Case Law Details
Vedvan Consultants Pvt. Ltd. Vs DCIT (ITAT Delhi)
1. In view of what has been discussed above and following the decision rendered by the Hon’ble jurisdictional High Court in case of CIT vs. Bharat Hotels Ltd. (supra), we are of the considered view that the assessee company is not entitled for deduction of Rs.4,29,110/- u/s 36(1)(va) of the Act claimed on account of depositing the employees contribution towards ESI & PF as per provisions contained u/s 2(24)(x) read with section 36(1)(va) after due date which is evident from table extracted in preceding para no.5.
2. So, the case laws relied upon by the ld. AR for the assessee is not applicable to the facts and circumstances of the case.
3. Consequently, finding no illegality or perversity in the impugned order passed by the ld. CIT (A), appeal filed by the assessee is hereby dismissed.”
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of ld. CIT(A)-9, New Delhi dated 12.02.2020.
2. The solitary ground is directed against the addition of Rs.94,33,788/- u/s 36(1)(va) of the Income Tax Act, 1961. Brief facts as noted from the impugned order are that an addition u/s 36(1)(va) has been made by the DCIT, CPC, Bangalore on account of delay in depositing the ESI and EPF. The copy of tax audit report which is part of the income tax return filed by the assessee and it can be found that the amount has been paid beyond the due date as prescribed in the ESI & PF Act under the IT Act. However, there is no dispute that it is deposited before the due date of filing of return for the assessment year 2018-19.
3. The issue at hand regarding allowability of deduction on account of deposit of employee’s contribution to provident fund and ESI. The ld. CIT (A) held that the same have not paid before the due date are not eligible for claim of deduction.
4. Before us, the ld. AR relied on a plethora of case laws which have been mentioned at page nos. 4 & 5 of the order of the ld. CIT (A) and canvassed relying on the provisions of Section 43B.
5. We have gone through the provisions of the Section 36(1)(va) and Section 43B, cases cited and also the judgments on this issue.
To mention a few,
MADRAS HIGH COURT : October 23, 2018
The scope of Section 43B and Section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether the assessee is entitled to deduction in respect of the sum belatedly paid towards such contribution, especially when such sum is, admittedly, a sum received by the assessee/employer from his employee. Therefore, for considering such question, application of Section 36(1)(va) r.w.s. 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va).
Accordingly, the writ petition fails and the same is dismissed.
KERALA HIGH COURT : [2015] 378 ITR 443 : September 8, 2015
THE COMMISSIONER OF INCOME TAX, COCHIN VERSUS M/S MERCHEM LIMITED
The distinction drawn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal infirmity in classifying the contributions of employees and employer in the matter of crediting the same to the appropriate statutory authorities.
Considering section 36(1)(va) of the Income Tax Act as it stands, with respect to any sum received by the assessee from any of his employees to which the provisions of clause (x) of sub-section (24) of section 2 applies, assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is not credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date as per explanation to section 36(1)(va) of the Act.
BOMBAY HIGH COURT: [2014] 368 ITR 749 (Bom): October 14, 2014
THE COMMISSIONER OF INCOME TAX VERSUS GHATGE PATIL TRANSPORTS LTD.
The employer assessee would be entitled to deduction only if the contribution to the employee’s welfare fund stood credited on or before the due date and not otherwise – following the decision in Commissioner of Income Tax V/s. Alom Extrusions Ltd. [SUPREME COURT] – both employees’ and employer’s contributions are covered under the amendment to Section 43B of I.T. Act – the Tribunal was right in holding that payments are subject to benefits of Section 43B
6. Decision of the Hon’ble Supreme Court relied upon by the assessee cited as CIT vs. Alom Extrusions Ltd. (supra) is not applicable to the facts and circumstances of the case because Hon’ble Supreme Court has decided the issue in Alom Extrusions Ltd. case qua employers contribution as per section 43B(b) of the Act and not qua employees contribution u/s 36(1)(va) of the Act.
