JUDGMENT

A.M. Khanwilkar, J.

1. In this appeal, the constitutional validity of clause (f) of Section 43B of the Income Tax Act, 1961 [For short, “the 1961 Act”] arises for our consideration as a result of the decision of the High Court at Calcutta [For short, “the High Court”] vide order dated 27.06.2007 in APO No. 301 of 2005, wherein it is held that the said clause is arbitrary and violative of Article 14 of the Constitution of India on various counts, as discussed hereinafter.

2. The stated clause (f) was inserted in the already existing Section 43B vide Finance Act, 2001 with effect from 1.4.2002, in order to provide for a tax disincentive in cases of deductions claimed by the assessee from income tax in lieu of liability accrued under the leave encashment scheme but not actually discharged by the employer. This clause made the actual payment of liability to the employees as a condition precedent for extending the benefit of deduction under the 1961 Act. With the application of clause (f), the eligibility for deduction arises in the previous year in which the abovesaid payment is actually made and not in which provision was made in that regard, irrespective of the system of accoun