Deduction of unpaid cess fails where the proviso ties allowance to actual admissibility under the Income-tax Act despite mercantile accounting.

The amended proviso to section 8(2)(f)(vii) of the Assam Agricultural Income-tax Act was treated as a limiting condition, so deduction of unpaid cess was available only if the corresponding expenditure would be admissible under the Income-tax Act, 1961. Because section 43B allows deduction of tax, duty, cess or fee only on actual payment, unpaid cess did not satisfy that condition and was not deductible. The mercantile system of accounting did not override this statutory restriction, and the principle in Gemini Cashew Sales Corporation was distinguished on that basis. The text concludes that unpaid cess is not allowable where the central statute requires actual payment.

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Issues: (i) Whether unpaid cess under the Assam Taxation (on Specified Lands) Act, 1990 was deductible from net agricultural income under section 8(2)(f)(vii) of the Assam Agricultural Income-tax Act, 1939 as amended in 1989; (ii) whether such unpaid cess could still be allowed as a deduction where the assessee maintained accounts on the mercantile system and relied on the principle in Gemini Cashew Sales Corporation.

Issue (i): Whether unpaid cess under the Assam Taxation (on Specified Lands) Act, 1990 was deductible from net agricultural income under section 8(2)(f)(vii) of the Assam Agricultural Income-tax Act, 1939 as amended in 1989.

Analysis: The amended proviso to section 8(2)(f)(vii) was construed as a restriction on the main deduction provision, not as an enlargement of it. The deduction is allowable only if the expenditure would have been admissible under the Income-tax Act, 1961. Since section 43B of the Income-tax Act, 1961 permits deduction of tax, duty, cess or fee only on actual payment, unpaid cess could not satisfy the statutory condition. The Court also applied the settled rule that a proviso ordinarily qualifies or limits the enacting part, and that clear taxing language must be construed strictly.

Conclusion: The unpaid cess was not deductible under the Assam Agricultural Income-tax Act, 1939 and the issue was answered against the assessee.

Issue (ii): Whether such unpaid cess could still be allowed as a deduction where the assessee maintained accounts on the mercantile system and relied on the principle in Gemini Cashew Sales Corporation.

Analysis: The mercantile system principle could not override the amended statutory restriction. Gemini Cashew Sales Corporation was distinguished because the present case was governed by the amended proviso to section 8(2)(f)(vii), which imposed an additional mandatory condition linked to admissibility under the Income-tax Act, 1961. Once the statute required actual admissibility under the Central Act, mere accrual of liability in mercantile accounts was insufficient.

Conclusion: The mercantile system did not entitle the assessee to deduction of unpaid cess, and the issue was answered against the assessee.

Final Conclusion: The amended Assam provision controlled the claim for deduction, unpaid cess was not allowable, and the writ petitions failed.

Ratio Decidendi: Where a proviso to a deduction provision makes admissibility conditional upon the corresponding allowance under the central taxing statute, unpaid cess or similar levy cannot be deducted unless it is actually admissible under that statute, and mercantile accounting does not override the statutory condition.

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