7. Clause (24) of section 2 of the Income Tax Act, 1961 (The Act) provides an inclusive definition of the income. Sub-clause (x) to the said clause provides that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head ‘Profits and gains of business or profession.’ Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date. Explanation to the said clause provides that, for the purposes of this clause, “due date to mean the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise.
8. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer’s contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer’s contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act.
9. Section 36(1)(va) and section 43B(b) operate in different fields, i.e., former takes care of employee’s contribution and later the employer’s contribution. Therefore, an assessee is entitled to get benefit of deduction under section 43B as provided under the proviso thereto only with regard to portion of amount paid by the employer to contributory fund. So far as the employee’s contribution is concerned, the assessee is entitled to get deduction of amounts as provided under section 36(1)(va) only if amounts so received from the employee is credited in specified account within due date as provided under relevant statute (CIT v. Merchem Ltd. 61 com 119).
10. The section 43B of the Act covers only employer’s contribution and does not cover employees’ contribution, sometimes they have been applied to the provision of section 43B on employees’ contribution as well and allowed the deduction to employer even if the employees’ contribution is deposited by the due date of filing Income Tax Return (ITR) as mentioned under section 139(1).
11. To provide clarity and certainty on non applicability of section 43B on employees’ contribution to specified funds, the Budget 2021 has proposed to amend the provisions of section 36(1)(va) and section 43B as under:
(a) amend section 36(1)(va) of the Act by inserting another explanation 2 to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the due date under this clause; and
(b) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies.
12. The language of newly proposed explanation 2 to section 36(1)(va) and explanation 5 to section 43B makes it clear that the amendment is retrospective.
13. The rational of the amendment was explained by the Memorandum to the Finance Bill, 2021 as below:
“There is a distinction between employer contribution and employee’s contribution towards welfare fund. It may be noted that employee’s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer’s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee’s contribution towards welfare funds. Employee’s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee’s contributions.
14. From the above, it can be said that the law is now made clear that employees’ contribution to specified fund will not be allowed as deduction if there is delay in deposits as per the due dates mentioned in the respective legislation.
15. Decision of the Hon’ble Supreme Court relied upon by the assessee cited as CIT vs. Alom Extrusions Ltd. (supra) is not applicable to the facts and circumstances of the case because Hon’ble Supreme Court has decided the issue in Alom Extrusions Ltd. case qua employers contribution as per section 43B(b) of the Act and not qua employees contribution u/s 36(1)(va) of the Act.
16. We have also gone through the orders of the Co-ordinate Bench of ITAT in the case of Eagle Trans Shipping & Logistics (India) (P.) Ltd. Vs ACIT in ITA No. 324/Del/2017 order dated 25.07.2019 which was relied on the judgment of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Bharat Hotels Ltd. 410 ITR 417, it held,
“9. When we examine the issue in controversy in the light of the provisions contained u/s 36(1)(va) of the Act, it is apparently clear that the assessee would be entitled for deductions qua the sum received from any office employee to which provisions under sub- section (x) of clause (24) of section 2 is applied only, if such sum is credited by the assessee to the employees account in the relevant fund or funds on or before the due date. Due date is further defined in the Explanation, which means, the date by which the assessee is required as an employer to credit employees contribution to the employees account in the relevant fund under any Act or rule or order or notification issued thereunder or any standing order or award or service or otherwise. Meaning thereby, in case, employer fails to deposit the entire amount towards employees contribution on account of PF & ESI with concerned department on or before the due date under PF & ESI, the assessee shall not be entitled for deduction to that extent.
10. Decision of the Hon’ble Supreme Court relied upon by the assessee cited as CIT vs. Alom Extrusions Ltd. (supra) is not applicable to the facts and circumstances of the case because Hon’ble Supreme Court has decided the issue in Alom Extrusions Ltd. case qua employers contribution as per section 43B(b) of the Act and not qua employees contribution u/s 36(1)(va) of the Act.
