Law: Income Tax Act, 1922

Section: 10(1),13

Law: Income Tax Act, 1961

Section: 28(i),145

Section 28(i) , read with section 145 of the Income-tax Act, 1961 (Corresponding to section 10(1), read with section 13 of the Indian Income-tax Act, 1922) - Business deductions - Allowable as - Assessment year 1948-49 - Asessee dealt in land and property and carried on land developing business - It maintained its accounts in mercantile method - In relevant accounting period it sold certain plots and even though assessee received only a portion of sale price, it entered in credit side of its account books whole of sale price of plots - Under terms of side deeds assessee undertook to carryout developments within six months from date of sale - Accordingly, it estimated a sum as expenditure for developments to be carried out in respect of plots sold out during relevant year and debited said sum in its books of account as accrued liability - Department did not take any exception to said estimated expenditure in regard to quantum but disallowed assessee's claim for deduction of that sum by relying upon provisions of section 10(2) of 1922 Act - Whether estimated expenditure which had to be incurred by assessee in discharging a liability which it had already undertaken under terms of sale-deeds of lands in question was an accrued liability which according to mercantile system of accounting assessee was entitled to debit in its books of account for accounting year as against receipts which represented sale proceeds of said lands - Held, yes FACTS The assessee dealt in land and property and carried on land developing business and in the course of the said business, it brought land, developed it so as to make it fit for building purposes and sold it at a profit in plots. In the accounting year relating to the assessment year 1948-49 and assessee sold a number of plots and received a portion of the sale price from the purchasers according to the scheme. The assessee maintained its accounts in the mercantile method. Even though the assessee did not receive the whole of the price, it entered in the credit side of its books of account the whole of that sum representing the full sale price of the lands sold during the accounting year though only a part was actually received…

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