2012 (11) TMI 592 - HC - Income Tax

Claim u/s 43B - Contribution to provident fund Following the judgement of court in case of CIT versus Vinay Cement Ltd. 2007 (3) TMI 346 - SUPREME COURT OF INDIA held that - If employees contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. In so far as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed - no reason to deny the benefit of Section 43B, which starts with a non obstante clause and which clearly lays down that the assessee can take benefit of deduction of such contributions, if the same are paid before furnishing of the return - no merit in the appeal filed by the revenue, which is accordingly dismissed.

Issues Involved:
1. Whether the amounts received by the assessee from employees for crediting to their accounts in provident fund and ESI, but not so credited on or before the due dates specified under the respective statutes, were allowable deductions under section 36(1)(va) of the Income Tax Act?

Detailed Analysis:

1. Allowability of Deductions under Section 36(1)(va) of the Income Tax Act:
The primary issue was whether the amounts received by the assessee from employees for crediting to their accounts in provident fund and ESI, but not credited by the due dates specified under the respective statutes, were allowable deductions under section 36(1)(va) of the Income Tax Act.

Background:
For the assessment year 2001-02, the respondent-assessee declared an income of Rs. 3,16,591. During proceedings under Section 143(1) of the Income Tax Act, it was observed that an amount of Rs. 6,23,028 collected from employees as their contribution towards provident fund and ESI was not deposited by the due dates. Additionally, Rs. 8,15,196 being the employer's contribution towards Provident Fund was also not deposited by the due date. The Assessing Officer disallowed these payments in reassessment proceedings, holding that the assessee was not entitled to deduction of these amounts under Section 36(1)(va) read with Section 43B since they were not deposited by the prescribed dates. The Commissioner of Income Tax allowed the appeal filed by the assessee, and the Tribunal dismissed the appeal of the revenue.

Contentions:
The revenue argued that there is a distinction between the employer's contribution and the employees' contribution. The employer's contribution can be deducted if deposited before filing the returns, but the employees' contribution must be deposited by the due date specified under the Welfare Funds Acts. The revenue contended that Section 43B should not be read into Section 36(1)(va), as it would render the Explanation below Section 36(1)(va) redundant.

Legal Provisions:
- Section 2(24)(x) defines "income" to include any sum received by the assessee from employees as contributions to any provident fund or superannuation fund or any fund set up under the Employees' State Insurance Act, 1948.
- Section 36(1)(va) allows deductions of any sum received by the assessee from employees if credited to the employee's account in the relevant fund on or before the due date.
- Section 43B(b) allows deductions for any sum payable by the assessee as an employer by way of contribution to any provident fund or other welfare funds, only in the year in which such sum is actually paid.

Court's Analysis:
The court noted that prior to the Finance Act, 1987, the employer was entitled to deduction under Section 36(1)(iv & v) for amounts contributed towards provident fund and ESI. The Finance Act, 1987 introduced Section 2(24)(x) and Section 36(1)(va), treating employees' contributions as income and allowing deductions if deposited within a particular time. Section 43B was also amended in 1987, introducing provisos that required both employer and employee contributions to be deposited by the due date defined in the Explanation below Section 36(1)(va).

The court referred to the judgment of the Apex Court in Commissioner of Income Tax vs. Alom Extrusions Ltd., which held that Section 43B, with its non obstante clause, made it mandatory for deductions to be allowed on actual payment basis. The court also noted the Delhi High Court's decision in Commissioner of Income-Tax vs. Aimil Ltd., which held that employees' contributions deposited before filing the return were deductible, even if deposited after the due date.

Conclusion:
The court concluded that there should be no distinction between employees' and employers' contributions regarding the benefit of Section 43B. Both contributions, if deposited before filing the return, are deductible. The court dismissed the revenue's appeal, affirming that the amounts received from employees for provident fund and ESI, though not deposited by the due dates, were allowable deductions if deposited before filing the return.

The court's judgment emphasized that the amendment by the Finance Act, 2003, which deleted the second proviso to Section 43B, was curative and retrospective, applying from April 1, 1988. Therefore, the benefit of this amendment extends to both employees' and employers' contributions. The appeal filed by the revenue was dismissed, affirming the Tribunal's decision in favor of the assessee.

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