JUDGMENT

R.C. Lahoti, J.-Relevant to the assessment year 1978-1979 the following question of law was stated, at the instance of the Revenue, by the Income Tax Appellate Tribunal for the opinion of the High Court of Karnataka under Section 256(1) of the Income-tax Act, 1961:-

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

2. The appellant company has two sets of employees. One set of employees is covered by Employees State Insurance Scheme and is generally known as staff . The other set of employees not so covered is known generally as officers . The company has floated beneficial schemes for its employees for encashment of leave. The officers are entitled to earned leave calculated at the rate of 2.5 days per month, i.e., 30 days per year. The staff (other than officers) is entitled to vacation leave calculated at the rate of 1.5 days per month, i.e., 18 days in a year. The earned leave can be accumulated upto 240 days maximum while the vacation leave can be accumulated upto 126 days maximum. The earned leave/vacation leave can be encashed subject to the ce