Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure ---Assessee carrying on transport business---Liability in respect of loss of goods---Liability under Carriers Act, 1865, is as statutory liability--Provisions made in respect of such liability in accounts maintained on mercantile system---Deductible---Indian Income Tax Act, 1961, S.37---Indian Carriers Act, 1865; S.9. In order to consider the question of legal liability of the assessee in the mercantile system of accounting, the only concern can be that of the legal liability arising in the relevant assessment year. The fact that the liability has not been quantified for payment; which the law enjoins an assessee to do, cannot be said to be relevant. On a perusal of section 9 of the Carriers Act, 1865, -it is abundantly clear that the carrier's liability is absolute. The liability to make good the loss to the claimants, whose goods were lost or destroyed, stems from the provisions of the. Carriers Act and, therefore, the carrier's liability is statutory in nature. The assessee, a partnership firm engaged in the business of transportation of goods, made a provision of Rs.9,58,532 in its books following the mercantile system of accounting in the*previous year relating to the assessment year 1985-86 and claimed deduction in respect of the said amount. The provision represented the loss claimed for non-delivery or short-delivery of goods. The claim was rejected by the Income-tax Officer but allowed by the Tribunal. On a reference: Held, that the assessee was entitled to make a provision in respect of the demand made by the claimants for loss of their goods in the relevant previous year and to claim deduction in respect thereof, notwithstanding the fact that it continued to negotiate with the claimants during or after the expiry of the previous year and that upon settlement of the negotiations, the assessee paid lesser amounts to the claimants. Lesser payments than the provision made would be taken care of by section 41(1) of the Act. The provision made in the books in a sum of Rs.9,58,532 was an allowable deduction in the year in which such a provision was made. Kedamath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 and 28 STC 672…

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