Summary
Section 43B(f), linking deduction for employers’ leave-encashment liability to actual payment, was upheld as constitutionally valid. It regulates deduction timing without converting the accrued liability into a contingent one or abolishing mercantile accounting. The prospective amendment validly changed the legal basis governing deductions after Bharat Earth Movers. Absence of separate objects and reasons and differences from other Section 43B liabilities did not establish invalidity.
Issues
- Whether actual-payment conditionality for leave-encashment deductions was constitutionally valid.
- Whether absence of separate stated objects and reasons or inconsistency with other deduction heads invalidated the amendment.
- Whether the amendment impermissibly overrode Bharat Earth Movers.
Provisions considered
- Section 43B(f), read with the applicable proviso, Income-tax Act, 1961Upheld the prospective actual-payment condition for the leave-encashment deduction; the statute regulates when deduction is available. (¶¶ 2, 16, 17, 18, 19, 20, 32, 33, 39, 40, 41, 42)
- Section 145, Income-tax Act, 1961Distinguished the assessee’s choice of accounting method from the special statutory conditions governing particular deductions. (¶¶ 14, 15, 16, 17, 39)
Held
- Section 43B imposes an additional actual-payment condition on specified deductions otherwise allowable. It neither removes lawful deductions altogether nor generally prevents use of mercantile accounting. For leave encashment it regulates deduction timing rather than requiring payment in the accrual year. (¶¶ 14, 15, 16, 17, 19, 20, 39)
- Section 43B includes varied liabilities and is not confined to statutory dues. Clause (f) shares the wider objectives of protecting revenue and employees by preventing an employer from obtaining an advance deduction while retaining the money and later withholding payment. (¶¶ 18, 19, 20, 21, 22, 32, 33, 34)
- Constitutional invalidity requires a demonstrated constitutional infirmity; legislative competence was undisputed here. Separate objects and reasons are not an indispensable condition of validity where the enactment’s text and import are clear. Their absence cannot justify scrutiny of legislative motives or substitution of judicial views on fiscal policy. (¶¶ 11, 12, 13, 24, 25, 26, 27, 28, 29, 30, 31, 34, 41)
- The legislature cannot simply declare a judicial decision ineffective, but may validly change its legal foundation. Bharat Earth Movers concerned the earlier statutory regime and established that leave-encashment liability was present rather than contingent. The prospective amendment retained that character while prescribing a special actual-payment condition for deduction; it did not impermissibly exercise judicial power. (¶¶ 35, 36, 37, 38, 39, 40)
Result
Union’s appeal allowed; Division Bench judgment reversed. Section 43B(f) declared constitutionally valid and operative for all purposes. No costs; pending applications disposed of.