Accrual of provident fund liability depends on final determination of statutory applicability, making the payment deductible when liability becomes ascertained.

A payment to the Regional Provident Fund Commissioner was treated as deductible in the relevant assessment year because the statutory liability under the Employees' Provident Funds Act, 1952 accrued only when applicability of the Act was finally determined. Where there was a bona fide dispute as to whether the establishment employed fifty or more persons and therefore fell within the Act, the assessee could not be said to have irrevocably incurred the liability until the competent authority resolved that issue. A later inspection report did not retrospectively fix the accrual date. Once the Commissioner determined liability and payment became due, the outgoing was an ascertained liability for that year.

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Issues: Whether the sum paid to the Regional Provident Fund Commissioner was an allowable deduction in the assessment year 1961-62, having regard to the stage at which the statutory liability to contribute under the Employees' Provident Funds Act, 1952 became finally incurred.

Analysis: The liability to contribute under the Employees' Provident Funds Act, 1952 arose only when the applicability of the Act to the assessee was conclusively determined. The Act applied only if the establishment was a factory in a scheduled industry and employed fifty or more persons. There was a bona fide dispute on the number of employees, and until that dispute was resolved by the competent authority, the assessee could not be said to have irrevocably incurred the liability. A mere later inspection report could not fix the accrual date retrospectively. Once the Regional Provident Fund Commissioner decided the matter and the assessee was required to make payment, the outgoing became an ascertained liability in the relevant accounting year.

Conclusion: The payment was deductible in the relevant assessment year and the question was answered in favour of the assessee.

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