Case Law Details
CIT Vs Metropolitan Transport Corporation (Chennai) Ltd. (Madras High Court)
Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the provision for wage arrears of Rs.5.80 crores is an ascertained liability, notwithstanding the fact that the said provision has been accounted on cash basis?
In the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1, this Court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the above-said settled principles to the facts of the case at hand, we are satisfied that the provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability.
Following the ratio laid down by the Hon’ble Supreme Court in the judgments reported in [2000] 112 Taxman 61 (SC) [Bharat Earth Movers Vs. Commissioner of Income Tax] and [1959] 37 ITR 1 (SC) [Calcutta Co. Ltd., Vs. Commissioner of Income Tax], the question of law is decided against the Revenue and in favour of the assessee.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
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