NONSUCH ESTATE LTD. vs THE COMMISSIONER OF INCOME-TAX, MADRAS

The Supreme Court held that under Section 326 of the Companies Act, 1956, an assessee following the mercantile system of accounting cannot claim a deduction for managing agency remuneration until the liability has accrued, which occurs only upon receiving Central Government approval. The Court found that the High Court erred in its judgment by assuming that the liability arose prior to the approval date. The appeal was allowed, and the High Court's decision was set aside, affirming that the liability became effective from the date of approval, which was retrospective to April 1, 1956.