Non-resident company wins tax deduction case for export duty liability, court upholds Tribunal decision.

The High Court held that the assessee, a non-resident public limited company, was entitled to claim a deduction for additional export duty in the year the liability arose, even if the claim was not made before the Income-tax Officer. The Court relied on the principle of maintaining accounts on the mercantile system and previous case law supporting deductions for disputed liabilities. Consequently, the Tribunal's decision to allow the deduction of Rs. 29,33,886 was upheld in favor of the assessee, with the revenue directed to pay the assessee's costs.

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Issues involved: Determination of deduction in the sum of Rs. 29,33,886 by way of additional export duty for the assessment year 1959-60.

Summary:

The assessee, a public limited company incorporated in Great Britain, was assessed as a non-resident for the relevant assessment year. The company received demands for additional duty totaling Rs. 29,33,886 for the year 1958. The Appellate Assistant Commissioner rejected the company's claim for reduction of this amount, stating that the deduction could only be allowed in the year of payment. However, the Tribunal allowed the claim for deduction, noting that the demand was raised in the previous year relevant to the assessment year in question. The revenue contended that since the amount was not paid and the liability was disputed, the deduction should not be permitted.

The High Court referred to the principle of maintaining accounts on the mercantile system, as established in the case of Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax, where it was held that a liability incurred in an accounting year, even if disputed, entitles the assessee to claim a deduction. The Court also cited the case of Pope the King Match Factory v. Commissioner of Income-tax, which upheld the right of an assessee to claim a deduction based on a statutory liability arising in a relevant year, regardless of disputes or failure to make entries in the books of account.

The Court concluded that the assessee, maintaining accounts on the mercantile system, was entitled to claim the deduction for the additional export duty in the year the liability arose, even if the claim was not made before the Income-tax Officer. Therefore, the Tribunal's decision to allow the deduction was upheld, and the question was answered in favor of the assessee. The revenue was directed to pay the costs of the assessee.

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