Accrued sales tax liability is deductible once demand notices establish an ascertained business liability during the accounting year.

Under the mercantile system, sales tax liability is deductible when it has accrued and is ascertained during the relevant accounting year. A provision for the estimated liability of the current year was treated as allowable, and demand notices served during the year were treated as fixing the liability for earlier years because the record did not show that those amounts remained disputed after service of notice. On that basis, the full sales tax amount covered by the notices was regarded as an allowable business deduction in computing business income.

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Issues: Whether the sales tax amounts claimed in respect of the current year and the earlier years, for which demand notices had been served during the accounting year, represented accrued liability deductible in computing business income.

Analysis: The assessee maintained its accounts on the mercantile system. The provision for the estimated liability of the current year was accepted as deductible. For the earlier years, the liability had been disputed earlier, but there was no finding that it remained disputed after the demand notices were served during the relevant accounting year. In these circumstances, the demand notices were treated as giving rise to an ascertained liability for the sums demanded for the earlier years, and the whole amount claimed was held to be allowable as a business deduction.

Conclusion: The question was answered in the affirmative and in favour of the assessee.

Final Conclusion: The entire sales tax liability covered by the demand notices served during the accounting year was deductible in computing business income.

Ratio Decidendi: A sales tax liability becomes deductible when it is ascertained and has accrued during the relevant accounting year, including where demand notices served in that year establish the liability and it is no longer shown to be under dispute.

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