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Issues Involved:
1. Interpretation of the term "paid" under Section 10(5) of the Income-tax Act. 2. Allowability of Rs. 51,610 as an expense under Section 10(2)(iv) of the Income-tax Act for the assessment year 1947-48. Detailed Analysis: 1. Interpretation of the term "paid" under Section 10(5) of the Income-tax Act: The first question posed by the Tribunal was whether the word "paid" as defined in Section 10(5) means actual payment in the year under assessment, particularly when accounts are kept on a mercantile system. The court declined to answer this question, stating that it was too general and did not specifically arise from the appellate order of the Tribunal. The court emphasized that it confines itself to answering specific questions of law that arise in a particular case, rather than laying down general principles for the guidance of Income-tax authorities. The definition of "paid" would be considered when addressing the second question. 2. Allowability of Rs. 51,610 as an expense under Section 10(2)(iv) of the Income-tax Act for the assessment year 1947-48: The second question addressed whether the amount of Rs. 51,610, paid by the assessee in respect of insurance premiums for earlier years, was allowable as an expense under Section 10(2)(iv) of the Income-tax Act in the assessment year 1947-48. The facts established that the assessee was required to insure its stock-in-trade under the War Risks (Goods) Insurance Ordinance, 1940. The Government detected that the assessee had failed to pay the proper insurance premium for earlier years, leading to a demand for unpaid premiums and penalties. The matter was compromised for Rs. 1,03,220, with Rs. 51,610 representing the unpaid premium and the remaining Rs. 51,610 as composition money for the criminal offence of non-compliance. The Tribunal had previously held that the Rs. 51,610 could not be deducted as an expenditure in the account year in question because the liability had arisen in earlier years. However, the assessee contended that the amount was actually paid during the relevant account year and that the exact liability was ascertained during this period, making it deductible in the assessment year 1947-48. The court examined the provisions of the War Risks (Goods) Insurance Ordinance, 1940, and its amendments. It noted that the liability to pay the premium arose under a policy issued in accordance with the scheme, and the exact liability was determined by an officer authorized under Section 7-A of the Ordinance. The court found that the evasion of premium payment was detected, and the liability was ascertained and paid during the account year in question. The court concluded that under the mercantile system of accounting, a liability cannot be entered as an expenditure unless it is an ascertained sum of money. Since the liability was ascertained and paid during the account year in question, the amount of Rs. 51,610 was deductible as an expense under Section 10(2)(iv) of the Income-tax Act for the assessment year 1947-48. The court also referred to decisions of the Madras High Court and the Calcutta High Court, which supported the principle that only an ascertained liability can be entered in accounts maintained on a mercantile basis. Conclusion: The court answered the second question in the affirmative, holding that the amount of Rs. 51,610 was "paid" by the assessee in the relevant account year and was deductible as an expense for the assessment year 1947-48. The assessee was entitled to claim this amount as a legitimate deduction, and the Department was ordered to pay costs of Rs. 400 to the assessee.
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