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Issues:
Claim of contribution to consumers' rebate reserve fund for multiple assessment years. Disallowance of the claim for earlier years. Deduction in arriving at taxable profits for specific accounting years. Analysis: The case involved the South Madras Electric Supply Corporation Ltd., which claimed a sum for contribution to the consumers' rebate reserve fund for various assessment years. The company was following the mercantile system of accounting. As per the Electricity (Supply) Act, 1948, the company was required to make a provision for rebate to consumers. The Government directed the company to create a reserve for this purpose, which the company initially denied but later had to comply with. The dispute arose regarding the timing of claiming the contribution against profits. The company claimed the entire contribution in a later year, which was not allowed for earlier years by the tax authorities. The Inspecting Assistant Commissioner of Income-tax disallowed the claim for most of the earlier assessment years, allowing only a portion for the specific year in question. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld this decision. The Tribunal referred a question of law to the High Court regarding the deduction of the contribution for the earlier accounting years in arriving at taxable profits. The High Court referred to a decision of the Bombay High Court, stating that if a statutory liability arises in a particular year, an assessee following the mercantile system of accounting can claim a deduction in the year the liability arises, even if steps were taken to dispute it earlier. The High Court agreed with this view and held that the contribution made during the previous year for the reserve fund related to specific accounting years should not be deducted in arriving at the taxable profits of the assessee. The judgment favored the tax authorities' decision to disallow the deduction for the earlier years. In conclusion, the High Court disposed of the tax case, ruling that the contribution for the reserve fund for specific accounting years should not be deducted in arriving at taxable profits. The judgment emphasized the importance of recognizing statutory liabilities in the year they arise, even if disputed earlier, for claiming deductions.
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