Accrued purchase tax liability cannot be taxed as income merely because payment remains outstanding at year-end.

Unpaid purchase tax reflected in mercantile accounts was treated as an accrued statutory liability rather than taxable income, because the liability under the Uttar Pradesh Sales Tax Act arose on the purchases themselves and later payment or quantification did not prevent accrual. The jurisdictional High Court authorities applied to hold that, where purchase tax had crystallised under the statutory scheme, an unpaid balance in the purchase tax account could not be brought to tax merely because it remained outstanding at year-end. On that footing, the addition was deleted and the departmental appeal failed, although one Member dissented and viewed the balance as taxable surplus receipt.

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Issues: Whether the unpaid balance in the purchase tax account was liable to be brought to tax as income, or whether it represented an accrued statutory liability deductible in the assessee's mercantile accounts.

Analysis: The liability under the Uttar Pradesh Sales Tax Act, 1948 arose on the purchase itself under section 3 read with section 3D, while section 29A required tax amounts realised by a dealer to be deposited with the Government and treated as held in trust to the extent not due as tax. The assessee maintained mercantile accounts, and the binding decisions of the jurisdictional High Court held that such purchase tax liability accrued when the purchases were made, even if payment or quantification occurred later. On that footing, the unpaid balance could not be treated as taxable income merely because it remained unpaid in the accounting year.

Conclusion: The addition of the unpaid balance was rightly deleted, and the departmental appeal failed.

Dissenting Opinion: One Member held that the surplus balance was a clear receipt with no outstanding liability and should have been sustained as taxable income.

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