Disputed unpaid sales tax is not deductible where no actual expenditure has been incurred under income-tax law.

Unpaid and disputed sales tax was not deductible as a business expense because deduction under section 10(2)(xv) requires an actual expenditure laid out or expended for business purposes. A liability merely assessed by the revenue authorities, but disputed as to quantum and validity and neither paid nor provided for, remains contingent and does not qualify as incurred expenditure. The mercantile system of accounting does not override this statutory requirement, and section 10(2A) applies only where an allowance or deduction has already been made in respect of a liability incurred and later remitted or ceased. The sales tax claim therefore fell outside the permitted allowances and was not deductible.

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Issues: Whether unpaid and disputed sales tax, assessed but not paid and not provided for in the accounts, was deductible as a business expense under the income-tax law.

Analysis: Deduction under section 10(2)(xv) requires an actual expenditure that has been laid out or expended for the business. A liability that is merely asserted by the revenue authorities, but is being disputed by the assessee as to both quantum and validity, is not an expenditure already incurred. The protective mechanism in section 10(2A) also presupposes an allowance or deduction already made in respect of a liability incurred, followed by remission or cessation; it does not assist a claim where no payment or provision has been made. The mercantile system of accounting does not override the statutory requirement that the amount must be an actual business outgoing, and it cannot convert a contingent or disputed liability into deductible expenditure. The statutory scheme of section 10(2) contains the full list of permissible allowances, and a disputed sales tax liability not falling within that framework cannot be imported by implication from section 10(1).

Conclusion: The amount of sales tax was not deductible as a business expense, and the answer to the reference was against the assessee.

Ratio Decidendi: For deduction under section 10(2)(xv), the liability must have crystallised into an actual expenditure laid out or expended for business purposes; a disputed and unpaid tax liability remains contingent and is not deductible merely because the assessee follows the mercantile system.

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