Accrued sales tax liability is deductible under mercantile accounting even without a book entry or immediate payment.

Under the mercantile system, an accrued statutory liability is deductible in computing business income in the year it arises, even if payment is deferred or the liability is disputed. Sales tax liability is treated as arising when the taxable sales or purchases occur, and pending assessment or appeal does not postpone its legal enforceability. Failure to record the liability in the books does not bar deduction, because entitlement depends on the statutory accrual of the liability rather than accounting entries. An accrued and legally payable sales tax amount therefore qualifies as an allowable business outgoing for income-tax purposes.

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Issues: Whether disputed sales tax liability accrued during the accounting year was deductible as a business expense under the income-tax law, and whether omission to enter the liability in the books barred the claim for deduction.

Analysis: Under the mercantile system, liability is deductible in the year in which it accrues, even if payment is deferred. Sales tax liability arises when the taxable sales or purchases are made, and its enforceability is not postponed merely because assessment or appeal proceedings are pending. The absence of an accounting entry does not determine the legal right to deduction; entitlement depends on the statute and the accrual of liability, not on how the assessee chose to record it. The amount of sales tax, once quantified and legally payable, constituted an allowable outgoing in computing business income.

Conclusion: The disputed sales tax liability was deductible, and the assessee's failure to debit it in the books did not defeat the claim.

Final Conclusion: The tax computation had to proceed on the basis of an accrued and legally enforceable business liability under mercantile accounting, resulting in allowance of the deduction in favour of the assessee.

Ratio Decidendi: Under the mercantile system, an accrued statutory liability is deductible in computing business income even if it is disputed, not yet paid, and not entered in the accounts, provided the liability has arisen in law during the relevant accounting year.

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