Deduction for interest and accrued liability allowed when arbitral adjustment created fresh obligation in the relevant year.

Interest paid to a Sugarcane Society and interest payable on cane commission were deductible under section 37(1), following the Supreme Court ruling in Mahalakshmi Sugar Mills Co. v. CIT, so the claim was allowed against the Revenue. The sum of Rs. 26,862 was also allowable in assessment year 1969-70 because the liability arose afresh in the relevant previous year when the arbitral adjustment was implemented and the society withdrew its claim, making the deduction properly referable to that year. Both referred questions were answered in favour of the assessee.

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Issues: (i) whether interest payment to the Sugarcane Society and interest payable on cane commission were admissible as deduction under section 37(1) of the Income-tax Act, 1961; (ii) whether the sum of Rs. 26,862 was admissible as deduction in the assessment year 1969-70.

Issue (i): whether interest payment to the Sugarcane Society and interest payable on cane commission were admissible as deduction under section 37(1) of the Income-tax Act, 1961.

Analysis: The point stood covered by the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT, and the Revenue did not successfully dispute the applicability of that principle.

Conclusion: The question was answered against the Revenue and in favour of the assessee.

Issue (ii): whether the sum of Rs. 26,862 was admissible as deduction in the assessment year 1969-70.

Analysis: The amount had been claimed and treated in earlier years, but the liability to pay it arose afresh only when the arbitrator's decision was complied with and the society withdrew its claim during the relevant accounting year. On that basis, the liability accrued in the previous year relevant to assessment year 1969-70.

Conclusion: The deduction was rightly allowed and the question was answered against the Revenue and in favour of the assessee.

Final Conclusion: Both referred questions were decided against the Revenue, and the assessee's claim for deduction was sustained.

Ratio Decidendi: Where a liability to pay arises afresh during the relevant accounting year on compliance with an arbitral adjustment, the deduction is allowable in that year notwithstanding an earlier claim or mercantile accounting basis.

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