SC Issues Notice on Late PF/ESI Deposit Deduction Dispute

Woodland (Aero Club) Private Limited Director Vs ACIT (Supreme Court of India)

SC issues notice to Revenue Income tax Deptt on late deposit of employee contribution of PF/ESI

The case concerns the tax treatment of employees’ contributions to Provident Fund (PF) and Employees’ State Insurance (ESI) that were deposited after the statutory due dates under the respective welfare laws but before the due date for filing the income tax return. It also involves whether such disallowance can be made through an adjustment under Section 143(1)(a) of the Income Tax Act, 1961.

Supreme Court Proceedings

The Supreme Court examined the legal framework surrounding employees’ contributions, referring to:

• Section 2(24)(x) — which treats employees’ contributions recovered by the employer as income,
• Section 36(1)(va) — which allows deduction only if such sums are credited to the relevant fund on or before the statutory due date,
• The Explanation defining “due date” under the respective PF/ESI laws.

The Court noted that there are two competing schools of thought among High Courts:

1. One view holds that employees’ contributions must be deposited strictly within the statutory due date under labour laws, and Section 43B does not override Section 36(1)(va).
2. The other view treats employees’ and employer’s contributions alike and allows deduction if payment is made before the due date for filing the return under Section 139(1).

After recording these conflicting judicial views and the statutory provisions, the Supreme Court did not render a final ruling on merits. Instead, it issued a procedural direction: