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TMI Blog1981 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... d Cigar Workers (Conditions of Employment) Rules, 1968, and tile assessee was entitled to the deduction thereof in the assessment year 1970-71 ?" The assessee, a bidi manufacturer, for the assessment year 1970-71 claimed deduction of Rs. 3,48,406 as wages of the workers. Under the Madhya Pradesh Beedi and Cigar Workers (Conditions of Employment) Rules, 1968 (hereinafter referred to as "the Rules"), framed under the Beedi and Cigar Workers (Conditions of Employment) Act, 1966 (hereinafter referred to as "the Act"), any manufacturer of bidis is also required to pay wages to the workers for substandard or chhat bidis as provided under rule 29(2). Rule 29 of the Rules reads as under: " 29. Limit with regard to the rejection of beedi or cigar. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the view that the liability was contingent and was not a permissible deduction. No such expenditure for the earlier year was claimed nor has any such expenditure for the subsequent year been shown by the assessee. The Income-tax Officer also observed that none of the workers of the assessee has made any claim to such amount till the date of assessment. The assessee appealed to the Appellate Assistant Commissioner of Incometax but without any success. The assessee then filed a second appeal before the Income-tax Appellate Tribunal. The Tribunal was of the opinion that the said rule 29 does not itself create a liability to pay wages in respect of rejected bidis as sub-standard and the liability arises after determination by an authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker and that where any bidi or cigar is rejected as substandard or chhat or otherwise on any ground other than the ground of wilful negligence of the worker, the worker shall be paid wages for the bidis or cigars or both rejected at one-half of the rate at which the wages are payable to him for the bidis or cigars or both which have not been so rejected. Reading the two sub-rules of rule 29, it would appear that an obligation arises to pay wages on the rejection of the bidis by the employer. While sub-rule (1) enjoins that the employer ought not to reject bidis above certain limit as sub-standard, under sub-rule (2), it is laid down that he would be required to pay wages at the rate of one-half of what he would have paid if the bidis had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem was inconsequential. The liability arising under rule 29 would be analogous to the one arising under the Sales Tax Act, where once a sale takes place, taxable event under the Sales Tax Act occurs and the dealer becomes liable to pay tax and the dealer is entitled to debit such a liability whether or not the tax is deposited. In Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC), the Supreme Court considered the various income-tax and wealth-tax decisions and laid down that it would be legitimate to deduct estimated liability in the profit and loss account while working out its net profit It was observed as under (p. 62) : "In the case of an assessee maintaining his accounts on mercantile system, a liability already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the company's net wealth. A condition subsequent, fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting the liability into a contingent liability. The Tribunal has observed that the amount payable to the workers as wages for the excess rejection of bidis has not been paid even though two years have passed after the relevant accounting year. This is justified by the assessee on the ground that his case is pending before the Supreme Court and payment of the amount to the workers would render the petition infructuous. The amount has been set apart for payment to the workers. Therefore, if it is eventually not paid, it would be open to the authorities to treat it as reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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