Mercantile accounting and ascertained liability: interest on overdue deposits was deductible once it crystallised with reasonable certainty.

Interest on overdue deposits was held to be an ascertained liability deductible in the relevant year because, under the mercantile system, a liability is allowable once it has definitely arisen and can be estimated with reasonable certainty, even if quantified or discharged later. The bank had treated the obligation as crystallised under its accounting practice and the RBI circular, and had identified and quantified it in its return. The Court found no basis to treat it as contingent merely because renewal or later payment might occur, and held that the Tribunal's remand was unwarranted. The issue was answered in favour of the assessee and against the Revenue.

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Issues: Whether the liability towards interest on overdue deposits was an ascertained liability deductible in the relevant year, and whether the Tribunal was justified in remanding the issue to the Assessing Officer.

Analysis: The assessee-bank had treated the liability for interest on overdue deposits as a definite and crystallised obligation under its accounting practice and in accordance with the RBI circular. The governing principle is that under the mercantile system of accounting, a liability is allowable once it has definitely arisen in the accounting year, even if it is quantified or discharged later. The Court reiterated that the decisive test is reasonable certainty of the liability, not actual payment in the same year, and that a liability does not become contingent merely because future renewal or later payment may occur. On the facts, the bank had identified and quantified the liability in its return, and there was no basis to treat it as unascertained.

Conclusion: The liability was an ascertained liability and not a contingent one. The Tribunal's remand was unwarranted, and the question was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Under the mercantile system, a liability is deductible once it has definitely arisen and can be estimated with reasonable certainty, even if it is to be quantified or discharged later.

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