Accrued statutory liability in mercantile accounts may be deducted when it arises in the accounting year and is duly provided for.

Accrued statutory liability for weekly holiday wages under the Bidi and Cigar Workers (Conditions of Employment) Act, 1966, when duly provided for in mercantile accounts, was treated as an allowable deduction under the Income-tax Act, 1961. The court noted that the liability had arisen during the relevant accounting year and its quantification was not in dispute. Applying the principle recognised in prior decisions and Supreme Court guidance on mercantile accrual, the deduction was correctly allowed and no reference under section 256(2) was warranted on that issue.

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Issues: Whether, on the facts, the statutory liability for weekly holiday wages incurred under section 21 of the Bidi and Cigar Workers (Conditions of Employment) Act, 1966 and provided for in accounts kept on the mercantile system was allowable as a deduction under section 37 of the Income-tax Act, 1961, so as to justify a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The liability had admittedly accrued during the relevant year and was provided for in the assessee's mercantile accounts. There was no dispute as to quantification. The question was whether such an accrued statutory liability was deductible. The issue was treated as settled by prior decisions of the same court, applying the principle recognised by the Supreme Court, under which liabilities incurred in the accounting year and duly provided for on the mercantile system are allowable deductions.

Conclusion: The deduction was rightly allowed, and no direction for reference under section 256(2) was required. The application was therefore not maintainable on the point raised.

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