ASHIM KUMAR BANERJEE, J. - (1.) SECTION 43B(f) is called in question in this appeal. The said section is quoted below: 43B. Certain deductions to be only on actual payment. - Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of -.... (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee. shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid him:...
(2.) CHAPTER IV of the IT 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. 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 liability for each and every year and the employer was entitled to have deduction not only in the year in which it was actually paid but also for the years when provision was made. The grounds on which the vires of the said section were challenged by the appellant are as follows: (i) Section 43B was introduced by the Finance Act, 1983, w.e.f. 1st April, 1984 for the purpose of preventing the attempt of the assessee to get deduction on the unpaid statutory liability instead of discharging the same. Clause (f) had no nexus with such object for which the said provision was enacted. (ii) Assuming the legislature was entitled to bring Clause (f) by way of amendment by incorporating the same within the ambit of Section 43B such amendment is ultra vires the Act in absence of non -disclosure of the objects. (iii) Incorporation of Clause (f) was unreasonable, arbitrary and inconsistent with the object disclosed while inserting Section 43B.
(3.) CHALLENGING the said amendment, the appellant filed a writ petition before the learned single Judge. His Lordship dismissed the writ petition, inter alia, holding as follows: (i) Legislature was not required to disclose objects and reasons for amendment of the original enactment and the object for which the original section was enacted would be applicable for the amendment too. (ii) The amendment of the sub -section was for enlarging the scope of the original section and as such the same would not be available for challenge. (iii) Leave encashment is not an ordinary trading liability. It was for the benefit of the employees and their welfare and the legislature was entitled to protect the interest of the employees by incorporating such provision. (iv) By incorporating such provision the legislature did not transgress its field to nullify the effect of the decision in the case of Bharat Earth Movers v. CIT : [2000]245ITR428(SC) . His Lordship dismissed the writ petition by his Lordship's judgment and order dt. 13th April, 2005, appearing at pp. 71 -77 of the paper book.;