11. Hon’ble jurisdictional High Court in case of CIT vs. Bharat Hotels Ltd. (2019) 410 ITR 417 (Delhi) (supra) decided the identical issue qua delayed deposit of employees contribution on account of PF & ESI against the assessee by holding that assessee would be entitled to deduction in terms of section 36(1)(va) of the Act to the extent if the employees contribution on account of PF & ESI is deposited on or before the due date, and the employees contribution on account of PF & ESI deposited beyond the stipulated period would not make the assessee company entitled to claim deduction from its return. For ready perusal, operative part of the judgment of CIT vs. Bharat Hotels Ltd. (supra) is extracted as under:-
“7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)(va) of the Act alongside provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees’ Provident Funds Scheme, 1952) and the provisions of the Employees’ State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their contributions. It is not in dispute that the employer’s right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of notifications under the Employees’ Provident Funds Act, 1952 and the Employees State Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited within 15 days of the succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The CIT in this case confirmed the additions – made by the AO based on the entire amounts that were disallowed. The ITAT however granted complete relief.
8. Having regard to the specific provisions of the Employees’ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT’s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace, period in terms of the extent notification). As far as the amounts constituting deductions from employees’ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.
9. In view of this discussion, the Revenue’s appeal is partly allowed. The AO is directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms of the prevailing provisions and notifications. We also clarify that the assessee would be entitled to deduction in terms of Section 36(1)(va) of the Act.”
12. In view of what has been discussed above and following the decision rendered by the Hon’ble jurisdictional High Court in case of CIT vs. Bharat Hotels Ltd. (supra), we are of the considered view that the assessee company is not entitled for deduction of Rs.4,29,110/- u/s 36(1)(va) of the Act claimed on account of depositing the employees contribution towards ESI & PF as per provisions contained u/s 2(24)(x) read with section 36(1)(va) after due date which is evident from table extracted in preceding para no.5. So, the case laws relied upon by the ld. AR for the assessee is not applicable to the facts and circumstances of the case. Consequently, finding no illegality or perversity in the impugned order passed by the ld. CIT (A), appeal filed by the assessee is hereby dismissed.”
17. Hence, keeping in view the order of the Co-ordinate Bench of the Tribunal and the order of the Hon’ble Jurisdictional High Court of Delhi, we hereby affirm the order of the ld. CIT (A).
18. In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 26/08/2021.
Author Bio
This is not a good decision, the order is passed completely from department perspective mind. The decisions relied upon considered by high courts of Delhi and Madras in their subsequent decisions and decided the issue in favour of assessee. Even the amendment made vide Finance Bill, 2021 is prospective and applicable from AY 2021-22 onwards, this fact is specifically mentioned in Memorandum of Explanation. Why the observations given by Hon’ble Member Dr. B.R.R. Kumar are not good:
1. Settled proposition of rule of law:
It is well settled that if two views are possible in interpreting the provisions of law in taxation, the one favorable to the assessee has to be preferred. In Sun Export Corporation, Bombay vs Collector of Customs (1997) 6 SCC 564 it was observed that “even assuming that there are two views possible, it is well settled that one favourable to the assessee in matters of taxation has to be preferred.”. IN CIT vs. Gwalior Rayon Silk Mfg. Co. Ltd. (1992) 196 ITR 149 (SC) it has held that provisions for deduction, exemption and relief should be interpreted liberally, reasonably and in favour of the assessee. In CIT vs. Vegetable Products Ltd., (1973) 88 ITR 192 (SC): “if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted”.
2. Non-application of enforcement of amendment w.e.f. 1.04.2021:
In The Finance Bill, 2021 amendments are made in section 36 & 43B vide clause 8 & 9 and in the Memorandum of Explanation provides that these amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. In this regard attention is invited towards section 1(2)(a) of Finance Act, 2021 wherein it has specifically mentioned that section 2 to 88 shall come into force on the first day of April 2021. Further as per Finance Act, 2021 section 9 relates to amendment of section 36 and section 11 in relates to amendment of section 43B.
