- (1.) This is a Reference by the Calcutta Bench of the Income-tax Appellate Tribunal of the following question of law: Whether in the facts and circumstances of this case, the sum of Rs. 6,800 can be rightly charged as an expense to the accounts of this year.
(2.) By "this year", the Tribunal apparently meant the accounting year relative to the assessment year 1947-48. It is much to be regretted that the question should have been framed in that indefinite, if not careless, form.
(3.) The Assessee, the Bengal Enamel Works, Limited, is a company and keeps its accounts in the mercantile method. For the calendar year 1946, which was the relevant accounting year, it was assessed to tax mostly on the profits and gains of business and, in fact, there was little else which contributed to its taxable profits. The Assessee asked for a deduction of Rs. 6,800 which it had debited to its expenses account and claimed that this amount was allowable to it, because it had incurred a liability for a corresponding amount to the employees on account of holiday wages which would have to be paid to them sometime in the following year. That claim, it appears, was based upon Section 49B of the Factories Act XXV of 1934 which was referred to before the Appellate Tribunal and it may be also upon Rules 12, 15 and 17, framed under the same Act, which were referred to before us. The income-tax authorities refused to allow the deduction claimed and the reasons for the refusal are given by the tribunal in its appellate order. The reasons given are that the amount was not actually expended during the relevant accounting year and that it did not even represent a certain liability which would have to be discharged in any event at some future point of time. The Tribunal referred to the relevant sections of the Factories Act and pointed out that holiday wages would have to be paid only if and when an employee went in for a holiday. But if, being entitled to a holiday, he took none, he might on paper go on accumulating holidays, but the employer would not be called upon to make any payment under the head at all. Even if the employer ever came under the liability to pay holiday wages, the same would have to be computed at the rate of the wages current at the time when the claim was made and the amount paid. It could not, therefore, be said, before a claim was actually made, what the amount would be that would have to be paid, or that any amount would have ever to be paid at all. Various possibilities were pointed out by the Tribunal, such as, that an employee might die before he made any claim or the contingencies in which the holiday wages would be payable to him might never occur. In those circumstances, the view taken by the Tribunal was that till an amount was actually paid on account of holiday wages, the Assessee could not be allowed any deduction in its assessment and that the officers below had been right in not allowing this item of expense "at this stage".;