Statutory liability fund contributions and carried-forward depreciation were held deductible and adjustable for tax purposes.

Compulsory contributions made from business revenues to a statutory third party liability fund were deductible in computing taxable profits because the payment arose from a legal obligation under the governing rules and was not a voluntary appropriation of profit. Unabsorbed depreciation deemed to form part of current depreciation under the relevant proviso could also be adjusted against income under other heads, following the settled position in binding precedent. Both tax treatment questions were answered in favour of the assessee corporation.

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Issues: (i) Whether contributions made by the assessee-corporation to the third party liability fund under the statutory rules were allowable as a deduction in computing income. (ii) Whether unabsorbed depreciation deemed to form part of the current year's depreciation under proviso (b) to section 10(2)(vi) could be set off against income under other heads.

Issue (i): Whether contributions made by the assessee-corporation to the third party liability fund under the statutory rules were allowable as a deduction in computing income.

Analysis: The contribution was made pursuant to a statutory obligation created by the rules framed under section 44 of the Road Transport Corporations Act, 1950. Rule 11 required the Corporation to maintain a third party liability fund and to pay into it such sums as directed from time to time for meeting liabilities arising from the use of its vehicles. The payments were made out of the Corporation's revenues and were not voluntary appropriations of profit after accrual. Since the liability was imposed by law and the fund was maintained for meeting business-related statutory obligations, the amounts were properly deductible in computing profits.

Conclusion: The deduction was allowable and this issue was decided in favour of the assessee.

Issue (ii): Whether unabsorbed depreciation deemed to form part of the current year's depreciation under proviso (b) to section 10(2)(vi) could be set off against income under other heads.

Analysis: The question was treated as covered by the Supreme Court decision in Commissioner of Income-tax v. Jaipuria China Clay Mines (P.) Ltd., and the answer followed that settled position. The unabsorbed depreciation carried forward was to be regarded as part of the depreciation allowance of the current year and was entitled to adjustment beyond the business head in the manner recognised by that authority.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Final Conclusion: Both referred questions were answered in favour of the assessee, and the assessee-corporation succeeded in obtaining the claimed tax treatment for the disputed items.

Ratio Decidendi: A compulsory contribution made under a statutory obligation from business revenues is deductible in computing taxable profits, and unabsorbed depreciation deemed to form part of current depreciation may be set off in the manner recognised by binding precedent.

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