Further, the hon’ble ITAT Hyderabad in a recent decision in the case of Crescent Roadways Pvt Ltd vs DCIT, ITA No. 1952/2018 vide Order dated 1.07.2021 observed that the legislature has not only incorporated necessary amendment in Sections 36(1)(va) as well as 43B vide Finance Act, 2021 to this effect but also the CBDT has issued Memorandum of Explanation that the same applies w.e.f. 1.4.2021 only, and deleted the addition of Rs.2,83,203/- Rs.44129 made by the Assessing Officer representing delay in remittance of employees contribution towards provident fund and ESI respectively and allowed the appeal of the assessee.
Also refer the decision in the case of ValueMomentum Software Services Pvt Ltd vs DCIT, ITA No. 2197/2017 order dated 19.05.2021, ITAT-Hyderabad.
3. Recent decisions of Hon’ble ITAT Delhi, Chennai and Agra in favour:
i. The hon’ble ITAT Delhi in DCIT vs Dee Development Engineers Ltd ITAT No. 4959/2016 order dt. 8.04.2021 after due consideration of the decision in the case of CIT vs Bharat Hotels Ltd ITA No. 271/2005 order dated 6.09.2018 reported in 410 ITR 417 and the decision in the case of Pr. CIT vs Pro Interactive Services (India) Pvt Ltd ITA No. 983/2018 order dated 10.09.2018 the hon’ble court has held that:
“7. We have heard both the parties and perused all the relevant material available on record. As regards Ground No. 1, the assessee company has not deposited the employees’ contribution within the due date which is prescribed under the said statute i.e. Provident Fund and ESIC. This issue is dealt by the Hon’ble Delhi High Court in case of CIT vs. M/s Bharat Hotels Ltd. 410 ITR 417 wherein the issue is decided in favour of the Revenue, without considering the decision of the Hon’ble Delhi High Court in case of CIT vs. AIMIL Ltd. (2010) 321 ITR 508 (Del.). But the Ld. AR relied upon the decision of the Hon’ble Delhi High Court in case of Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. ITA No. 983/2018 pronounced on 10.09.2018 wherein the Hon’ble High Court decided the issue in favour of the assessee relying upon the judgment of AIMIL Ltd. (supra). The Hon’ble Delhi High Court held that the legislative intent was/is to ensure that the amount paid is allowed as expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under Section 2(24)(x) of the Act. It is settled law that when two judgments are available giving different views then the judgment which is in favour of the assessee shall apply as held in case of Vegetable Products Ltd. 82 ITR 192 by the Hon’ble Supreme Court. Hence, in light of the latest decision in case of Pro Interactive Service (India) Pvt. Ltd., the issue is covered in favour of the assessee. Hence, Ground No. 1 is dismissed.”
Also refer the decisions in the case of:
(a) DCIT vs Repco Home Finance Pvt Ltd, ITA No.2885/2017 order dated 17.06.2020 reported in (2020) 183 ITD 782, ITAT-Chennai
(b) Srinivasa Fashins Pvt Ltd vs ITO Corporate, ITA No. 1396/2019 order dated 28.09.2020, followed the Repco
ii. The hon’ble ITAT Delhi in a DCIT vs Planman HR (P) Ltd ITA No. 5152/2017 order dated 15.07.2021 confirmed the finding of the CIT(A) deleting addition of Rs.8,90,53,240/- relying on the decisions in the case of Pr.CIT vs Planman HR (P) Ltd ITA 599/2017 order dt. 11.09.2017, CIT vs Aimil Ltd 321 ITR 508 (Delhi), Sagun Foundry Pvt Ltd vs CIT 291 CTR 557 (All) and Essac Teraoka Pvt Ltd vs DCIT 366 ITR 408 (Kar.), refer Ground No. 2 of the order appeal.
