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Issues:
1. Allowability of provision for land revenue as a deduction for the assessment year 1973-74. Detailed Analysis: The case involves a reference under section 256(1) of the Income-tax Act, 1961, regarding the treatment of a provision for land revenue of Rs. 41,046 as an allowable deduction for the assessment year 1973-74. The assessee-company, engaged in tea and plywood business, claimed the deduction for rent and cess payable to the Government of West Bengal for its tea gardens based on a settlement between the Indian Tea Association and the government. The dispute arose from the retrospective enhancement of lease rent by Revenue Officers under the West Bengal Estates Acquisition Act, 1953, leading to negotiations between the government and the tea industry for a settlement. The government, through the Minister for Land and Land Revenue, proposed a formula for rent realization, which was accepted by some tea garden owners who executed necessary agreements. However, some owners disputed the government's right to demand enhanced rent retrospectively. The assessee-company claimed the deduction based on a letter received from the Deputy Commissioner, Government of West Bengal, specifying the rent and cess payable and requesting execution of agreements. The Income-tax Officer initially disallowed the deduction, citing that the expenses related to earlier years, but the Appellate Assistant Commissioner allowed it, considering the liability ascertained during the relevant year. The Income-tax Appellate Tribunal upheld the deduction, emphasizing that the liability for enhanced rent and cess, previously under dispute, was settled during the relevant year based on the letter received from the Deputy Commissioner. The Tribunal's decision aligned with a previous judgment related to a similar issue. The High Court, referencing the earlier judgment, concluded that the liability to pay rent and cess at the enhanced rate arose and became enforceable during the previous year under reference when the agreement was executed. The Court found that the liability accrued and arose in the real sense during the relevant previous year, supporting the allowance of the deduction. In light of the above analysis and the alignment with the previous judgment, the High Court answered the reference question affirmatively in favor of the assessee, allowing the provision for land revenue as a deduction for the assessment year 1973-74. The judgment was delivered unanimously by the judges, with no order as to costs.
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