K.K.DUBE, J. - (1.) THIS is a reference under Section 256(1) of the Income -tax Act, 1961, at the instance of the assessee, referring to us for our opinion the following question of law : 'Whether, on the facts and in the circumstances of the case, an unconditional or ascertained liability arose to the assessee for the payment of wages to its workers under the provisions of Rule 29(2) of the M.P. Beedi and Cigar Workers (Conditions of Employment) Rules, 1968, and the assessee was entitled to the deduction thereof in the assessment year 1970 -71 ?'
(2.) THE assessee, a bidi manufacturer, for the assessment year 1970 -71 claimed deduction of Rs. 3,48,406 as wages of the workers. Under the Madhya Pradesh Beedi and Cigar Workers (Conditions of Employment) Rules, 1968 (hereinafter referred to as 'the Rules'), framed under the Beedi and Cigar Workers (Conditions of Employment) Act, 1966 (hereinafter referred to as 'the Act'), any manufacturer of bidis is also required to pay wages to the workers for substandard or chhat bidis as provided under Rule 29(2). Rule 29 of the Rules reads as under : '29. Limit with regard to the rejection of beedi or cigar. - -(1) No employer or contractor shall ordinarily reject as sub -standard or chhat orotherwise more than five per cent. of the bidis or cigars, or both, received from a worker including a home worker. (2) Where any bidi or cigar is rejected as sub -standard or chhat or otherwise on any ground other than the ground of wilful negligence of the worker, the worker shall be paid wages for the bidis or cigars so rejected at one -half of the rate at which wages are payable to him for the bidis or cigars, or both, which have not been so rejected.' Since the rejection of bidis manufactured by the workers was in excess of 5% under Rule 29(2), the assessee worked out his liability which according to him was to be Rs. 3,48,406. From the statement of the case, it appears that the amount represents the full wages payable to the workers for the rejected bidis. Under the aforesaid Rule 29(2), the workers became entitled to half the wages. Therefore, it was conceded before the Tribunal that the liability to pay under Rule 29(2) would be only to the extent of half the wages payable to the workers which comes to Rs. 1,74,203. The assessee maintains the mercantile system of accountancy and has duly shown the amount as payable to the workers. The amount has, however, not been actually paid as the assessee has moved the Supreme Court challenging the vires of the provisions of the Act. As regards the liability to pay under the Act and the Rules relating to the relevant year, the Income -tax Officer was of the view that the liability was contingent and was not a permissible deduction. No such expenditure for the earlier year was claimed nor has any such expenditure for the subsequent year been shown by the assessee. The Income -tax Officer also observed that none of the workers of the assessee has made any claim to such amount till the date of assessment.
(3.) THE assessee appealed to the Appellate Assistant Commissioner of Income -tax but without any success. The assessee then filed a second appeal before the Income -tax Appellate Tribunal. The Tribunal was of the opinion that the said Rule 29 does not itself create a liability to pay wages in respect of rejected bidis as sub -standard and the liability arises after determination by an authority appointed for that purpose under the Act or is settled in an industrial dispute. The right to payment under Rule 29, the Tribunal states, accrues to the workers only after the determination of the question as to whether there was any wilful negligence on their part or not. The wages are payable to the workers weekly and the workers had not claimed anything up to the close of the relevant accounting year. Since no demand has been made by the workers for the wages for excess bidis rejected, the liability remained a contingent liability payable on determination. The Tribunal observed as under : Rule 29(2) is not an equivocal provision. A right to recover wages for excess of bidis rejected cannot accrue to a worker unilaterally under the provisions of Rule 29(2) and a worker cannot charge his employer with an unconditional liability unilaterally in respect of the same. Such a claim is capable of determination only on bilateral basis.' ;