JUDGMENT

S.B. Majmudar, J.

1. Leave granted.

2. By consent of learned Advocates of both the sides the appeal is finally heard and is being disposed of by this judgment. The appellant Commissioner of Income Tax, has brought in challenge the judgment and order dated 13th May, 1987 passed by the High Court of Orissa at Cuttack answering the referred question Under Section 256(1) of the Income-tax Act. 1961 against the Revenue and in favour of the assessee. It is the contention of the income-tax authorities that the question should be answered against the assessee. A few relevant facts centering round the question in controversy deserve to be noted at this stage.

3. The relevant assessment year is 1971-72. The respondent-assessee is a limited company which manufactures and sells steel tubes in the State of Orissa. During the previous year relevant to assessment year 1962-63, the assessee was liable to pay sales tax under the Central Sales Tax Act. The Sales Tax Officer Completed the assessment in respect of assessment year 1962-63 on 31 st March, 1966 and demanded an additional amount of Rs. 11 ,02,698. The assessee unsuccessfully carried the matter in appeal and then filed second appeal before the Sales Tax Tribunal. The Tribunal by its order dated 28th May, 1970 reduced the additional demand of sales tax to Rs. 2,22,161. On the basis of the aforesaid order of the Tribunal, the respondent-assessee claimed deduction of the said amount as business expenditure in respect of the assessment for the previous year 1970-71 since according to the assessee the sales-tax liability was of the assessment year 1971-72.

4. The Income-lax Officer disallowed the said deduction in the relevant assessment year, as according to the Income-tax Officer the assessee was following mercantile system of accounting and hence the liability to pay sales tax accrued to it prior to the said year. On appeal, the appellate Commissioner allowed the said deduction holding that as the said liability became determinate and known only during that assessment year, it would be allowable for that assessment year.

5. The Income-Tax Tribunal reversed the finding of the Appellate Commissioner holding that the said sales tax liability was not admissible as deduction during the relevant assessment year. For that conclusion the Tribunal relied upon the decision of this Court in the case of Kedarnath Jute Manufacturing Company Limited v. Commissioner ofIncome-tax (Central), Calcutta, (1971) 82 ITR 363. The assessee got the following question referred Under Section 256 (1) of the Income-tax Act for the opinion of the High Court :

"Whether on the facts and in the circumstances of the case, the assessee is entitled to deduction of Rs. 2,22, I 6 I towards the sales-tax liability for the assessment year 1971-72"

6. The High Court after hearing both the sides answered the question in the affirmative in favour of the assessee and against the Revenue, as noted earlier. It is this answer of the High Court that is challenged on behalf of the Revenue by the appellate Commissioner of the Income-Tax.

7. Learned counsel for the appellant submitted that the High Court has misunderstood and misapplied the ratio of decision of this Court in Kedarnath Jute Manufacturing Co. Ltd. (supra) That once it is not in dispute that the assessee was following mercantile system of accounting, the liability to pay the central sales tax accrued to the respondent-assessee, the moment the sales, which are subject to sales tax, are made. That liability would not cease to be a liability because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail. Further, the fact that the assessee had failed to debit the liability in its books of accounts did not debar him from claiming the sum as deduction. The eligibility for getting deduction depends on the provisions of the law and not on the view which the assessee might