TMI Blog1988 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... re : The assessee is a private limited company carrying on business in tobacco engaging seasonal labour. The assessee in the return filed pursuant to the closure of its books to profit and loss account on December 31, 1975, showed as its liability an amount of Rs. 72,540, representing the provision for leave with wages payable to the workers. The Income-tax Officer disallowed this claim of the assessee as a liability, on the ground that it is only contingent in nature. The Appellate Assistant Commissioner also agreed with this view and refused deduction. The Appellate Tribunal, however, relying upon a judgment of the Cochin Bench of the Kerala State came to the conclusion that the amount could be determined with some degree of precision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r forty in the case of a child : Provided further that a worker, who has applied for leave with wages but has not been given such leave in accordance with any scheme laid down in sub-sections (8) and (9) or in contravention of sub-section (10), shall be entitled to carry forward the leave refused without any limit." One more fact that needs to be noticed at this juncture is that the Income-tax Officer in the return filed for the assessment year 1977-78 (the succeeding year) in relation to the closure of books of account on December 31, 1976, allowed the deduction of Rs. 72,540 refused in the earlier assessment year 1976-77, which was upheld by the Appellate Assistant Commissioner also. Learned counsel for the Revenue contended that se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar year, for being availed of in the succeeding calendar year. Subsection (5) permits the worker who has not so availed of the leave accrued, to an extent of 30 and 40 days in the case of an adult and a child, respectively, to have that carried forward to the succeeding year. The leave applied for may also be refused as per the second proviso to sub-section (5). Further, sub-section (3) mandates entitlement to wages in lieu of the quantum of leave to which the worker was entitled immediately before his super annuation, death, discharge, dismissal or quitting of employment. In cases where the leave applied for is refused, the worker is entitled to carry forward such leave without the limit of 30 or 40 days noted above. Availment of leave as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. Equally so, is a later decision of the Kerala High Court in CIT v. Tharian (C.) and Sons [1987] 166 ITR 607, which merely followed its earlier decision in Prema Laxman's case [1984] 150 ITR 170. The other decision of the Kerala High Court in CIT v. High Land Produce Co. Ltd. [1976] 102 ITR 803, is one dealing with the payment of gratuity, which is definite and independent of a number of contingencies contemplated in the matter of payment towards leave with wages. Therefore, this decision has no relevance to the present question. The decision of the Supreme Court in Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53, upon which learned counsel, Mr. Satyanarayana, placed much reliance, deals with the liability for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in Bengal Enamel Works Ltd. v. CIT [1955] ILR 2 Cal 13. The assessee before the Calcutta High Court sought for a deduction of Rs. 6,800, claiming that to be a liability incurred on account of holiday wages which would have to be paid in the following year as per section 49B of the Factories Act, 1934. The claim was refused both for the reason that no expenditure had been actually incurred and also because the amount does not represent a certain liability. In that context, the learned Chief Justice of the Calcutta High Court said (at p. 278 of 62 ITR) "It should be clear from what I have stated above that such statutory liability for holiday wages as the Factories Act creates is only a contingent liability which may or may not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rests on the employer to pay to a worker wages in accordance with section 79 of the Factories Act, for leave period remains a contingent liability which the employer may or may not be called upon to discharge. Consequently, a sum set apart by an employer in any year for meeting the contingency of some of his workers going on leave in the next year cannot be regarded as permissible expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922." We are in absolute agreement with the views of the Calcutta High Court and the decisions of the Madhya Pradesh and Bombay High Courts referred to above. We accordingly hold that the liability claimed towards provision for leave with wages in the instant case is neither an existing nor acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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