Commissioner of Income Tax vs Mohan Meakin Ltd.

The revenue is aggrieved by an Order dated 18-8-2004 passed by the Tribunal, Delhi Bench ''B'''' in ITA No. 437/Del/1990 and ITA No. 251/Del/1990 relevant for the assessment year 1985-86.

Three issues have been raised by learned Counsel for the revenue.

The first issue is with regard to allowing a deduction of Rs. 3,44,558 made on account of a provision for leave encashment to permanent employees of the assessee.

We have gone through the order passed by the departmental authorities and find that there it has not been mentioned anywhere that the assessed does not have a scheme for leave encashment. On the contrary, the fact that leave encashment is available only to permanent employees suggests that the assessed has a scheme in existence and that too is limited to a class of employees.

The Tribunal has relied upon a decision of the Supreme Court in Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, in which the question of law was as follows:

Whether on the facts and in the circumstances of the case, the provision for meeting the liability of encashment of earned leave by the employees is an admissible deduction ?

The Supreme Court answered the question in the affirmative in view of the existence of a scheme for leave encashment. We are of the view that the decision of the Supreme Court clearly applies to the facts of this case.

No substantial question of law has been made out in this regard by the revenue and the decision of the Tribunal cannot be faulted with.

The second question raised by learned Counsel for the revenue is with regard to a deduction of Rs. 1 lakh on supply of know-how. We find that the amount is insignificant and the tax liability is minimal. We, Therefore, decline to frame any substantial question of law in this regard.

The third issue raised by learned Counsel for the revenue is with regard to a deduction of Rs. 5,27,500 granted by the Tribunal. An employee of the assessed had embezzled an amount of Rs. 35,27,500 and had subsequently committed suicide. The assessed made efforts to recover the embezzled amount but could succeed in recovering only Rs. 64,000. It was noted that the employee had left behind assets worth approximately Rs. 5 lakhs.

On this basis, the Tribunal granted to the assessed the benefit of Rs. 5,27,500 only while it declined to grant any benefit to the assessed in respect of the claim of deduction of Rs. 30 lakhs as being not recoverable. We do not find, on the facts of this issue, that any substantial question of law arises in this regard.

The appeal is dismissed.