C.S.P. Singh, J.
1. The Income-tax Appellate Tribunal, Delhi Bench 'A', has, at the instance of the assessee, referred the following question of law for the opinion of this court :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not allowing the alleged loss of Rs. 30,000 ?'
2. The assessee runs a cold storage, and in its return for the year 1966. 67, it had debited an amount of Rs. 30,000 as loss in its profit and loss account. The amount came to be debited by the assessee in the following circumstances. M/s. Sita Ram Sewa Ram had stored a large quantity of potatoes in its cold storage, which according to the assessee was damaged, because the party did not take delivery in time, with the result that they had to be disposed of for a nominal amount. A suit was filed by M/s. Sita Ram Sewa Ram against the assessee for damages amounting to Rs. 30,991. It appears that during the pendency of the suit the matter was referred to an arbitrator, who awarded Rs. 30,000 against the assessee. On the plaintiff moving an application for the award being made a rule of the court, the assessee objected, and succeeded on the ground that the award was insufficiently stamped. The matter was then brought to this court, which sent it back to the trial court with a direction that the court should levy the appropriate stamp duty and penalty, and ask the plaintiff to make good the deficiency. It also appears from the statement of the case that the assessee contemplated taking up the matter before the Supreme Court, when this question was being considered by the Tribunal. As would be apparent from the recitals above, the ITO disallowed the amount, and this disallowance was sustained by the AAC on the ground that it was merely a contingent liability, the award having become final. On the record as it stands, it is apparently clear that the award made by the arbitrator has not yet been made a rule of the court, and no decree has been passed against the assessee in respect of the sum awarded. Thus, during the previous year there was no liability in praesenti for the amount in question. In the case of Indian Molasses Co. (P.) Ltd. v. CIT : 37ITR66(SC) , their Lordships of the Supreme Court have held that before a liability can be claimed as a deduction, it must be an actual liability in praesenti, and no deduction can be made for a liability de futuro, as it is only contingent. Similarly, in the case of CIT v. Swadeshi Cotton and Flour Mitts P. Ltd. : 53ITR134(SC) , dealing with a case where an award for bonus for earlier years was made in a subsequent year, it was held that deduction for the amount of bonus under the award could be allowed only in the previous year in which the award was given. These cases exemplify the principle that even in a case where mercantile system is followed, the liability, for which the provision is made, must have accrued in the previous year, and should not partake of the nature of a contingent liability. In the present case, although the arbitrators had given their award, it was not enforceable against the assessee, as it had not been made a rule of the court, and no decree had been prepared on its basis. It is settled law that till such time that an award is not made a rule of the court, and a decree obtained on its basis, it cannot be enforced against the party against whom it had been made. Thus, in the previous year all that existed was a mere award against the assessee, and it, at best, created a contingent liability, viz., that the liability would fructify in the event of the same being made a rule of the court. As respects the decision of this court, no decree was passed on the award by the court, and as such no liability in praesenti was created against the assessee.
3. The liability being merely contingent, no deduction in respect thereof could be made from the income of the assessee. The decision of this court in the case of CIT v. Mathulal Baldeo Prasad : 42ITR517(All) is not in point, for, in that case, the assessee had accepted the liability under the award.
4. The question referred is answered in the affirmative, in favour of thedepartment and against the assessee. The department is entitled to itscosts, which we assess at Rs. 200.