iii. The hon’ble ITAT Chennai in DCIT vs Talenpro India HR Pvt Ltd ITA No. 265/2019 order dt. 9.04.2021 confirmed the finding of the CIT(A) deleting addition of Rs.1,50,07,637/- relying on the decision in the case of CIT vs Industrial Security & Interlligence India Pvt Ltd TCA Nos. 585 & 586/2015 order dated 24.07.2015 (Mad), CIT vs Alom Extrusions Ltd 319 ITR 306 (SC) and CIT vs Aimil Ltd 321 ITR 508 (Delhi) wherein it has been observed that if the assessee has remitted the remittance of the employee’s contribution to PF and ESI much before the filing of the return of income under section 139(1) of the Act, no disallowance is called for i.e. it is an allowable deduction u/s 43B of the Income Tax Act, 1961.
iv. The hon’ble ITAT Agra in Mahadev Cold Storage vs Jurisdiction Assessing Officer ITA Nos. 41&42/2021 and Vinod Thanwerdas vs Jurisdiction Assessing Officer 20&21/2021 order dt. 14.06.2021 following the decision in the case of Sagun Foundry (P) Ltd vs CIT 145 DTR 265, allowed the appeals deleting additions observing that as the payment have been made before the due date specified u/s 139(1) and as such are fully allowable.
v. The Bharat Hotels Limited decision relied upon by Ld CIT(A) is different on facts and hence not applicable: (i) it has not considered the earlier decision in the case of Aimil Ltd which is land mark ruling on subject matter and issue, (ii) It pertains to AY 2000-01 i.e. prior to amendment in section 43B by Finance Act, 2003 by which deleted 2nd proviso, (iii) there was no issue before the court for determination applicability of section 43B of the Act. Further, in Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. ITA No. 983/2018 order dated 10.09.2018 the hon’ble Delhi High Court observed that no disallowance is called for where the assessee had paid the employee’s contribution to PF&ESI before the due date of furnishing of return of income u/s 139(1) of the Act,. This decision is passed after the decision of Bharat Hotels Ltd hence the latest and majority decisions of the hon’ble jurisdictional High Court are assessee’s favorable and cannot be ignored.
vi. In the case of DCIT vs Repco Home Finance Pvt Ltd ITA No.2885/2017 order dated 17.06.2020 reported in (2020) 183 ITD 782, ITAT-Chennai wherein the hon’ble ITAT discussed the issue in length considering all relevant decisions of various High Courts whether in favour of the assessee and or the revenue, including the decision in the case of Bharat Hotels Ltd 410 ITR 417 relied upon by Ld CIT(A) in the case of appellant while confirming the addition, and relevant decisions of the Hon’ble Supreme Court the honble members in para 10.3.11 of the order observed as under:
10.3.11 Thus, keeping in view strict and literal interpretation of provisions of Section 36(1)(va) of the 1961 Act read with Explanation 1 and Section 2(24)(x) of the 1961 Act , the assessee will not be entitled for deduction as the employee contribution towards PF received by assessee was deposited late beyond the time stipulated under the relevant statute governing PF. But, it is equally true that the Constitutional Courts viz. Hon’be High Courts and Hon’ble Supreme Court in India have powers to read down the provisions of the 1961 Act to make it workable and to avoid absurdity. On perusal of the decision of Hon’ble Supreme Court in the case of Alom Extrusion (supra) , it is observed that Hon’ble Supreme Court has elaborately discussed provisions of Section 36(1)(va) ,2(24)(x) and amendments made by Finance Act, 2003 to Section 43B of the 1961 Act, which amendments to Section 43B of the 1961 Act were held to be retrospective in nature. The Hon’ble Supreme Court also referred in its decision in Alom Extrusion (supra) to its earlier decision in CIT v. J.H. Gotla [1985] 156 ITR 323(SC) , para 10 that intention of the legislature is to be found out from the language used and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. The Hon’ble Delhi High Court and Hon’ble Bombay High Court after considering, analyzing and interpreting the decision in the case of Alom Extrusion (supra) has held that it will apply both to employers and employee contribution and if the same is deposited before the due date of filing of return of income u/s 139(1) of the 1961 Act, the deduction shall be allowed , even if the same is deposited beyond the time stipulated as due date as prescribed under the provisions of Statute governing PF/ESI Act. Thus, the applicable provision as is contained in Section 36(1)(va) is read down by most of the Constitutional Courts including our Jurisdictional High Court (barring Hon’ble Gujarat High Court and Hon’ble Kerala High Court) to make it workable as otherwise the tax-payer will lose the deduction for ever if the employee contribution is not deposited within due date as prescribed under relevant statute , although the said contribution stood