Urban land tax deduction turns on crystallised liability and demand, not the earlier period to which the tax relates.

Urban land tax paid for earlier Fasli years was deductible in computing business income only when the liability crystallised on demand and payment in the relevant previous year. The tax related to a business asset, but it did not accrue year by year merely because it pertained to earlier periods; under the urban land tax scheme, liability arose only after notice and demand. In the absence of such demand, any provision would represent only a contingent liability, not an accrued deduction. The deduction was therefore allowable in the year of demand and payment.

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Issues: Whether urban land tax paid during the relevant previous year in respect of earlier Fasli years was deductible in computing business income for the assessment year 1971-72.

Analysis: The land on which the tax was paid was a business asset, and the claim fell for consideration under the deduction provisions applicable to business income. The liability to urban land tax did not accrue year by year merely because the tax related to earlier Fasli years; under the scheme of the urban land tax law, the amount became payable only on demand and after service of notice. In the absence of such demand, any provision could relate only to a contingent liability and not an accrued one. Since the demand and payment arose during the relevant previous year, the liability crystallised in that year.

Conclusion: The question was answered in the affirmative, and the deduction was allowable to the assessee.

Final Conclusion: Urban land tax became deductible in the year in which the demand was raised and payment was made, rather than in the years to which the tax related.

Ratio Decidendi: A tax liability is deductible when it has crystallised and become payable on demand; a mere potential or contingent liability for prior periods is not deductible until it accrues in law.

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