Case Law Details
CA, CS Pawan Sehrawat
If employers deposits employee’s Provident fund contribution before due date as referred to in section 43B, employer is eligible for benefit under said section-High Court-Karnataka.
Before sharing courts judgement, let’s go through the income tax provisions.
Business income includes (as per section 2(24)(x)) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees.
Deduction on above is allowed (u/s 36(1) (va)) if same is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date (as given in said fund Act).
As per section 43B any sum payable by the assessee as an employer by way of contribution to any provident fund shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him, except where said contribution is paid by assessee on or before the due date of return of income in respect of the previous year in which the liability to pay such sum was incurred.
Further, in a recent case of “Commissioner of Income-tax-II Vs Gujarat State Road Transport Corporation” Gujarat High Court held that assessee shall not be entitled to deduction u/s 36(1)(va), if such sum not credited by the assessee to the employees’ account in the relevant fund on or before the “due date” mentioned in explanation to section 36(1)(va), even if contribution deposited on or before due date given u/s 43B.
However KARNATAKA HIGH COURT in case of “COMMISSIONER OF INCOME TAX Versus M/s SPECTRUM CONSULTANTS INDIA PVT LTD” – 2014 held that benefit of the amendment of Section 43B of the Income Tax Act equally applies to the employees contribution of provident fund.
High Court said, payment of contribution by the employer to the fund under the scheme means both employer’s contribution and employee’s contribution – Whether he deducts the employee’s contribution from the salary or not, in law, he is liable to pay the said amount –thus, Section 2(24)(x) of the Act makes it clear that the employee’s contribution which the employer deducts from his salary before it is paid into the fund, is treated as the income of the employer, and the employer by contributing can get the deduction. The payment must be made within the due date i.e. the due date prescribed under Section 139(1) of the Act – Relying upon Commissioner of Income Tax Versus M/s. Alom Extrusions Limited [2009 (11) TMI 27 – SUPREME COURT] – Though such contributions are not paid within the time prescribed under the relevant act, if those contributions are paid before the due date prescribed under Section 139(1) of the Act, the employer shall be entitled to the deductions as provided under Section 36(1) of the Act – it is for the simple reason, under the provident fund scheme, an employer has to pay both the contribution and then recover from the salary of the employee.
Extract of the case is reproduced below:
COMMISSIONER OF INCOME TAX Versus M/s SPECTRUM CONSULTANTS INDIA PVT LTD – KARNATAKA HIGH COURT.
Benefit of amendment of section 43B of the Act – Whether the benefit of the amendment of Section 43B of the Income Tax Act equally applies to the employees’ contribution of provident fund – Held that:- The contributions payable by the employer under the scheme shall be at the rate of 10% of the basic wages, Dearness Allowance – The contribution payable by the employee shall be equal to the contribution payable by the employer in respect of such employee – the payment of contribution by the employer to the fund under the scheme means both employer’s contribution and employee’s contribution – Whether he deducts the employee’s contribution from the salary or not, in law, he is liable to pay the said amount –thus, Section 2(24)(x) of the Act makes it clear that the employee’s contribution which the employer deducts from his salary before it is paid into the fund, is treated as the income of the employer, and the employer by contributing can get the deduction. The payment must be made within the due date i.e. the due date prescribed under Section 139(1) of the Act – Relying upon Commissioner of Income Tax Versus M/s. Alom Extrusions Limited [2009 (11) TMI 27 – SUPREME COURT] – Though such contributions are not paid within the time prescribed under the relevant act, if those contributions are paid before the due date prescribed under Section 139(1) of the Act, the employer shall be entitled to the deductions as provided under Section 36(1) of the Act – it is for the simple reason, under the provident fund scheme, an employer has to pay both the contribution and then recover from the salary of the employee – Decided against Revenue. – 2014 – KARNATAKA HIGH COURT .
This appeal is filed challenging the order passed by the learned Single Judge who has held, the benefit of the amendment of Section 43B of the Income Tax Act equally applies to the employees contribution of provident fund. 2. The respondent is a private limited company engaged in the business of placement services and outsourcing contractors. The respondent is a regular income tax assessee. The respondent filed its returns of income for the assessment year 2006-07. Proceedings were initiated under Section 143(3) of the Income Tax Act, 1961 (for short, hereinafter referred to as the Act ) in respect of delayed remittances of ESI / PF contributions deducted from various employees and remitted late to the respective authorities. The assessing authorities, after hearing the assessee, concluded the assessment by an order dated 29.8.2008 and disallowed and amount of Rs. 22,91,791/- on the ground of delayed remittance. The assessee did not file any appeal. He filed an application under Section 264 of the Act before the Commissioner, pleading that such remittances were allowable more so because all such remittances had been made prior to last date fixed for filing its return under Section 139(1) of the Act and a major portion had been remitted during the very financial year ended on 31.3.2006. They relied on the judgment of this Court in the case of COMMISSIONER OF INCOME-TAX AND ANR. v. SABARI ENTERPRISES reported in (2008) 298 ITR 141 (Kar) and contended, the same is approved by the Apex Court in the case of COMMISSIONER OF INCOME-TAX v. ALOM EXTRUSIONS LTD. reported in (2009) 319 ITR 306 (SC). The Commissioner rejected the petition by its order dated 16.12.2010. Aggrieved by the same, the assessee preferred a writ petition before this Court. The learned Single Judge, by the impugned order, accepted the case of the assessee and held that the contributions were deductable even though paid beyond the due date prescribed under the relevant Act as it has been paid within the due date prescribed under Section 139(1) of the Act. Aggrieved by the said order, the present appeal is filed. 3. Learned counsel for the revenue, assailing the impugned order, contended that the benefits of Section 43B of the Act is only in respect of the employer s contribution. It is not applicable to employee s contribution. The said question has not been gone into either in SABARI s case or in the Supreme Court case. As the Section stands, the impugned order passed by the learned Single Judge as well as the authorities is erroneous and requires to be set aside. 4. Per contra, learned counsel for the assessee submitted that the word deduction used in Section 43B as any sum payable by the assessee as an employer by way of contribution to any provident fund. Referring to the provisions of the Employees Provident Funds Scheme, 1952, in particular, Sections 29 and 30, he submitted, the employer shall, in the first instance, pay, both the contribution payable by himself and also on behalf of the member employed by him. Therefore, the words payable by the assessee as an employer by way of contribution to any provident fund includes both employer s and employee s contribution.
