9911796707
TMI Blog2000 (8) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and in the circumstances of the case, the provision for meeting the liability for encashment of earned leave by the employee is an admissible deduction ?" The appellant-company has two sets of employees. One set of employees is covered by the Employees State Insurance Scheme and is generally known as "staff". The other set of employees not so covered is known generally as "officers". The company has floated beneficial schemes for its employees for encashment of leave. The officers are entitled to earned leave calculated at the rate of 2.5 days per month, i.e., 30 days per year. The staff (other than officers) is entitled to vacation leave calculated at the rate of 1.5 days per month, i.e., 18 days in a year. The earned leave can be acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot arise. The other event on the occurrence of which the employee may stake his claim is termination or retirement which again is an uncertainty. Accordingly, the High Court has answered the question in the negative, that is, in favour of the Revenue and against the assessee. The assessee has come up in appeal. Shri S. E. Dastur, the learned senior advocate for the appellant-company, has submitted that the liability is a certainty. A provision is made for meeting the liability to the extent of entitlement of the officers and staff to accumulate earned/vacation leave subject to the ceiling limit of 240/126 days as may be applicable. Having accumulated leave in a particular year, in the succeeding year the employee may either avail of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the service. Subject to the ceiling every employee would either avail of the leave or seek encashment and, therefore, the liability is a certainty ; it cannot be called a contingent liability. We find substance in the submission of the learned senior counsel for the appellant. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch deduction is permissible only in the case of amounts actually expended or paid ; (ii) just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business ; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability ; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. Before parting we would like to observe that when this appeal came up for hearing on March 24, 1999, we felt some difficulty in proceeding to answer the question arising for decision because the orders of the authorities below and of the Tribunal did not indicate how the leave account was operated by the appellants and leave salary provision was made. To appreciate the facts correctly and in that light to settle the law we had directed the Income-tax Appellate Tribunal to frame a supplementary statement of case based on books of account and other relevant contemporaneous records of the appellant which direction was to be complied with within a period of six months. The hearing was adjourned sine die. After a lapse of sixteen mont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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