deposited by employer belatedly before the due date for filing of return of income u/s 139(1) of the 1961 Act and the amount will stood brought to tax as income keeping in view provisions of Section 2(24)(x) of the 1961 Act so far employee share of contribution towards PF ,ESI and other employees welfare funds is concerned. No doubt it is well cherished objective that there should not be an unjust enrichment of the employer of the amount which it collects from its employees towards employees share of PF , ESI and other employees welfare funds and in the ideal situation , the said amounts ought to have been deposited by employer which it collected from its employees, to the credit of employee with relevant funds within time stipulated as due date by respective statute governing PF/ESI etc. but at the same time if the employer does not deposit the contribution towards PF/ESI etc within due date as prescribed under relevant statute governing PF/ESI etc, the employers are visited with Interest for delayed deposit of PF/ESI as well Penalties for late deposit beyond the time stipulated under the relevant statute governing PF/ESI and other employees welfare funds. Reference is drawn to Section 7Q and 14 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Similarly, Hon’ble Madras High Court in the case of Industrial Security and Intelligence India Private Limited (supra) after considering and interpreting the decision of Hon’ble Supreme Court in the case of Alom Extrusion (supra) and Hon’ble Delhi High Court in the case of Aimil Limited(supra) held that deduction is to be allowed for belated payment of employee contribution to PF/ESI which is deposited beyond the due date stipulated under the relevant statutes governing PF/ESI , but the same stood deposited before the due date for filing of return of income as is prescribed u/s 139(1) of the 1961 Act. We at tribunal being inferior judicial body to Hon’ble Madras High Court , are bound by decision of Hon’ble jurisdictional High Court in the case of Industrial Security(supra) as a cardinal principles of judicial discipline and to instill certainty among tax-payers, thus, Respectfully following the decision of Hon’ble Madras High Court in the case of Industrial Security and Intelligence(supra) , we allow the claim of the assessee for deduction of Rs. 6,31,788/- towards employees contribution to PF which was deposited late beyond due date as prescribed under relevant statute governing PF , but the same stood deposited to the credit of employees with relevant fund before the due date for filing of return of income as prescribed u/s 139(1) of the 1961 Act. The Revenue fails on this issue for the reasons cited above. We order accordingly.
4. Provisions of law:
(i) Section 36(1)(va) states that ‘any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date, ….specified in the Fund Act
(ii) Section 2(24)(x) states that ‘income will include any sum received by the assessee from his employees as contributions to any provident fund, or superannuation fund or any other fund setup under the provisions of Employees’ State Insurance Act 1948, or any other fund for the welfare of employees.’
(iii) Section 43B(b) states that notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees shall be allowed if the such sum actually paid by the assessee on or before the due date for furnishing the return of income under sub-section (1) of section 139 of the Act
(iv) THE EMPLOYEES‟ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952
The word “contribution” has not been defined under the Income Tax Act. But as per section 2(c) of THE EMPLOYEES‟ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952 “contribution” means a contribution payable in respect of a member under a Scheme or the contribution payable in respect of an employee to whom the Insurance Scheme applies. Further Rule 26A(2) of The Employees’ Provident Funds Scheme, 1952 provides that every member employed as an employee other than an excluded employee, in a factory or other establishment to which this Scheme applies, shall contribute to the Fund, and the contribution shall be payable to the Fund in respect of him by the employer. Rule 29 describes the amount of contribution payable by the employer as well as employee. Further Rule 30(1) provides that the employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer’s contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member’s contribution). Rule 30(3) provides that it shall be the responsibility of the principal employer to pay both the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor and also administrative charges. Further as per section 7Q of the Fund Act, for delay or default payment the employer is liable to pay interest, there in such circumstances it can be said that the payment id not made in time, can be paid later but liable to pay interest.
