M/S.CHENNAI PETROLEUM CORPOR vs. THE DY COMMISSIONER OF INCOM

T.C.A.No.115 of 2020 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.11.2020 CORAM: THE HONOURABLE Mr.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE Mrs.JUSTICE PUSHPA SATHYANARAYANA Tax Case Appeal No.115 of 2020 M/s. Chennai Petroleum Corporation Limited, 536, Anna Salai, Teynampet, Chennai - 600 018l ... Appellant Vs. The Deputy Commissioner of Income-Tax Large Tax Payer Unit, Chennai - 600 101 ... Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961, against the order made in ITA No.1859/Chny/2011 dated 20.03.2019 passed by the Income Tax Appellate Tribunal, 'B' Bench, Chennai for the Assessment Year 2008-2009. For Appellant : Mr.R.Vijayaragavan for M/s Subbaraya Aiyar Padmanabhan For Respondent : Mr.T.Ravikumar Senior Standing Counsel 1/8 http://www.judis.nic.in T.C.A.No.115 of 2020 J U D G M E N T [Judgment of the Court was delivered by T.S.SIVAGNANAM, J.] This appeal, at the instance of the assessee filed under Section 260A of the Income Tax Act, 1961 (the 'Act' for brevity), is directed against the order passed by the Income Tax Appellate Tribunal, 'B' Bench, Chennai in ITA No.1859/Chny/2011 dated 20.03.2019 for the Assessment Year 2008-2009. 2. The assessee has filed the appeal raising the following Substantial Questions of Law: “1. Whether the Tribunal was right in law in holding that the assessee is not entitled for deduction in respect of provision for Leave Encashment without appreciating that the amount has been determined scientifically and accurately based on actuarial valuation, and the incurring of expenditure is certain and has arisen in the previous year ended on 31st March 2007? 2. Whether the Tribunal was right in law in holding that no expenditure shall be allowed u/s 43B(F) on account of any leave salary unless the expenditure is actually paid? 2/8 http://www.judis.nic.in T.C.A.No.115 of 2020 3. Without prejudice the Tribunal ought to have considered the contribution made to LIC towards Group Leave Encashment Scheme as actual payment and allowed deduction u/s 43B(F) of the Act? 3. Whether the Tribunal erred in law in not appreciating that the Accounting Standard 15 has determined the liability to leave encashment, has to be accounted for in the books each year and the Government has also notified in Gazette in GOI GSL No.212(E) dated 27.03.2008 " 3. We have heard Mr.R.Vijayaragavan, learned counsel for M/s Subbaraya Aiyar Padmanabhan Ramamani, learned counsels appearing the appellant / assessee and Mr.T.Ravikumar, learned senior standing counsel for the respondent / revenue. 4. The above Substantial Questions of Law were considered in the assessee's own case in T.C.A.No.111 of 2020 dated 14.10.2020 and the Substantial Questions of Law were answered against the assessee and in favour of the Revenue following the decision of the Hon'ble Supreme Court in the case of Union of India and Others Vs. Exide Industries Limited & Another reported in ((2020) 107 CCH 0427 [SC]). The operative 3/8 http://www.judis.nic.in T.C.A.No.115 of 2020 portion of the Judgment reads as follows: 8. The decision of the learned single Judge was appealed and came to be reversed by the Division Bench of the High Court. The Division Bench, while holding clause(f) as unconstitutional, observed thus: "... While inserting sub-section (f) no special reasons were disclosed. His Lordship held that such disclosure was not mandatory. We do not have any reason for disagreement on such issue provided the subject amendment could be termed as in furtherance to widen the scope of original section on the identical objects and reasons as disclosed at the time of enacting the original provision. As we find, the original section was incorporated to plug in deductions claimed by not discharging statutory liabilities. We also find that provision was subsequently made to restrict deductions on account of unpaid loan to the financial institutions. Leave encashment is neither statutory liability nor a contingent liability. It was a provision to be made for entitlement of an employee achieved in a particular financial year. An employee earns certain amount by not taking leave which he or she is otherwise entitled to in that particular year. Hence, the employer is obliged to make appropriate provision for the said amount. Once the employee retires he or she has to be paid such sum on cumulative basis which the employee earns throughout his or her service career [sic] unless he or she avails the leave earned [sic] by him or her. That, in our view, could not have any nexus with the original enactment. An employer is 4/8 http://www.judis.nic.in T.C.A.No.115 of 2020 entitled to deduction for the expenditure he incurs for running his business which includes payment of salary and other perquisites to his employees. Hence, it is a trading liability. As such he is otherwise entitled to have deduction of such amount by showing the same as a provisional expenditure in his accounts. The legislature by way of amendment restricts such deduction in case of leave encashment unless it is actually paid in that particular financial year. The legislature is free to do so after they disclose reasons for that and such reasons are not inconsistent with the main object of the enactment. We are deprived of such reasons for our perusal..." (emphasis supplied) It also held that the subject matter of clause (f) was inconsistent with the original Section 43B and observed as follows: "...We also do not find such enactment consistent with the original provision being Section 43B which was orginally inserted to plug in evasion of statutory liability. The Apex Court considered the situation in the case of Bharat Earth Movers (Supra) when sub-section(f) was not there. The Apex Court, considering all aspect as disclosed by us hereinbefore, rejected the contention of the Revenue and granted appropriate deduction to the concerned assessee. The legislature to get rid of the decision of the Apex Court brought out the amendment which would otherwise nullify the judge made law. The Apex Court decisions are judge made law and are applicable to all under the Constitution...." 5/8 http://www.judis.nic.in T.C.A.No.115 of 2020 It is noteworthy that the High Court did not question the existence of power of the legislature to enact the subject clause, as can be discerned from the following observations: "...We, not for a single moment, observe that legislature was not entitled to bring such amendment. They were within their power to bring such amendment. However, they must disclose reason which would be consistent with the provisions of the Constitution and the laws of the land and not for the sole object of nullifying the Apex Court decision." Thus, while following the above decision in the assessee's own case, the present appeal is dismissed and Substantial Questions of Law are answered against the assessee. No costs. [T.S.S.J.,] [P.S.N.J.,] 19.11.2020

Internet: Yes Speaking Judgment / Non speaking Judgment ssd 6/8 http://www.judis.nic.in T.C.A.No.115 of 2020 To The Income Tax Appellate Tribunal, 'B' Bench, Chennai 7/8 http://www.judis.nic.in T.C.A.No.115 of 2020 T.S.SIVAGNANAM,J AND PUSHPA SATHYANARAYANA

,J ssd Tax Case Appeal No.115 of 2020 19.11.2020 8/8 http://www.judis.nic.in