The Madras High Court held that the provision for wage arrears is an ascertained liability, notwithstanding that the provision has been accounted for on a cash basis.
The revenue has challenged the order passed by the Tribunal wherein it was held that the provision for wage arrears of Rs.5.80 crores is an ascertained liability, notwithstanding the fact that the provision has been accounted on a cash basis.
The division bench of Justices M.Duraiswamy and T.V.Thamilselvi relied on the decision of the Supreme Court in the case of Bharat Earth Movers Vs. Commissioner of Income Tax and Calcutta Co. Ltd., Vs. Commissioner of Income Tax wherein it was held that having accepted the sum of the receipts in their totality even though a sum was actually received by the appellant in cash, thus making the appellant liable for income-tax on a sum which had not been received by it during the accounting year, it was hardly open to the Revenue to urge that the sum should not have been allowed as a permissible deduction before arriving at the profits or gains of the appellant which were liable to tax.
The court while dismissing the petition against the revenue held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case.
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