Business expenditure and cash basis taxation accepted where liability arose in-year and reimbursement was consistently accounted for on receipt.

A liability arising during the relevant previous year may be allowed as business expenditure even if part of the contribution is paid after year-end, where the claim is for actual expenditure incurred pursuant to a government direction and not for a weighted deduction. Reimbursement of students' concession pass claims could not be taxed on an accrual basis where the assessee had consistently followed cash basis for that item and there was no statutory compulsion to adopt accrual accounting for all income. The assessment treatment in both respects favoured the assessee and the Revenue's challenge failed.

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Issues: (i) Whether contribution paid to the Institute of Road Transport, partly after the close of the relevant previous year, was allowable as business expenditure for the assessment year in question. (ii) Whether reimbursement of students' concession pass claims could be taxed on accrual basis despite the assessee having adopted cash basis for that item.

Issue (i): Whether contribution paid to the Institute of Road Transport, partly after the close of the relevant previous year, was allowable as business expenditure for the assessment year in question.

Analysis: The contribution was not claimed as a weighted deduction under the provision relating to scientific research, but as actual expenditure incurred on the basis of the Government direction received near the end of the financial year. The liability arose during the relevant year and the expenditure was allowed as business expenditure.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether reimbursement of students' concession pass claims could be taxed on accrual basis despite the assessee having adopted cash basis for that item.

Analysis: The assessee had consistently adopted cash basis for this item, and there was no statutory compulsion to follow accrual basis for all income. Since the reimbursement was actually received in later years, it could not be brought to tax in the relevant assessment years on accrual basis.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: Both substantial questions were answered against the Revenue, and the appeals failed.

Ratio Decidendi: Where a liability arises during the relevant year, actual expenditure may be allowed as business expenditure, and a consistently adopted cash basis for a specific reimbursement item cannot be displaced by accrual taxation in the absence of statutory compulsion.

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