Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which 'deductible - Assessee-company had a cash credit (hypothecation) account with a bank and under an agreement with said bank, assessee had to bear expenditure of salary of godown-keeper and watchman employed by bank - On 11-3-1978, bank informed assessee that assessee had become liable to pay certain amount incurred by bank in connection with salary of godown-keeper and watchman from october 1973 to december 1977 and that amount was, accordingly, debited to cash credit account of assessee - Whether in view of fact that said amount was not salary paid by assessee to its employees, but was amount recovered by bank from assessee on account of expenditure incurred by bank, for preservation of goods pledged with bank, said amount could be allowed as deduction in relevant assessment year, i.e., 1978-79, even though a major part of said amount pertained to earlier years - Held, on facts, yes FACTS The assessee-company had a cash credit (hypothecation) account with a bank and in accordance with the terms and conditions of the agreement entered into by the assessee with the bank, the assessee had to bear the expenditure by way of salary of the godown-keeper and watchman employed by the bank. On 11-3-1978, the bank informed the assessee that the assessee had become liable to pay the amount of Rs. 63,813.46 incurred by the bank in connection with the salary of the godown-keeper and watchman from October 1973 to December 1977 and that amount was, accordingly, debited to the cash credit account of the assessee. The assessee claimed the said amount as deduction in the relevant assessment year, i.e., 1978-79. The IAC disallowed Rs. 55,679 out of the said amount on the ground that it related to the earlier years. On appeal, the Tribunal upheld the IAC's order holding that the salary to the godown-keeper and watchman became payable in the month in which the work was done and, therefore, such salary should have been claimed in that year when the services were rendered by those employees and simply because debit entries by the bank could not be made in those years, the claim could not be allowed in the…

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