S. 43B(f) Allowing leave encashment Expense only on payment basis unconstitutional

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HIGH COURT OF KERALA

CIT v. Hindustan Latex Ltd.

IT Appeal No. 64 of 2012

JUNE 7, 2012

Calcutta High Court in Exide Industries case (supra) held that leave encashment is neither a statutory liability nor a contingent liability and it is a provision to be made for the entitlement of an employee achieved in a particular financial year. Testing clause (f) with the objects sought to be achieved by the introduction of Section 43 B, it was held that the same could not have any nexus with the object sought to be achieved by the original enactment. Section 43 B, it was held, was originally inserted to plug evasion of statutory liabilities and the introduction of clause (f) was found to be inconsistent with the said object. The learned Judges held that the amendment brought in could not have nullified the dictum laid down in Bharat Earth Movers case (Supra). As noticed earlier there is nothing in the appeal memorandum to indicate that the Revenue has challenged the said decision before the Supreme Court. In the circumstances of the Revenue having not challenged the correctness of the law laid down by the Calcutta High Court, it is not open to the Revenue to challenge its correctness in the case of another assessee. The Supreme Court in AIR 2004 1743 SC Berger Paints India Ltd. v. Commissioner of Income Taxreiterated that “if the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessee, without just cause” is squarely applicable herein.

The order of the Assessing Officer allowing deduction to the assessee in the case of premium paid towards the valid insurance policy, ensuring the satisfaction of liability for leave encashment by the insurer cannot be held to be erroneous and is not liable to be revised under Section 263 for the reason of being prejudicial to the Revenue. The Revenue having accepted the decision of the Calcutta High Court also cannot press into service Section 43B(f).

Hence, the questions of law are answered against the Revenue and in favour of the assessee.