MESSRS. CALCUTTA COMPANY LTD. versus THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

Citation: [1960] 1 S.C.R. 185 · Decided: 12-05-1959 · Supreme Court of India · Bench: SUDHI RANJAN DAS · Disposal: Appeal(s) allowed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

S.C.R. 
SUPREME COURT REPORTS 
MESSRS. CALCUTTA COMPANY LTD. 
v. 
THE COMMISSIONER OF INCOME-TAX, 
WEST BENGAL 
(S. R. DAs;C.J., N. H. BHAGWATI and 
M. HID.A,YATULLAH, JJ.) 
185 
I nc01-ne-tax-Assessme11t of land-developing Company-Jf ercan-
tile method of accounting adopted by assessee and accepted by Income-
tax Officer-Accrued liability for fnture development expenses, if 
an allowable ded·uction in the accomiting year-Indian Income-tax 
Act (XI of r922), s. ro(r). 
The appellant company ·carried on land-developing business 
and sold land after development on a profit. The whole of the 
'development was not carried out before the land was sold nor the 
whole of the sale price received in cash at the time of the sale. 
·In the accounting year in question the appellant sold a number 
of plots and received a portion of the sale price but as it maintain-
ed its accounts in the mercantile method it entered ·the whole 
price receivable, viz., Rs. 43.692-n-9, in credit side though only 
Rs. 29,392-n-9 was actually received and ·debited a sum of 
Rs: 24,809, being the estimated expenditure for the develop-
ments it had, by t£rms incorporated in the deeds of sale, under-
taken to carry out within six months thereof, although no 
part of it was actually spent during that year. The appellant 
claimed a deduction of the said sum of Rs. 24,809 in computa-
tion of the profits and gains of its business during the assessment 
year. The Income-tax Officer, while accepting the method of 
accounting adopted by the appellant, disallowed the Claim on 
the ground that no expenses had actually been incurred and the 
estimate was only a probable one. The Appellate Assistant 
Commissioner a'- well as the Income-tax Appellate Tribunal 
confirmed the disallowance on appeals and the High Court, on a 
reference under s. 66(1) of the Income-tax Act held against the 
appellant. The question was whether the deduction claimed was 
a legally allowable expense of the year in question. 
Held, that the liability which was undertaken by the appel-
lant under the deeds of sale was an accrued liability and not a 
contingent one. Although the time of six months was not of 
the essence of the contract, the undertaking it had given was 
unconditional and absolute in terms and the liability must be 
held to have accrued on the execution of the deeds of sale though 
it was to be discharged at a future date. 
Keshav Mills Ltd. v. Commissioner of Income-tax, Bombay, 
[1953] S.C.R. 950, referred to. 
Peter Merchant Ltd. v. Stedeford (Inspector of Taxes), (1948) 
30 T.C. 496. distinguished. 
24 
I959 
l'Jay I?. 
186 
SUPREME COURT REPORTS [1960(1)] 
r959 
The difficulty in estimating such a liability for purposes of 
debit under the mercantile system of accounting could be no 
Calcutta Cotnpany ground for treating an accrued liability as a conditional one, 
Ltd. 
since it \Vas ahvays open to the Incornc-tax authorities to arrive 
v. 
a proper estimate thereof having regard to all the circumstances 
The Conunissioner of the case. 
0! Income-tax 
Gold Coast Sdection Trust Ltd. v. Humphrey (Inspector of 
Taxes), [1948] A.C. 459, referred to. 
Regard being had, therefore, to the accepted commerdal 
practice and trading principles, the estimatcfl deduction, even if 
it did not come under any of the specific provisions of s. 10(2) 
of the Act, was certainly an allowable deduction under s. 10(1) of 
the Act, there being no prohibition, either express or implied, 
against it in the Act and, con"sequently, the question must be 
answered in the affirmative. 
Badridas Daga v. The Commissioner of Income-tax, (1958) 34 
I.T.R. IO; Russel v. Town and County Bank Ltd., (1888) 13 App. 
Cas. 418; Gresham Life Assurance Society \'. Styles, (1892) 3 T.C. 
185; Pondicherry Railway Co., Ltd. v. Cormnissioner of Income-tax, 
Madras, (1913) L.R. 58 I.A. 239 and Income-tax Commissioner v. 
Chitnavis, (1932) L.R. 59 I.A. 290, referred·1o. 
C1v1L APPELLATE JURISDICTION: Civil Appeal No. 
213 of 1955. 
Appeal from the judgment and· order dated 
June 26, 1953 of the Calcutta High Court in I.T.R. No. 
34of1952. 
A. V. Viswanatha Sa.stri, 
N. C. TaZ.Ukdar and 
Sukumar Ghose, for the appellant. 
K. N Rajagopal Sastri and D. Gupta, for the 
respondent. 
1959. May 12. The Judgment of the Court was 
delivered by 
Bhagwati J. 
BHAGWATf J.-This appeal with a certificate uhder 
Art. 135 of the Constitution read with s. 66A(2) of the 
Indian Income-tax Act raises the question as to whether 
the appe

Excerpt shown. Read the full judgment & AI analysis in Lexace.