Om Prakash, C.J. 1. At the instance of the Revenue, the Income-tax Appellate Tribunal referred the following question under Section 256(1) of the Income-tax Act, 1961 (briefly, "the Act"), relating to the assessment year 1985-86, for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the pro-vision made in the books in a sum of Rs. 9,58,532 is an allowable deduction in the year in which such provisions were made or in the year in which the actual settlement took place ?"
2. The facts, as i'ound by the Tribunal, are that the assessee--a partnership firm--engaged in the business of transportation of goods, made a provision of Rs. 9,58,532 in its books following the mercantile system of accounting in the previous year relating to the assessment year 1985-86 and claimed deduction in respect of the said amount. The provision represents the loss claimed by claimants for non-delivery or short-delivery of their goods.
3. On verification, the Assessing Officer found that though the claims were made by the parties, they were not, at any rate, accepted by the assessee at the end of the previous year, relevant to the assessment year 1985-86 ; that in many cases, the claims were settled subsequently at lesser amounts ; that the assessee disputed the liability ; and that no liability was ascertained or quantified till the end of the previous year. He also rejected the contention of the assessee that the provision in the account books was made on the basis of the claims, preferred by the claimants and that if upon negotiations lesser amount was paid to the claimants, then the difference would be offered to tax under Section 41(1) of the Act.
4. The contention of the assessee before the Assessing Officer was that the liability of the former being a carrier was absolute under Section 9 of the Carriers Act, 1865, for any loss or damage caused to the goods either on account of short-delivery or non-delivery or otherwise and, therefore, it made a provision in its books for damages to be paid to the claimants on the basis of their claims, which were generally based on the invoice value. The Assessing Officer, however, denied the contention of absolute liability and disallowed the deduction claimed by the assessee, mainly on the ground that the liability was neither ascertained nor quantified at the end of the year.
5. On appeal, the Commissioner of Income-tax (Appeals) concurred with the view taken by the Assessing Officer almost for the same reasoning, as recorded by the latter. The Commissioner of Income-tax (Appeals) found as follows :
"In my opinion, just because a provision has been made in the books it cannot be said that the same has been accepted. If so, there is no need for the appellant to dispute the claims. The contention of the representative that the liability is a statutory one under the 'Carriers Act' will not also be of any help to the appellant. As already mentioned earlier, in my opinion, the liability arises only if and when the carrier fails to prove that the loss or damage did not arise due to any criminal act or negligence ..."
6. The dispute was carried further in appeal before the Appellate Tribunal by the assessee. The Tribunal, allowing deduction as per the provision made by the assessee in his books, held as follows :
"In our considered opinion, the occurrence of a liability is one thing and the quantification of the same is another thing and both these aspects should not be mixed up. The claims are towards loss of goods in transit or damages suffered to the goods in transit or for non-delivery of the goods. These incidents have taken place during the relevant previous year provoking the consignors to put in their claims for damages arising on such incidents. Since the happenings had taken place in the relevant previous year and as the consignors have noticed their claims against the assessee in the relevant previous year and as the assessee has recognised such claims by making a provision in its books in a corresponding sum, it cannot be said that it is a unilateral claim on the part of the assessee's consignors nor can it be said that the liability did not accrue to the assessee as against the claims. The exact amount to be settled as against these claims might be a subject-matter of negotiations or persuasion or court proceedings, but that is all in the realm of quantification of the claims and the quantification of the same at a later date cannot have a bearing on the accrual of the liability in the year of account. If the assessee had made an ad hoc provision without rhyme or reason, one could say that the provision was excessive or unreasonable, but if the provision had been made on the basis of the claims themselves, merely because the assessee was either disputing the claims or seeking to reduce the amount of such claims, it cannot be said that the amount provided for in the books of account on the basis of the claims preferred by the consignors was either unreasonable or excessive or on an ad hoc basis . . ."
7. The Tribunal, adverting to Section 9 of the Carriers Act, found as under :
"A bare reading of the above Section would show that the person claiming the damages or loss need not prove that such loss or damage or non-delivery was owing to the negligence or criminal act of the carrier, his agents or servants. In other words, there is a rebuttal presumption as against the carrier that the loss or damage arose out of negligence on his part, his agents or servants. Of course, the carrier can recluse itself from the liability if the presumption against it is rebutted. Till that stage is reached, the liability primarily lies on the assessee. In this view of the matter, we hold that the assessee can have a reasonable apprehension of its liability to pay for the damages or loss to the property carried by it Rejecting the contention of the Revenue that endorsement made on the reverse of the goods forwarding note constituted a special contract, the Tribunal, relying on Indian Roadways Corporation v. M. A. Unneerikutty [1990] 1 KLJ 86 ; [1990] 1 KLT 292, found that "the mere printing of the conditions . . . which are found on the reverse of the Goods Forwarding Note cannot constitute a special contract as has been held by the Kerala High Court in the case cited supra".
8. The Tribunal concludingly said :
"Therefore, we hold that the assessee is entitled to make a provision for the loss or damage claimed during the relevant previous year on a reasonable apprehension of its liability either as a carrier or as an insurer of goods".
