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Section 145 of the Income-tax Act, 1961 - Method of accounting - System of accounting - Assessment year 1963-64 - Whether where liability of assessee, who was maintaining mercantile system of accounting, to pay excise duty arose in year 1952, but amount was paid only in year 1962, its deduction could not be claimed in relevant assessment year - Held, yes FACTS As a result of enhancement of the excise duty, the assessee was required to pay an additional excise duty in the year 1952. The assessee challenged the impost on various grounds but did not succeed. Thereafter, it finally paid the amount in the year 1962, relevant to the assessment year 1963-64. The assessee, following mercantile system of accounting, claimed deduction of the amount so paid from its income. The Tribunal disallowed the claim on the ground that the liability to pay excise duty had arisen and accrued in the year 1952, and that having followed the mercantile system of accounting, the liability could not be taken into account in computing income for the year 1962. On reference : HELD By merely reading section 13 of the Indian Income-tax Act, 1922, and section 145 of the 1961 Act, one would have thought that the income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' should be computed in accordance with the method of accounting regularly employed by the assessee. If it was the mercantile system of accounting which was followed, the liability to pay should have been claimed as a liability for the assessment year 1953-54. The liability of a past year cannot be taken into account for computing the income of a subsequent year. Nor can the income of a year other than the relevant year, whether that income accrued before or after the relevant year, be taken into account for computing the income for the relevant year. Therefore, the assessee was not entitled to deduction of excise duty actually paid in 1962, on the ground that the liability therefor had arisen in year 1952. Note : The case was decided against assessee. CASES REFERRED TO CIT v. A. Gajapathy Naidu & Co. [1964] 53 ITR 114 (SC), CIT v. Nathmal Tolaram [1973] 88, ITR 234 (Gau.), H.…

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