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Issues: Whether the assessee could claim deduction of the amount awarded in arbitration as an ascertained and enforceable liability before the award was made rule of the court and a decree followed.
Analysis: The award under the Arbitration Act, 1940 was held to be final and binding in the sense indicated by the Act and the First Schedule, but not immediately executable merely because it had been made. Under Section 17, after the award is filed, the Court must consider whether it should be remitted or set aside, and only thereafter pronounce judgment according to the award, with a decree following the judgment. The absence of notice of filing meant the parties still retained the right to challenge the award within the statutory period. The earlier authorities dealing with accrual or payment of a quantified liability did not govern the question of enforceability before the award became a decree. The award may create rights and have legal force, but those rights could not be enforced until the award was made a decree of the Court.
Conclusion: The liability under the award was not yet enforceable and remained a contingent liability for income-tax purposes; the deduction was rightly disallowed.
Ratio Decidendi: An arbitration award, though final and binding, does not become enforceable merely on being made; it becomes enforceable only after the statutory process under Section 17 culminates in judgment and decree, and until then the liability is contingent rather than ascertained and enforceable.
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