Crystallisation of statutory liability allows deduction when demand becomes enforceable after legal uncertainty ends.

An employer's special contribution to the Employees' State Insurance Corporation was treated as deductible in the assessment year 1975-76 because the statutory liability, though arising from an earlier amendment, became real and enforceable only when the demand was revived after the validity of the amendment had been upheld. Applying the mercantile system, the liability was regarded as crystallised in the year when the legal controversy ended and the demand was finally made. The court also treated its earlier decision in Orient Supply Syndicate as binding. The deduction was therefore allowable in that year, and the question was answered in the assessee's favour.

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Issues: Whether the employers' special contribution to the Employees' State Insurance Corporation was allowable as a deduction in the assessment year 1975-76.

Analysis: The liability arose from the extended definition of employee under the amended Employees' State Insurance Act, but enforcement was delayed because the amendment was under challenge in various courts. The assessee did not treat the liability as finally enforceable until the authorities revived the demand after the validity of the amendment had been upheld. On the facts, the liability became real and enforceable only when the demand was made and the legal position was clarified, and the earlier decision of the same court in Orient Supply Syndicate was treated as binding.

Conclusion: The deduction was allowable in the assessment year 1975-76 and the question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: Where a statutory liability, though originating in an earlier period, becomes real and enforceable only when the legal controversy is resolved and demand is finally made, the deduction is allowable in the year in which the liability crystallises under the mercantile system of accounting.

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