2014 (1) TMI 502 - HC - Income Tax

Employees contribution to PF and ESI - failure to deposit before due date - applicability of section 43B read with section 2(24)(x) - Held that - The assessee did not deposit the amount of contribution with the PF Department / DSI Department within due date under the PF Act and/or ESI Act - There is no amendment in Section section 36(1)(va) of the Income Tax Act and 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 - By deleting Second Proviso to section 43B by Finance Act, 2003, it cannot be said that Section 36(1) (va) is amended and/or explanation below clause (va) of sub-section (1) of section 36 is deleted, which is with respect to employees contribution - Decision in Alom Extrusions Ltd. (2009 (11) TMI 27 - SUPREME COURT ), distinguished - additions confirmed - Decided in favour of Revenue.

Summary

Issues Involved:
1. Deletion of disallowance of employees' contribution to PF Account.
2. Deletion of disallowance of ESI contribution.
3. Applicability of section 36(1)(va) vs. section 43B of the Income Tax Act, 1961.
4. Retrospective application of amendments to section 43B.

Detailed Analysis:

1. Deletion of Disallowance of Employees' Contribution to PF Account:
The primary issue was whether the assessee is entitled to deductions for employees' contributions to the Provident Fund (PF) if such contributions were not deposited within the due date as per the Provident Fund Act but were deposited before the due date of filing the return under section 139(1) of the Income Tax Act. The court held that as per section 2(24)(x) and section 36(1)(va) of the IT Act, any sum received by the assessee from employees as contributions to any provident fund constitutes income. For the assessee to claim deductions, such sums must be credited to the employees' accounts in the relevant fund on or before the "due date" defined in the respective Acts. The court noted that there was no amendment in section 36(1)(va) or its explanation, which mandates compliance with the due date under the Provident Fund Act.

2. Deletion of Disallowance of ESI Contribution:
Similar to the PF contribution, the issue was whether the assessee could claim deductions for ESI contributions deposited after the due date under the ESI Act but before the due date for filing the return under section 139(1). The court reiterated that section 36(1)(va) and its explanation require that any sum received by the assessee from employees as contributions to the ESI fund must be credited to the employees' accounts in the relevant fund on or before the due date under the ESI Act. Therefore, the assessee would not be entitled to deductions if the contributions were not deposited within the stipulated due date.

3. Applicability of Section 36(1)(va) vs. Section 43B of the IT Act:
The court clarified that section 43B pertains to the employer's contribution to any provident fund or superannuation fund and allows deductions if such contributions are paid on or before the due date for filing the return under section 139(1). However, section 36(1)(va) specifically deals with employees' contributions and requires these to be credited to the relevant fund by the due date specified in the respective Acts. The court emphasized that the provisions of section 43B and section 36(1)(va) are distinct and operate independently. The deletion of the second proviso to section 43B by the Finance Act, 2003, does not affect the requirement under section 36(1)(va) for employees' contributions.

4. Retrospective Application of Amendments to Section 43B:
The court noted that the Supreme Court's decision in the case of Alom Extrusions Ltd. dealt with the retrospective application of the amendment to section 43B concerning the employer's contributions. The court distinguished this from the present case, which involved employees' contributions governed by section 36(1)(va). The court held that the deletion of the second proviso to section 43B and the amendment to the first proviso by the Finance Act, 2003, apply only to section 43B and not to section 36(1)(va).

Conclusion:
The court concluded that the assessee is not entitled to deductions for employees' contributions to PF and ESI if such contributions are not deposited within the due date specified under the respective Acts, even if they are deposited before the due date for filing the return under section 139(1). The court allowed the appeals, quashed the tribunal's orders deleting the disallowances, and restored the Assessing Officer's disallowances of the respective sums. The questions raised in the appeals were answered in favor of the revenue.