Accrued wage liability under mercantile accounting was deductible when rejection triggered the statutory payment obligation.

Rule 29(2) of the M.P. Beedi and Cigar Workers (Conditions of Employment) Rules, 1968 was treated as creating a present statutory obligation to pay one-half wages when bidis were rejected as sub-standard or chhat on grounds other than wilful negligence. The liability arose on rejection itself and did not depend on a worker's demand or prior adjudication, so it was an accrued and ascertainable liability under mercantile accounting. Because an accrued liability remains deductible even if payment is deferred, and later dispute may only affect quantum, the assessee was entitled to deduct the wages liability in the assessment year 1970-71. The absence of actual payment or claims by workers did not make the liability contingent.

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Issues: Whether the assessee, following the mercantile system of accounting, was entitled to deduct the liability for wages payable under rule 29(2) of the M.P. Beedi and Cigar Workers (Conditions of Employment) Rules, 1968, in the assessment year 1970-71, or whether the liability was merely contingent.

Analysis: Rule 29(2) created a present obligation to pay wages at one-half rate where bidis were rejected as sub-standard or chhat on grounds other than wilful negligence. The liability arose on rejection itself and was not dependent on prior demand by workmen or prior adjudication, though any dispute could affect the quantum payable. Under the mercantile system, an accrued liability is deductible even if payment is postponed, and a later event that may reduce or extinguish the liability does not convert an existing obligation into a contingent one. The absence of actual payment or of claims by workers did not alter the character of the liability.

Conclusion: The liability under rule 29(2) was an accrued and ascertainable liability, not a contingent liability, and the assessee was entitled to deduction in the assessment year 1970-71.

Ratio Decidendi: Where a statutory obligation to pay arises on the happening of the relevant event, the liability is accrued and deductible under mercantile accounting even though payment is deferred or the quantum may later be adjusted in dispute.

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