Messrs. Calcutta Company Ltd vs The Commissioner Of Income-Tax,West ... on 12 May, 1959
Subsequently in the following year when the price was actually fixed and it was possible to quantify the loss suffered by the assessee the loss so quantified had to be substituted for the loss estimated by the assessee, and it is the finally quantified figure of loss which alone could be taken into consideration for the purpose of the claim made by the assessee. It is settled law, we think, that when an assessee maintains his account books on the mercantile system of accounting, the date on which liability accrues is the date to be considered for the purpose of entering that liability in the accounts. That is so, even though the liability is capable of estimate only and its actual quantification has to be postponed. Reference may be made to the decision of the Supreme Court in Calcutta Co. Ltd. v. Commissioner of Income-tax. In that case the appellant bought lands and parceled them out in plots for building purposed undertaking to develop them by laying out roads, providing a drainage system, install in lights and so on. When the plots were sold, the appellant, who maintained his books on the mercantile system. Credited the account with the full sale price of the land (although in fact he had received a part of it only), and at the same time debited an estimated sum on account of the expenditure anticipated towards the development which he had undertaken to carry out even though he had not laid out any amount yet towards that expenditure. The Supreme Court held that, in view of the undertaking to carry out the development unconditionally, there was a liability on the appellant in that regard which had accrued on the dated of the deeds of sale even though that liability was to be discharged at a future date. It was an accrued liability and the estimated expenditure which was expected to be incurred in discharging it could be deduct from the profits and gains of the business and could be debited in the accounts even though it had not been actually disbursed. The Supreme Court observed that the difficulty in making the estimate did not convert the accrued liability into a conditional one, because it was always open to the income-tax authorities to arrive at proper estimate thereof having regard to all the circumstances of the case. We derive considerable support from the law laid down by the Supreme Court in the opinion to which we have come.