Leave encashment provision as contingent liability raised a question of law, justifying reference to the High Court.

A provision for leave encashment was treated as raising a question of law because its deductibility depended on whether the amount constituted a contingent liability. The Tribunal had allowed the claim by relying on a gratuity decision, but that authority was not directly applicable, and there was conflicting High Court authority on leave encashment. On that basis, the issue was held fit for reference to the High Court, and the reference application succeeded with the Tribunal directed to state the case and refer the question.

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Issues: Whether a question of law arose on the assessee's claim for provision made towards leave encashment, so as to warrant a reference to the High Court.

Analysis: The Tribunal had allowed the claim by treating the matter as self-evident and had relied on a decision concerning gratuity, which was not directly on leave encashment. A contrary view had been taken by another High Court holding that provision for leave encashment is a contingent liability. In view of the conflict and the nature of the claim, the matter raised a question of law fit for reference.

Conclusion: The question was answered in the affirmative in favour of the Revenue and against the assessee, and the Tribunal was directed to state the case and refer the question to the High Court.

Final Conclusion: The reference application succeeded, and the Tribunal was required to make the reference sought.

Ratio Decidendi: Where the allowance of a deduction depends on whether a provision for leave encashment constitutes a contingent liability, and there is conflicting judicial authority on the point, a question of law arises warranting reference.

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