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Issues involved: Interpretation of statutory provisions regarding deduction of provident fund contributions in the computation of income u/s 256(1) of the I.T. Act, 1961 for the assessment year 1964-65.
Summary: The High Court of Calcutta addressed a reference u/s 256(1) of the I.T. Act, 1961 concerning the deduction of Rs. 29,008 as provident fund contributions for the assessment year 1964-65. The dispute arose as the liability to pay this sum related to earlier years but was demanded for the first time in the relevant previous year. The Tribunal held that the entire amount paid in that year was allowable as a deduction, considering the statutory nature of the demand made during the year under appeal. The Tribunal's decision was based on the principle that in a mercantile system of accounting, the deduction is allowed when the liability arises, not when it is enforced or discharged. The Tribunal considered the specific circumstances of the case, including the delayed enforcement of the statutory contribution demand and the pending decision on the employer's liability under the Employees' Provident Funds Act, 1952. The High Court noted the influence of a previous Assam High Court decision but disagreed with its interpretation, aligning instead with the views of the Madras and Kerala High Courts. The Court emphasized that the commercial reality of the situation, as evidenced by the correspondence from the Regional Provident Fund Commissioner, supported the deduction claimed by the assessee for the relevant year. In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the allowability of a statutory liability for deduction in the mercantile system of accounting depends on the specific facts and circumstances of each case. The Court ruled in favor of the assessee, stating that the deduction claimed was justified in the given context. The judgment was delivered by Sabyasachi Mukharji J., with Sudhindra Mohan Guha J. concurring.
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