2011 (9) TMI 563 - HC - Income Tax

Deduction of Employees & Employer Contribution to Provident fund - Payment made after due date prescribed under the Provident fund Act - AO allowed Employers contribution subject to 43B but treated employees contribution as other Income of assessee - Held That - In view of CIT Vs. P.M. Electronics Ltd. (2008 -TMI - 31356 - DELHI HIGH COURT) and Supreme Court in Vinay Cement amount (2007 -TMI - 102762 - Supreme Court of India) did not remain in the hands of the assessee during the relevant assessment year, for the same had been, in fact, deposited with the authority managing the funds. There was, therefore, no other income in the hands of the assessee.

Summary

Issues:
1. Deduction claimed for contributions to Provident Fund and Employees' Provident Fund for the financial year 2001-02.
2. Entitlement to deduction for contributions made after the due dates.
3. Applicability of Section 43B regarding the deduction of employees' contributions.
4. Treatment of employees' contributions if not covered by Section 43B.

Analysis:
1. The assessee claimed a deduction for contributions made to Provident Fund and Employees' Provident Fund for the financial year 2001-02. The Assessing Officer noted that the payments were made, but both the employer's and employees' share of contributions were not made within the stipulated time. Consequently, the Assessing Officer disallowed the deduction for these contributions. However, the CIT (Appeal) and the Tribunal held that despite the delayed payments, the assessee was entitled to the deduction based on the deletion of the proviso to Section 36(1)(va) as a curative measure. The Tribunal also referred to relevant judgments supporting this view.

2. The main issue in the appeal was whether the non-payment of contributions within the due dates specified by the Provident Fund authorities would affect the sustainability of the deductions. The judgments cited in the case supported the allowance of deductions even if the payments were made after the due dates, as the legislative amendments were considered curative in nature.

3. Additionally, the appellant argued that the employees' contributions, which were deducted by the employer but not deposited within the due date, should be considered under Section 43B. Section 43B deals with the deduction of the employer's contributions only. The court reasoned that since the employees' contributions were ultimately deposited with the fund authorities and not retained by the assessee, treating them as other income would be inappropriate. The court dismissed the appeal on this basis.

4. The court concluded that as the employees' contributions were deposited with the fund authorities and not held by the assessee, there was no basis to treat them as other income. Therefore, the question of adding the employees' contributions as income did not arise, and the appeal was dismissed based on this finding.