2015 (9) TMI 560 - HC - Income Tax

Disallowance under Sec.36(1)(va) r/w Sec.2(24)(x) - remittance of employees contribution to Provident Fund and ESI has been delayed beyond the due date of payment prescribed under the respective Acts - ITAT deleted the addition - Held that - If the intention of a particular provision of a statute can be gathered from the language used by the legislation, then we are bound to abide by the language used therein in order to ascertain the intention. We are also of the opinion that there was a clear logic behind Sec.36(1)(va) and Explanation thereto since the Legislature intended that the amount received towards contribution of the employee was money belonging to the employee and the assessee was not entitled to utilise the said fund and enrich himself. So also, both the provisions supra will co-exist harmoniously without disturbing each other. Therefore, the distinction drawn to credit the amount of the employer and the employee was with a clear objective and there is no illegality or other legal infirmity in classifying the contributions of employees and employer in the matter of crediting the same to the appropriate statutory authorities. In that view of the matter, we are of the considered opinion that the view taken by the Tribunal which affirmed the decision of the 1st Appellate Authority that the Respondent was entitled to get deduction of the contributions received from the employees if paid on or before the filing of the return under Sec. 139(1) was not correct. We are inclined to agree with the judgment of the Gujarat High Court in Gujarat State Road Transport Corporation s case (2014 (1) TMI 502 - GUJARAT HIGH COURT) wherein held 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 - Decided in favour of revenue.

Summary

Issues involved:
1. Whether the assessee is entitled to claim deduction for employees' contribution towards PF/ESI under Sec.43B of the Income Tax Act.
2. Whether the Revenue can treat the amount as income under Section 2(24)(x) of the Income Tax Act if the deduction claim is not valid.
3. Whether the Tribunal's order lacks perspective for non-consideration of the issue under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act.

Issue-wise detailed analysis:

1. Entitlement to Deduction under Sec.43B:
The primary issue is whether the assessee can claim a deduction for employees' contributions to PF/ESI under Sec.43B. The Tribunal had affirmed the first appellate authority's decision that contributions made before the due date for filing the return of income under Sec.139(1) are deductible. However, the Revenue contended that Sec.36(1)(va) and Explanation 1 thereto, read with Sec.2(24)(x), specifically govern employees' contributions, and these contributions must be credited to the relevant fund by the due date prescribed under the respective Acts. The court agreed with the Revenue, stating that Sec.36(1)(va) and Sec.43B operate in different fields, with the former dealing with employees' contributions and the latter with employer's contributions. Therefore, the assessee is not entitled to a deduction under Sec.43B for employees' contributions if not credited by the due date prescribed under the relevant statutes.

2. Treatment of Amount as Income under Sec.2(24)(x):
The Revenue argued that if the deduction claim under Sec.43B is invalid, the amount should be treated as income under Sec.2(24)(x). The court upheld this view, noting that Sec.2(24)(x) includes any sum received by the assessee from employees as contributions to any provident fund or superannuation fund as income. Since the contributions were not credited to the employees' accounts by the due date, they should be treated as income under Sec.2(24)(x).

3. Tribunal's Order and Perspective under Sec.36(1)(va):
The court found that the Tribunal's order lacked perspective for not considering the issue under Sec.36(1)(va) read with Sec.2(24)(x). The Tribunal had relied on the decision in 'C.I.T. v. Vinay Cement Ltd.' and 'C.I.T. v. Alom Extrusions Ltd.', which dealt with employer's contributions under Sec.43B. However, these cases did not address the specific issue of employees' contributions governed by Sec.36(1)(va). The court emphasized that the provisions for employees' and employer's contributions are distinct and must be treated separately.

Conclusion:
The court concluded that the assessee is not entitled to claim a deduction for employees' contributions under Sec.43B if not credited by the due date prescribed under the relevant statutes. The amount should be treated as income under Sec.2(24)(x) if the deduction claim is invalid. The Tribunal's order was set aside, and the order of the Assessing Officer was restored. The appeal was allowed in favor of the Revenue.