Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1976-77 - Assessee-company carrying on business in tobacco and engaging seasonal labour claimed deduction in respect of provision made for leave with wages payable to workers - Whether resultant liability claimed by assessee was purely a contingent one depending upon actual availment of leave by workers and, thus, such liability was not allowable as a deduction - Held, yes FACTS The assessee-company carrying on business in tobacco and engaging seasonal labour claimed deduction in respect of its liability for payment of leave with wages to the workers. The ITO disallowed the claim on the ground that the liability was only contingent in nature. On appeal, the AAC upheld the order of the ITO. On second appeal, the Tribunal held that the amount could be determined with some degree of precision in the light of section 79 of the Factories Act and, accordingly, allowed the assessee's claim. On reference: HELD Section 79 confers the benefit of leave with wages on the workers. However, availment of leave under the said section is subject to so many contingencies. Therefore, mere entitlement to leave does not automatically lead to the incurrence or accrual of liability on the part of the assessee so as to make a claim for deduction on that count as though it is definite and independent. Following the decision in Bengal Enamel Works Ltd. v. CIT ILR [1955] 2 Cal. 13, in Chhaganlal Textile Mills (P.) Ltd. v. CIT [1966] 62 ITR 274 (MP) and in CIT v.Rajkumar Mills Ltd. [1971] 80 ITR 244 (Bom.), in the instant case, the liability claimed towards provision for leave with wages was neither an existing nor accrued one, nor was it capable of being certain and definite for purposes of determining the amount with accuracy. On the other hand, it was purely a contingent one depending upon the actual availment of leave by the workers. Therefore, the amount claimed was not deductible from the assessee's income. CASES REFERRED TO CWT v. Prema Laxman [1984] 150 ITR 170 (Ker.), CIT v. C. Tharian & Sons [1987] 166 ITR 607 (Ker.), CIT v. High Land Produce Co. Ltd. [1976] 102 ITR 803…

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