BHARAT EARTH MOVERS vs. COMMR. OF INCOME TAX

C.A. No.-009271-009271 - 1995Supreme Court09 August 20004 pages
For Respondent: SUSHMA SURI
AI SummaryAllowed

What did the Supreme Court hold?

The Supreme Court held that the provision for leave encashment, when it has definitely arisen in the accounting year and can be estimated with reasonable certainty, is an admissible deduction. It is not a contingent liability.

What were the facts?

The appellant company made a provision for encashment of earned/vacation leave for its employees, claiming it as a deduction. The High Court held this provision to be a contingent liability and thus not deductible.

What were the issues?

Whether a provision for accrued leave encashment liability is an admissible business deduction or a contingent liability.

Which sections of the Income-tax Act were involved?

Section 256(1)

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Cause title — parties, addresses and appearances
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4 CASE NO.: Appeal (civil) 9271 of 1995 PETITIONER: BHARAT EARTH MOVERS Vs. RESPONDENT: COMMISSIONER OF INCOME TAX, KARNATAKA DATE OF JUDGMENT: 09/08/2000 BENCH: R.C.Lahoti,N.S.Hegde

JUDGMENT: R.C. Lahoti, J. L.....I.........T.......T.......T.......T.......T.......T..J Relevant to the assessment year 1978-1979 the following question of law was stated, at the instance of the Revenue, by the Income Tax Appellate Tribunal for the opinion of the High Court of Karnataka under Section 256 (1) of the Income-tax Act, 1961:- Whether on the facts and in the circumstances of the case the provision for meeting the liability for encashment of earned leave by the employee is an admissible deduction? The appellant company has two sets of employees. One set of employees is covered by Employees State Insurance Scheme and is generally known as staff. The other set of employees not so covered is known generally as officers.

The company has floated beneficial schemes for its employees for encashment of leave. The officers are entitled to earned leave calculated at the rate of 2

The order continues below.

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