TaxTMI 
TaxTMI 
2005 (6) TMI 36
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....revious year but before the due date for filing of return of income under section 139(1) of the Act was an allowable deduction in the assessment year 1984-85 when the proviso to section 43B was inserted w.e.f. 1st April, 1988?" The assessment year is 1984-85, and the relevant accounting period is the calendar year 1983. The assessee, a limited company, filed its return of income on 30th July, 1984. It appears that, from the balance-sheet accompanying the return, the Assessing Officer discovered that there were various statutory liabilities which were unpaid at the end of the relevant accounting period, though the said statutory liabilities were discharged in the subsequent accounting period before the return of income was filed under section 139(1) of the Act. Accordingly, the Assessing Officer disallowed a total sum of Rs. 22,50,095 under section 43B of the Act. The assessee succeeded both before the Commissioner of Income-tax (Appeals) and the Tribunal. It is common ground between the parties that question No. 2 which arises with reference to the aforesaid disallowance stands covered and answered by a decision in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677....
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.... 17(3) of the Act. That as per section 17(1)(va), any payment received by an employee in respect of any period of leave not availed of by the employee is included in the definition of "salary" and hence, for the purposes of determining the limit under sub-section (5) of section 40A of the Act, such amount of leave salary paid to an employee had to be included. That such payment would fulfil the conditions stipulated in section 40A(5)(a)(i) of the Act. In other words, such payment would be incurring of any expenditure by the assessee resulting directly or indirectly in the payment of any salary either to an employee or a former employee. According to Mr. Bhatt, the only items of expenditure which could be excluded were specified by the Legislature as per the second proviso under section 40A(5)(a) of the Act. He, therefore, urged that, as leave salary falling within the provisions of section 10(10AA) of the Act has not been enumerated in the second proviso, such payment cannot be excluded and the Tribunal's order was, therefore, erroneous in law. In support of the submissions, he referred to a decision of the Calcutta High Court in the case of Indian Oxygen Ltd. v. CIT [1987] 164 ITR....
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....osition that the said modifications are not relevant for the present. Section 17(1)(va) of the Act states that "salary" would include any payment received by an employee in respect of any period of leave not availed of by the employee. Section 17(1)(iv) states that any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages, shall be included in "salary". The phrase "profits in lieu of salary" is defined by an inclusive definition under section 17(3) of the Act. Under sub-clause (i) of clause (3), an amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of employment, or the modification of the terms and conditions of employment, is included. Similarly, under sub-clause (ii), any payment (other than payments specified in parenthesis) due to or received by an assessee from an employer or a former employer or from a provident fund or other fund, etc., are also to be included as profits in lieu of salary. It is pertinent to note that, under sub-clause (ii), the payment of leave salary referred to in section 10(10AA) of the Act does not form part of the various pay....
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.... Act does not fall within section 17(3)(ii) of the Act, nor does it find place in the second proviso under section 40A(5)(a) of the Act. In the circumstances, the conclusion of the Tribunal is not supported by the provisions of law. Learned senior standing counsel for the applicant-Revenue has placed on record the Special Bench decision in the case of IAC v. Kodak Ltd. rendered on April 28, 1981, in the light of the fact that both the Commissioner of Income-tax (Appeals) and the Tribunal have adopted the reasoning and ratio of the said decision while deciding the present case. On going through the said decision, it becomes apparent that the Special Bench was called upon to decide whether gratuity or any lump sum payments which are not in the nature of periodical payments for services rendered would fall within the phrase "any salary" while determining the limit of admissible expenditure under section 40A(5)(c) of the Act. After extensively referring to the provisions of section 17(1) read with section 17(3)(ii) of the Act, it is held that the term "any gratuity" in section 17(1)(iii) of the Act does not include or contemplate retirement gratuity payable on termination of employm....