From the above discussion it is clear that the employer has to in the first instance, pay both the contributions payable and thereafter recover the same by means of deduction from the wages of the member. After the deduction from salary, the employees contribution becomes payable in the hands of employer along with his own contribution. Thus there is no difference in employees’ or employer’s contribution, both are same as per the Fund Act.
5. It has already been settled by majority views that the due date referred in section 36(1)(va) of the Act must be read in conjunction with section 43B of the Act. Section 43B begins with a non-obstante clause and as per the settled principle of interpretation, a non-obstante clause assumes an overriding effect over the other provisions of the Act in respect of deduction and allowance of an expenditure. Therefore, according to the provisions of section 43B, if the actual payment is done either with-in the due date of deposit of such sums, or, on or before the due date of filing of return, such expenses should be allowed. Refer the following
1. CIT Vs. Vinay Cement Ltd (2007) 213 CTR 268 (SC),
2. CIT vs Alom Extrusions Ltd (2009) 319 ITR 306 (SC)
3. CIT v. AIMIL Ltd. [2010] 188 Taxman 265 (Delhi),
4. CIT vs Ghatge Patil Transports Ltd (2014) 368 ITR 749 (Bom)
5. CIT vs Hemla Embroidery Mills (P) Ltd (2014) 366 ITR 167 (P&H)
6. Sagun Foundry Private Limited vs. CIT (2006) 145 DTR 265 (All)
7. Essae Teraoka P. Ltd. Vs DCIT (2014) 366 ITR 408 (Kar)
8. Pr. CIT vs Rajasthan State Beverages Corporation Ltd 84 taxmann.com 173 (Raj) and SLP filed by the department dismissed, reported in [2017] 84 taxmann.com 185 (SC),
9. CIT vs George Williamson (Assam) Ltd (2006) 284 ITR 619 (Gauhati-HC)
10. CIT vs Mark Auto Industries Ltd (2013) 358 ITR 43 (P&H),
11. CIT Vs. SPL Industries Limited [2011] 9 Taxmann.com 195 (Delhi),
12. CIT Vs. PM Electronics Limited [2009] 313 ITR 161 (Delhi),
13. CIT Vs. A & Z Information Technology Pvt Ltd [2009] (KAR),
14. CIT Vs. Nipso Polyfebrics Ltd [2013] (HML),
15. CIT Vs. Kachha Sugar Co. Ltd. [2013] (UK),
16. CIT Vs Kamal Family Trust (2013) 38 Taxmann.com 334 (P&H),
17. CIT v. Rai Agro Industries Ltd. [2011] 334 ITR 122 (P&H),
18. Essae-Teraoka Private limited Vs. DCIT (2014) 43 Taxmann.com 33 (Kar)
19. Bihar State Warehousing Corporation Ltd vs CIT & Anr, [TS-451-HC-2016(PAT)
20. ACIT vs Ranbaxy Laboratories Ltd, 20 taxmann.com 334 (Delhi)
21. CIT vs Pro Interactive Services (India) Pvt Ltd , ITA NO. 983/2018 order dated 10.09.2018, High Court Delhi
22. CIT vs Industrial Security & Intelligence India Pvt Ltd (2015) 7 TMI 1063 (Mad.)
Therefore it would be wrong to say that the words “any sum payable by the assessee as an employer by way of contribution to any…” mentioned in section 43B(b) are used only for employer’s contribution. If this was the intention of the legislature then these words should be read as “any sum payable by the assessee as an employer by way of his contribution to any provident fund …….
Thus we can say that the word “contribution” used in clause (b) of Section 43B of Act 1961 means the contribution of employer and employee, both, and that being so, if contribution is deposited on or before due date for furnishing Return of income under subsection (1) of Section 139 of Act 1961, employer is entitled for deduction.
So the assessee should challenge it before HC.