HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income Tax, Central Calcutta
Civil Appeal No. 1899 of 1967
[1972] 1 SCR 277 ·
Indian Income-tax Act, 1922: sections 10(1), 10(2)(xv) and 10(5)
Sources & disclosures includedDownload original judgment / order
2-judge bench · K. S. Hegde, J. · A. N. Grover, J.
Assessment years: 1955-56
01 · Facts of the case
The jute manufacturer followed mercantile accounting and claimed Rs.1,49,776 as sales tax on sales in the previous year ended 31 December 1954. Its original return preceded the sales-tax demand of 21 November 1957; a revised return claimed the deduction on 9 November 1959. The income-tax assessment was completed on 11 March 1960 while the sales-tax challenge remained pending. The deduction was refused because liability was disputed and no provision appeared in the books; the Tribunal and High Court sustained the refusal.
Source: SCR pp. 278-279 / PDF pp. 2-3
02 · Discussion by the Hon’ble Court
Tax liability arose from taxable transactions, independently of its later assessment and quantification. The outstanding challenge did not extinguish the quantified liability while the challenge had not succeeded. Under the mercantile method, an accrued business liability could be deducted although payment lay in the future. Entitlement depended on the governing law: an omitted accounting entry or the taxpayer’s mistaken view of its rights could not by itself defeat an otherwise available deduction.
Source: SCR pp. 280-282 / PDF pp. 4-6
03 · Judicial decision
The Court allowed the appeal, set aside the High Court judgment and answered the reference in favour of the assessee and against Revenue. It held the Rs.1,49,776 sales-tax deduction justified and awarded the assessee costs in both courts.
Source: SCR p. 282 / PDF p. 6
04 · Outcome / in whose favour
In favour of the assessee on the particular accrued sales-tax liability under the historical Act and mercantile accounting method. The decision does not resolve an express statutory payment condition under another statutory version.
Source: SCR pp. 281-282 / PDF pp. 5-6
05 · AKHB REVIEW POINT
AKHB analysis: separate the taxable-event date, assessment or demand date, challenge status, payment date and accounting entry. Establish the legal accrual and applicable accounting method with transaction records and the demand. The absence of a provision is not the same as absence of liability; however, verify the statutory version and any specific deduction restriction before using this historical ruling in a present claim.
Source: AKHB analysis based on SCR pp. 281-282 / PDF pp. 5-6
Source & verification
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Statutory scope
This decision applies the Indian Income-tax Act, 1922 to the stated historical assessment years. Current statutory applicability and any Income-tax Act, 1961 or 2025 crosswalk are not determined.
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