TaxTMI 
TaxTMI 
2007 (6) TMI 175
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....m is actually paid him : . . . " 2. Chapter IV of the Income-tax Act, 1961 (hereinafter referred to as the said " Act of 1961") deals with computation of business income. Section 36 provides for allowable deductions while computing the income referred to in section 28. Under sub-section (1)(ii) of section 36 any sum paid to an employee as bonus or commission for services rendered is available for deduction where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission. Under clause (f) of section 43B any sum payable by the employer/assessee to its employees as leave encashment shall be available for deduction only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by the employer to its employees. 3. It was contended on behalf of the appellant that such sub-section was ultra vires the law of the land in view of the fact that the appellant being a body corporate was entitled to maintain its accounts by mercantile system of accounting which is permissible in law. Hence, the amount payable to its employees as leave encashment was to be shown in the balance-sheet as a liab....
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....ntitled to make provision in the balance-sheet year to year and thereby were entitled to appropriate deduction under the said Act of 1961. 9. Mr. Banerjee on the other hand contended that it was nothing but a business liability and as such the Legislature was entitled to make appropriate law for restricting the deduction which was reasonable and could not be called as arbitrary and unconscionable. He further contended that because of the non obstante clause contained in section 43B the other sections did not have any role to play on the subject issue. 10. In support of the respective contentions the following decisions were cited : (i) Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) ; (ii) Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) ; (iii) G. C. Kanungo v. State of Orissa [1995] 5 SCC 96 ; and (iv) Federation of Railway Officers Association v. Union of India [2003] 4 SCC 289. (i) Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) : In the case of Calcutta Company (supra) the appellant dealt with in land and property. They were to develop land and make infrastructure for the plot holders to whom they were selling plots. When a particular plot was sold by the appellant t....
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....t while deciding this issue relied upon the earlier decision in the case of Calcutta Co. Ltd. [1959] 37 ITR 1 (SC). (iii) G. C. Kanungo v. State of Orissa [1995] 5 SCC 96 : In this case a particular amendment in arbitration law was called in question. The apex court held that such enactment was to nullify an award passed by the Arbitral Tribunal. Thus such amendment amounted to encroaching upon the judicial power of the appropriate judicial authority and as such was held to be unconstitutional. (iv) Federation of Railway Officers Association v. Union of India [2003] 4 SCC 289 : In this case the apex court held that in examining a question involving the policy of the Government the scope of judicial review is limited. The apex court was of the view that in matters affecting policy and requiring technical expertise the court would leave the matter for decision to those who are qualified to address those issues. Unless the policy or action is inconsistent with the Constitution and the laws or arbitrary or irrational or an abuse of power the court will not interfere with such matters. 11. The object and reasons as disclosed by the Finance Act, 1983, for enacting section 43B are qu....
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....of unpaid loan to any public financial institution or a State financial institution was roped in. By a further amendment in 1996 unpaid loan of scheduled bank was also incorporated. On each such occasion the objects and reasons were disclosed. While inserting clause (f) no special reasons were disclosed. His Lordship held that such disclosure was not mandatory. We do not have any reason for disagreement on such issue provided the subject amendment could be termed as in furtherance to widen the scope of the original section on the identical objects and reasons as disclosed at the time of enacting the original provision. As we find, the original section was incorporated to plug in deductions claimed by not discharging statutory liabilities. We also find that provision was subsequently made to restrict deductions on account of unpaid loan to the financial institutions. Leave encashment is neither statutory liability nor a contingent liability. It was a provision to be made for the entitlement of an employee achieved in a particular financial year. An employee earns certain amount by not taking leave which he or she is otherwise entitled to in that particular year. Hence, the employer ....