EXIDE INDUSTRIES LTD. Vs. UNION OF INDIA (UOI)

JUDGEMENT

(1.) The constitutional validity of Clause (f) of Sec. 43B of the Income -tax Act, 1961 is in question in this writ petition. The clause was inserted by way of an amendment by the Finance Act, 2001 with effect from April 1, 202.

(2.) The effect of the clause is that notwithstanding anything contained in any other provision of the Income -tax Act, 1961 allowing deduction under it of any sum payable by the Assessee as an employer in lieu of any leave at the credit of his employee', deduction of such sum 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 Sec. 28 of that previous year in which such sum is actually paid by him.

(3.) The case of the Petitioners is this. The method of accounting of the first Petitioner is mercantile, as required by the Companies Act, 1956, Sec. 209. It floated beneficial schemes for its employees for encashment of leave. In every financial year it set apart in a separate account requisite amount as provision for encashment on accrued leave, which is calculated on actual valuation basis. The amount so set apart is then charged to the profit and loss account as provision for leave encashment. The confusion regarding the nature of the liability came to an end with the apex court decision in Bharat Earth Movers v/s. Commr. of I.T. : (2000) 245 I.T.R. 428 (S.C.). Being a liability accrued in present its deduction was allowable under Sec. 37(1) of the Income -tax Act, 1961. But to nullify the apex court decision, quickly the legislative power was exercised to amend the law for disallowing the deduction in the absence of discharge of the liability by actual payment. The state action is arbitrary and unreasonable. No objects and reasons for the amendment were disclosed. Without any intelligible differentia an ordinary trading liability was separated from all other similar liabilities. It was then included in a Sec. and grouped with some liabilities, with which it had no rational nexus.