KEDARNATH JUTE MFG. CO. LTD. vs COMMISSIONER OF INCOME TAX, CENTRAL CALCUTTA

The Supreme Court held that under Section 10(1) and Section 10(2)(xv) of the Income-tax Act, 1922, a public limited company following the mercantile system of accounting is entitled to deduct sales tax liabilities that have accrued during the assessment year, regardless of whether the liability has been quantified or entries made in the books of accounts. The Court clarified that the obligation to pay sales tax arises at the moment of sale, and the mere contestation of the tax does not negate the liability. The appeal was allowed, overturning the High Court's dismissal of the deduction claim.