Law:

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Section 37(1) of the Income-tax Act, 1961-Business expenditure-Damages awarded by arbitrator but no decree made by court-Amount of award claimed as deductible loss-Held that the liability being merely contingent, no deduction could be made Facts The assessee runs a cold storage. In the return for the assessment year 1966-67, the assessee had debited an amount of Rs. 30,000 representing loss on account of damages awarded against it by the arbitrator arising out of the damage caused to customer's potatoes kept in its cold storage. Since the matter was still pending before the court for passing a final decree, the ITO disallowed the loss as it was a mere contingent liability. The assessee's appeals before the AAC and the Tribunal were unsuccessful. On reference : Held 1. Before a liability can be claimed as a deduction, it must be an actual liability in praesenti and no deduction can be made for a liability in futuro, as it is only contingent. In this case, all that existed in the previous year was mere award against the assessee and, at best, it created a contingent liability which would fructify in the event of the same being made a rule of the court. Since no decree was passed, no liability in praesenti was created. 2.The loss claimed is accordingly not allowable. Case review Indian Molasses Co. Pvt. Ltd. v. CIT [1959] 37 ITR 66 (SC) and CIT v. Swadeshi Cotton & Flour Mills Pvt. Ltd. [1964] 53 ITR 134 (SC) followed. CIT v. Mathulal Baldeo Prasad [1961] 42 ITR 517 (All.) distinguished. Cases referred to Indian Molasses Co. (P. ) Ltd. v. CIT [1959] 37 ITR 66 (SC) and CIT v. Swadeshi Cotton and Flour Mills (P.) Ltd. [1964] 53 ITR 134 (SC) and CIT v. Mathulal Baldeo Prasad [1961] 42 ITR 517 (All.). JUDGMENT C.S.P. Singh, J. - The Income-tax Appellate Tribunal, Delhi Bench 'A', has, at the instance of the assessee, referred the following question of law for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not allowing the alleged loss of Rs. 30,000 ? " The assessee runs a cold storage, and in its return for the year 1966-67, it had debited an amount of Rs. 30,000 as loss in its profit and…

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