Court allows deduction for interest claimed by assessee, ruling liability arose when Govt. set final rates.

The court ruled in favor of the assessee regarding the entitlement to claim interest as a deduction. The court determined that the liability for payment of interest only arose and became ascertainable on May 14, 1957, when the Government communicated the final decision on interest rates. As a result, the assessee was allowed to claim the entire amount of Rs. 75,80,183 as a deduction for the assessment year 1957-58.

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Issues Involved:
1. Entitlement to claim interest as a deduction.
2. Timing of the liability for payment of interest.
3. Ascertainability of the quantum of interest.

Summary of Judgment:

Issue 1: Entitlement to Claim Interest as a Deduction
- The court examined whether the assessee was entitled to claim Rs. 75,83,183 as interest payable on loans as a deduction from its income for the assessment year 1957-58.
- The assessee followed the mercantile system of accounting and claimed the interest as an allowable deduction in the financial year 1956-57.
- The Income-tax Officer disallowed Rs. 57,75,365, allowing only Rs. 18,07,819 for the year 1956-57.
- The Appellate Assistant Commissioner allowed the entire amount, stating the liability was determined during the assessment year.
- The Tribunal directed further examination, leading to this reference.

Issue 2: Timing of the Liability for Payment of Interest
- The court considered whether the liability arose only on May 14, 1957, when the State Government informed the assessee of the interest rates.
- The correspondence between the assessee and the Government indicated ongoing negotiations and no settled rate of interest until May 14, 1957.
- The court found that the liability remained unascertained and contingent until the Government's final decision communicated on May 14, 1957.

Issue 3: Ascertainability of the Quantum of Interest
- The court examined whether the quantum of interest payable became ascertainable only on May 14, 1957.
- The Government's letter dated February 28, 1952, proposed rates, but the assessee did not accept these terms, leading to continued negotiations.
- The court concluded that the interest liability crystallized and became enforceable only on May 14, 1957, when the Government's decision was communicated.

Conclusion:
- The court answered all questions in the affirmative and in favor of the assessee.
- The assessee was entitled to claim the entire amount of Rs. 75,80,183 as a deduction for the assessment year 1957-58.
- The liability for payment of interest arose and became ascertainable only on May 14, 1957.
- No order as to costs was made.

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