Law:

Section:

Section 145 of the income-tax act, 1961-Method of accounting-Year in which liability/expenditure deductible-Assessee liable to pay certain amount to a society during assessment years 1961-62 to 1963-64 and the same was allowed as deduction in said years-However, said amount remained unpaid due to disputes-later, award by arbitrator directed assessee to pay said amount provided society withdrew all claims-Since society did not comply with the award, assessee transferred said amount to profit and loss account on 31-12-1969 and the same was taxed in assessment year 1968-69-in assessment year 1969-70, society complied with arbitrator's award and assessee paid said amount to it-whether said amount deductible in assessment year 1969-70-Held, on facts, yes Facts A sum of Rs. 26,862 was payable to a society as interest on sugarcane price and cane commission during the assessment years 1961-62 to 1963-64. It was allowed as deduction in those years. It, however, remain-ned unpaid till the assessment year 1968-69. In the meantime, the assessee-company raised a claim against the society for short supply of raw material. The society also raised a counter-claim against the assessee-company for a sum of Rs. 26,862 on account of latter's contribution towards the construction of one village road. The dispute between them was referred to arbitration and it was decided that both the parties would withdraw their claims provided the assessee-company would bear the cost of the development of the road in the sugarcane area. As the society did not comply with the said decision, the assessee transferred the entire amount of Rs. 26,862 to its profit and loss account on 31-10-1967 and the same was assessed to tax during the assessment year 1968-69. Later on, during the accounting year, relevant to the assessment year 1969-70, the society complied with the arbitrator's award and thereupon the said amount became payable to it. Consequently, the assessee-company claimed the amount of Rs. 26,862 as deduction for the assessment year 1969-70 contending that its liability arose afresh in the relevant accounting year. The contention of the assessee was upheld by the Tribunal. On reference: Held…

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