I would like to know is carry forward of leave or leave encashment at the end of every year is desiarable.In case leave is carryforward then is the provision for leave encashment allowed under the income tax act in the year of provision.
23 February 2008
As per the Amendment to section 43B(F) of the Income-Tax Act 1961, companies could claim deduction only for actual cash flow and not for the provisions made. The amendment was brought in by the government to nullify a Supreme Court verdict given in the case of Bharat Earth Movers.
But, according to a recent ruling by the Calcutta High Court, companies will be able to claim deduction based on provision for leave encashment. The decision came in response to a petition filed by Exide Industries. The court has termed the amendment carried out by government as arbitrary and struck it out.
What the high court has held is for other items covered under Section 43B like statutory duties, payments to excise department, contribution to provident funds and interest payments to banks. Giving deduc- tion only on account of actual cash outflow was appropriate as public money was involved in the payments and the government wanted to stop misuse of public money. However, leave encashment is not a statutory liability and does not involve public money. The decision will help companies as they would be able to claim deduction for the payouts and would reflect on their balance-sheet.
The high court pointed the original Section 43B did have the sub-section F covering leave encashments. Section 43B was brought in only to prevent evasion of statutory liability and sub-section F was inserted in 2001 only to nullify the apex court’s decision.
It is upto a to take a view in the light of the above.
CAclubindia
