TMI Blog1988 (5) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances : The assessee is public sector undertaking. In its profit and loss account for the assessment years 1967-68, 1968-69 and 1969-70, the assessee had debited on account of accrued leave salary of its employees, the sums of Rs. 27,46,717, Rs. 29,68,630 and Rs. 34,90,254, respectively. The Assessing Officer, while allowing the actual payments, disallowed certain amounts as they were only provisions and not an accrued liability. In the present case, we are concerned with the assessment year 1967-68. On appeal against the assessment order, the Appellate Assistant Commissioner noted that the point had been decided by the Tribunal in the earlier years in favour of the assessee and allowed the assessee's claim. Questioning the correctnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and in respect of each employee the assessee maintains a leave account. On termination of service, the employee is entitled in monetary benefits, to the vacation leave which has not been availed of by him to the extent of a maximum of 54 days. The contention of the assessee is that vacation leave becomes earned leave at the end of each calendar year. On the year being over, the employee has a right to ensure that the employer has credited to his account in monetary value the leave he has earned on the very first day of the next calendar year, which would be necessarily day following the accounting year itself and also that the employee may choose to retire, in which event the appellant as an employer would be bound to pay the monetary val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of vacation leave of its entire staff. Considering the fact that the assessee had credited the monetary value of leave in each employee's account and also the fact that the assessee has to pay on termination of the employment, the monetary value of the same, he held, that there was a definite liability and that it was not a provision which the assessee had made and debited in its accounts. The question is whether sums set apart against the contingency of the workmen claiming encashment of leave standing to their credit on the date of termination of their services could be deducted. The earliest of the cases which decided this issue is found in the decision of the Calcutta High Court in Bengal Enamel Works Ltd. v. CIT ILR [1955] 2 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been incurred and not pice had gone out of the funds of the company, but also that the amount does not even represent a certain liability which will have to be discharged in any event. It may be that although a particular amount is not actually expended during the currency of a particular accounting year, the assessee will still be entitled to a deduction if a certain liability for its payment has arisen so that it may be said that the expenditure is as good as made. The amount claimed in the present case is certainly not even of that character and, as I have already pointed out, it is not an amount which was actually spent." The basis of that decision is that liability under section 49B of the Factories Act, 1934, to pay holiday wages d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said rules for unutilised leave period remains a contingent liability which the employer may or may not be called upon to discharge. Consequently, if any amount is set apart by an employer in any year for meeting this contingency, it cannot be regarded as a permissible deduction. In substance, there is no difference between section 79 of the Factories Act, 1948, on the one hand and the leave rules of the assessee on the other. In the circumstances, the contingencies arising in both the cases being identical, the distinction sought to be drawn by the Appellate Assistant Commissioner is one without difference. Hence, we are in respectful agreement with the views expressed by the Madhya Pradesh, Calcutta and Bombay High Courts. Following the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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