2015 (5) TMI 263 - HC - Income Tax

Employees' contributions made to PF and ESI belatedly - whether in view of the provisions of section 43B deduction in respect of the employees' contributions made to PF and ESI belatedly was an allowable deduction - Held that - As relying on CIT v. Spectrum Consultants India Pvt. Ltd 2014 (2) TMI 127 - KARNATAKA HIGH COURT 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.

Summary

Issues:
Interpretation of section 43B of the Income-tax Act, 1961 regarding employees' contributions to PF and ESI.
Applicability of section 36(1)(va) and section 2(24)(x) of the Act on employees' contributions.

Analysis:
The High Court addressed the appeal filed by the Revenue against the Tribunal's decision, which allowed the employees' contribution made by the assessee before the due date for filing the return under section 139(1) of the Income-tax Act, 1961, to be eligible for the benefit under section 43B(b) of the Act.

The substantial questions of law raised in the appeal focused on whether the deduction for employees' contributions to PF and ESI made belatedly was allowable under section 43B of the Act. Additionally, the applicability of section 36(1)(va) and section 2(24)(x) of the Act was questioned concerning the treatment of employees' contributions as the income of the assessee if not deposited within the stipulated time.

The Court referred to a previous case, CIT v. Spectrum Consultants India Pvt. Ltd., where it was established that under the Provident Fund Act, both employer and employee contributions are mandatory. The employer is required to pay both contributions initially and can recover the employee's contribution later. Section 2(24)(x) of the Act treats the employee's contribution deducted by the employer as the income of the employer, eligible for deduction if paid before the due date under section 139(1) of the Act. The Court emphasized that Parliament did not differentiate between employee and employer contributions in providing deductions under section 36(1) of the Act.

Based on the interpretation of the law and the precedent set by the previous case, the Court found no merit in the Revenue's appeal. Consequently, the substantial questions of law were answered in favor of the assessee, and the appeal was dismissed.