9. Learned senior standing counsel for the Revenue urges before us that from the facts as found by the Assessing Officer, it is amply clear that the assessee continued to enter into negotiations with the claimants and that payments at lesser amount were made to them ; that the assessee disputed the liability and that the liability was neither ascertained nor quantified till the end of the year and, therefore, no deduction as per the provision made in the books, could be allowed. On the other hand, submission of learned counsel for the assessee is that the liability of the assessee being a carrier to make loss good to the claimants is absolute as that of the insurer under Section 9 of the Carriers Act and, therefore, the assessee was fully justified in making a provision in the books as per the claims made by the claimants, not exceeding the invoice value at any rate. It is urged for the assessee that its liability is statutory and that the assessee becomes liable to pay damages to the claimants immediately upon occurrence of the loss and that such liability will not attenuate or extinguish simply because the assessee continued to negotiate with the claimants regarding the quantum of damages even after the expiry of the previous year.
10. In Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363, the Supreme Court, dealing with the sales tax liability, held that the moment a dealer made either purchases or sales which were subject to sales tax, the obligation to pay tax arose. Although that liability could not be enforced till quantification was made by assessment proceedings, the liability for payment of tax was independent of the assessment. In that case, the Supreme Court held that the assessee, which followed the mercantile system of accounting, was entitled to deduct from the profits and gains of its business the liability to sales tax which arose on the sales made by it during the relevant previous year. The assessee was entitled to the deduction of a certain sum of money being the amount of sales tax which it was liable to pay under the law during the relevant accounting year. That liability did not cease to be a liability because the assessee had taken proceedings before the 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 account did not debar it from claiming the sum as a deduction. The Supreme Court elucidated that whether the assessee was entitled to a particular deduction or not would depend on the provision of law relating thereto and not on the view which the assessee might have taken of his rights nor could the existence or absence of entries in his books of account be decisive or conclusive in the matter. The principle, therefore, as settled by the Supreme Court seems to be that under the sales tax law, the moment a sale or purchase is effected under the relevant statute, legal liability to sales tax arises. Whether that liability is discharged by actual payment or provision for meeting that liability in the books of account are irrelevant considerations. In order to consider the question of legal liability of the assessee in the mercantile system of accounting, the only concern can be that of the legal liability arising in the relevant assessment year. The fact that the liability has not been quantified for payment, which the law enjoins an assessee to do, cannot, therefore, be said to be relevant.
11. The above-stated is the rule relating to a statutory liability. The question is whether the liability of a carrier under the Carriers Act is statutory. Upon the perusal of Section 9 of the Carriers Act, it is abundantly clear that the carrier's liability is absolute. The liability to make loss good to the claimants, whose goods were lost or destroyed, stems from the provisions of the Carriers Act and, therefore, the carrier's liability is statutory in nature. In R.R.N. Ramalinga Nadar v. Narayana Reddiar (V.), AIR 1971 Ker 197, which was relied on by this court in Kerala Transport Co. v. Kunnath Textiles [1983] KLT 480, this court held that a common carrier is not a mere bailee of goods entrusted to him. He is an insurer of goods. He is answerable for the loss of goods even when such loss is caused not by either negligence or want of care on his part and that liability of a common carrier is absolute, subject to any special contract entered into by him. When an assessee following the mercantile system of accounting is entitled to deduct its business liability to sales tax during the relevant previous year under the ratio of the case of Kedarnath Jute Manufacturing Co. Ltd. [19711 82 ITR 363 (SC), we hold that the liability to pay damages to the claimants by the assessee, whose liability is also statutory under the Carriers Act, can be claimed in the previous year, as per the provision, made in the books. There is no difference in the fact situation between the case of the instant assessee and Kedamath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363 (SC). The only difference is that in the case of the former, a statutory liability arises under the Carriers Act, whereas, in the case of the latter, liability is to pay the sales tax. The principle laid down in Kedarnath Jute Manufacturing Co. Ltd. [1971] 82 ITR 363 (SC) is squarely applicable to the case at hand, and applying the same, it must be held that the assessee was entitled to make a provision in respect of the demand made by the claimants for loss of their goods in the relevant previous year and to claim deduction in respect thereof, notwithstanding the fact that it continued to negotiate with the claimants during or after the expiry of the previous year and that upon settlement of the negotiations, the assessee paid lesser amounts to the claimants. Lesser payment than the provision made will be taken care of by Section 41(1) of the Act. Carrier's liability being statutory and absolute in view of Section 9 of the Carriers Act, it must be held that the liability accrued in the previous year right at the time when the loss occurred. The only requirement is that the provision should be made on a reasonable basis. The Commissioner of Income-tax (Appeals) had held that the provision was made on the basis of the claims, set up by the claimants. The case of the assessee is that the demand of the claimants did not exceed the invoice value at any rate. Learned senior standing counsel strenuously argued before us that no liability on the part of the assessee accrued during the previous year and that the liability would accrue only upon being crystallised after the settlement of negotiations being made by the assessee with the claimants. We are not impressed by this submission. The liability being statutory and absolute, did accrue in the relevant previous year and the continuance of negotiations on the part of the assessee is not determinative of the nature of liability. Following Kedamath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363 (SC), we agree with the view taken by the Appellate Tribunal.
12. Learned senior standing counsel, to support his contention, relied on Asuma Cashew Co. v. CIT [1990] 182 ITR 175 (Ker) and N. Sundareswaran v. CIT[1997] 226 ITR 142 (Ker). Both these authorities relate to damages arising'from breach of contract. These authorities are misplaced, inasmuch as liability arising from breach of contract is contractual and not statutory. A different legal position flows from the statutory liability. In the case of breach of contract, liability could be said to have accrued only when the breach is determined and the liability is ascertained.
13. In the result, we answer the above-referred question in the affirmative, that is, in favour of the assessee and against the Revenue.