TMI Blog2007 (6) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... t mandatory. We do not have any reason for disagreement on such issue provided the subject amendment could be termed as in furtherance to widen the scope of the original section on the identical objects and reasons as disclosed at the time of enacting the original provision. As we find, the original section was incorporated to plug in deductions claimed by not discharging statutory liabilities. We also find that provision was subsequently made to restrict deductions on account of unpaid loan to the financial institutions. Leave encashment is neither statutory liability nor a contingent liability. It was a provision to be made for the entitlement of an employee achieved in a particular financial year. An employer is entitled to deduction for the expenditure he incurs for running his business which includes payment of salary and other perquisites to his employees. Hence, it is a trading liability. As such he is otherwise entitled to have deduction of such amount by showing the same as a provisional expenditure in his accounts. The Legislature by way of amendment restricts such deduction in the case of leave encashment unless it is actually paid in that particular financial year. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid him : . . . 2. Chapter IV of the Income-tax Act, 1961 (hereinafter referred to as the said Act of 1961 ) deals with computation of business income. Section 36 provides for allowable deductions while computing the income referred to in section 28. Under sub-section (1)(ii) of section 36 any sum paid to an employee as bonus or commission for services rendered is available for deduction where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. Under clause (f) of section 43B any sum payable by the employer/assessee to its employees as leave encashment shall be available for deduction only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by the employer to its employees. 3. It was contended on behalf of the appellant that such sub-section was ultra vires the law of the land in view of the fact that the appellant being a body corporate was entitled to maintain its accounts by mercantile system of accounting which is permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult of social welfare legislation and such liability of the employer was nothing but a trading liability and as such the appellant was entitled to make provision in the balance-sheet year to year and thereby were entitled to appropriate deduction under the said Act of 1961. 9. Mr. Banerjee on the other hand contended that it was nothing but a business liability and as such the Legislature was entitled to make appropriate law for restricting the deduction which was reasonable and could not be called as arbitrary and unconscionable. He further contended that because of the non obstante clause contained in section 43B the other sections did not have any role to play on the subject issue. 10. In support of the respective contentions the following decisions were cited : (i) Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) ; (ii) Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) ; (iii) G. C. Kanungo v. State of Orissa [1995] 5 SCC 96 ; and (iv) Federation of Railway Officers Association v. Union of India [2003] 4 SCC 289. (i) Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) : In the case of Calcutta Company (supra) the appellant dealt with in land and property. They we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting year during which the provision was made for the liability. The apex court held such liability was not a con tingent liability. The apex court while deciding this issue relied upon the earlier decision in the case of Calcutta Co. Ltd. [1959] 37 ITR 1 (SC). (iii) G. C. Kanungo v. State of Orissa [1995] 5 SCC 96 : In this case a particular amendment in arbitration law was called in question. The apex court held that such enactment was to nullify an award passed by the Arbitral Tribunal. Thus such amendment amounted to encroaching upon the judicial power of the appropriate judicial authority and as such was held to be unconstitutional. (iv) Federation of Railway Officers Association v. Union of India [2003] 4 SCC 289 : In this case the apex court held that in examining a question involving the policy of the Government the scope of judicial review is limited. The apex court was of the view that in matters affecting policy and requiring technical expertise the court would leave the matter for decision to those who are qualified to address those issues. Unless the policy or action is inconsistent with the Constitution and the laws or arbitrary or irrational or an abuse of po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anges from time to time and on each and every occasion the Legislature came out with the objects and reasons disclosed therefor. In 1990 deduction on account of unpaid loan to any public financial institution or a State financial institution was roped in. By a further amendment in 1996 unpaid loan of scheduled bank was also incorporated. On each such occasion the objects and reasons were disclosed. While inserting clause (f) no special reasons were disclosed. His Lordship held that such disclosure was not mandatory. We do not have any reason for disagreement on such issue provided the subject amendment could be termed as in furtherance to widen the scope of the original section on the identical objects and reasons as disclosed at the time of enacting the original provision. As we find, the original section was incorporated to plug in deductions claimed by not discharging statutory liabilities. We also find that provision was subsequently made to restrict deductions on account of unpaid loan to the financial institutions. Leave encashment is neither statutory liability nor a contingent liability. It was a provision to be made for the entitlement of an employee achieved in a particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 ITR 428 is quoted below (pages 431 and 432) : The law is settled : if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesnenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain . . . Applying the abovesaid settled principles to the facts of the case at hand we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year du ..... X X X X Extracts X X X X X X X X Extracts X X X X
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