability to pay that sum arose during the relevant accounting year by reason of the understanding between the assessee and the State Government.

Issue (i): Whether the amount paid towards arrears of tax under the Kerala Motor Vehicles (Taxation of Passengers and Goods) Act could be allowed as a deduction in computing the assessee's income for the assessment year 1973-74.

Analysis: The payment represented arrears of tax relating to earlier years under the transport taxation law. The liability was treated as belonging to the person who had originally incurred it, and the mere fact that the assessee had taken over the business assets along with the liabilities did not convert the discharge of that liability into an allowable deduction for the relevant accounting year.

Conclusion: The amount was not allowable as a deduction and the answer was against the assessee and in favour of the Revenue.

Issue (ii): Whether the liability to pay that sum arose during the relevant accounting year by reason of the understanding between the assessee and the State Government.

Analysis: The liability was not treated as arising afresh in the relevant accounting year merely because of the understanding under which the business was taken over. The decisive factor was that the tax burden related to an antecedent liability and its later discharge did not create a deductible liability for that year.

Conclusion: The liability was not held to have arisen during the accounting year in a manner that justified deduction, and the answer was against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered wholly in favour of the Revenue, with the claimed deduction disallowed.

Ratio Decidendi: Payment made in discharge of an antecedent liability taken over with business assets does not become an allowable deduction merely because it is paid during the relevant accounting year.

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