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Issues involved:
The issues involved in this case are whether the amount claimed by the company as a deduction in the accounting year was rightly debited in the accounts when the dispute was settled in arbitration, and whether this amount was allowable as a deduction in computing the profits for the assessment year 1961-62. Summary: Issue 1: The company maintained its books in the mercantile system of accounting and had a dispute with its selling agent, which was referred to arbitration. The company claimed an amount as a deduction, which was rejected by the Income-tax Officer but allowed by the Appellate Assistant Commissioner. The Tribunal also dismissed the appeal filed by the department. The key contention was whether the liability of the company under the agreement was an accrued liability in the earlier year or a contingent liability. The company argued that the liability was contingent in the earlier year and was finally determined by the award in the accounting year. The court analyzed relevant laws and previous judgments to determine that the liability was contingent in the earlier year and was rightly debited in the accounting year. Issue 2: Regarding the interest amount claimed by the company, the agreement between the parties did not mention interest, and the liability for interest was created by the award in the accounting year. The court held that the liability for interest was not in existence in the earlier year and arose under the award in the accounting year, making it an allowable deduction. The court emphasized that a mere book entry is not conclusive for income-tax purposes. Therefore, the contentions of the revenue failed, and both questions were answered in favor of the assessee. The judgment was in line with previous decisions and legal principles.
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