MANCHANDA J. - This is a case stated under section 66(1) of the Act. The question referred is :
'Whether, on the facts and circumstances of the case, the sum of Rs. 10,692 is an admissible deduction ?'
The material facts are these. The assessee is a dealer in cloth. The assessment year is 1958-59, the previous year being the year ending 21st August 1957. On that date, which was the last day of the year of account, the assessee debited a sum of Rs. 29,482 in its accounts as additional sales tax payable under the U.P. Sales Tax (Amendment) Act, 1956, which replaced the Ordinance No. XI of 1956 dated the 31st March, 1956, whereby the sales tax was raise from 3 pies and 6 pies to one anna per rupee. The validity of the ordinance and Sales Tax (Amendment) Act, 1956, was challenged and they were declared to be ultra vires by this court by its order dated the 5th May, 1957. Subsequent thereto, the U.P. Sales Tax (Amendment) Act, 1957, was enacted on the 30th September, 1957. This also was declared to be ultra vires by an order of this court dated the 11th February, 1958. On the 21st August, 1957, the assessee purported to raise a debit of Rs. 29,482, which included the impugned sum of Rs. 10,692. This debit was based on the U.P. Sales Tax (Amendment) Act 1956, which had already been declared to be ultra vires by an order of this court dated the 5th May, 1957. The U.P. Sales Tax (Amendment) Act, 157, was enacted on the 30th September, 1957. Therefore, on the 21st August, 1957, there was no valid Act under which the assessee could have been called upon to pay the additional tax. The Income-tax Appellate Tribunal held that there was no legal liability upon the assessee to pay any additional sales tax as the Act under which the debit the purported to be raised had been declared to be ultra vires by this court and therefore it was not a proper debit even under the mercantile system of the accounting. The deduction of Rs. 10,692 was accordingly disallowed.
The short question which arises is whether under the mercantile system of accounting a debit such as the 'impugned' debit of Rs. 10,692 could have been properly raised when on that date there was no valid law in existence which cast liability on the assessee to make that payment. It is well settled that even under the mercantile system of accounting no deduction can be made in respect of liability which has not definitely arisen. Before a legitimate debit can be raised it musts be in respect of an ascertained and enforceable liability. If the liability could not have been enforced on the date on which the debit was raised it will not be allowed even under the mercantile system of accounting. Anticipated losses and contigent liabilities cannot be claimed. Even if the liability in future is likely to be imposed then too no liability can be raised as the liability will be an unascertained one and not an enforceable one. Just as no income can accrue until a person has acquired a right to receive it, i.e. he must have created a debt it his favour, though it may be payable later, no liability can be created unless it is ascertained and legally enforceabl : vide Keshav Mills Ltd. v. Commissioner of Income-tax, Indermani Jatia v. Commissioner of Income-tax, E.D. Sassoon and Co. v. Commissioner of Income-tax, Calcutta Co. Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Gajapathy Naidu.
In the present case, on the 21st August, 1957, when the debit entry was raised, admittedly, there was no valid Sales Tax (Amendment) Act under which the tax of Rs. 10,692 could have been claimed by the sales tax authority from the assessee. There was no such enforceable liability against the assessee. This additional debit could not have been legitimately raised even under the mercantile system of accounting.
Mr. Hari Swarup, learned counsel for the petitioner, relies upon two decisions of the Supreme Court in M. K. Venkatachalam v. Bombay Dyeing & . and State of Uttar Pradesh v. Raja Syed Mohammad Saadat Ali Khan. These cases have no application to the facts of the present case. The former which dealt with the scope of section 35 of the Income-tax Act, was whether the credit for interest which was given in accordance with section 18A(5) of the principal Act before its amendment could be rectified when the amendment was with retrospective effect. It was observed :
'But such a result is necessarily involved in the legal fiction about retrospective operation of the Amendment Act. If, as a result of the said fiction, we must read the subsequently inserted proviso as forming part of section 18A(5) of the principal Act as from April 1, 1952, the conclusion is inescapable that the order in question is inconsistent with the provisions of the said proviso and must be deemed to suffer from a mistake apparent from the record. That is why we think that the Income-tax Officer was justified in the present case in exercising his power under section 35 and rectifying the said mistakes.'
The Supreme Court laid down in the latter case that 'a court of appeal ..... must give effect to the law as it stands if the law has, at some stage anterior to the hearing of the appeal, been amended retrospectively with the object of conferring upon the authority or Tribunal of first instance, from the order whereof the appeal is filed, jurisdiction which it originally lacked.' In that case, though the U.P. Agricultural Income-tax Act, 1949, was amended after the High Court had delivered its judgment, yet the Supreme Court took the view that it was bound to consider the amended law as it stood at the time of the hearing of the appeal and to give effect to it having regard to the clear intention of the legislature in the amended provisions. No question as to retrospectively of the Sales Tax (Amendment) Act was raised before the Tribunal, nor was it considered. Therefore, the question now sought to be argued on the basis of these two Supreme Court rulings is one which does not arise out of the order of the Tribunal. The necessary foundation for advancing any such contention was not laid either before the Tribunal nor in the statement of the case and the assessee is not entitled to travel beyond the case stated.
For the reason given above, the question is answered in the negative and against the assessee. The assessee shall pay the costs of this reference which we assets at Rs. 200. Counsels fee is also assessed at Rs. 200.