2017 (8) TMI 1421 - HC - Income Tax

Retrospective effect of first proviso to section 43B - scope of Amendment to section 43B - omission deletion of the second proviso to Section 43-B regarding restriction of deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date - Held that - We have gone to the provisions of the Act. The purpose is to have a harmonious relation between the employer and the employee and when the statute has put interpretation, there cannot be an interpretation which create doubt inasmuch as he made the payment for the benefit of the employer. He is also to be taxed. In that view of the matter, when the court has to interpret the law, taxing statute has to see whether the object for which the provisions are brought in to give benefit to the employees to be achieved or to be discontinued by interpreting the same which is not beneficial to the employer-assessee. In that view of the matter, in the backdrop of the above clarification, we are of the opinion that the view taken by the Supreme Court in Allied Motors (1997 (3) TMI 9 - SUPREME COURT) and Alom (2009 (11) TMI 27 - SUPREME COURT), it is clear that it is a curative amendment which has to be given retrospective effect and the contention which has been raised by Mr. Jhanwar that it is for subsequent year and previous years and it was not restricted only for one year, should be accepted and we accept the same. - Decided in favour of assessee.

Issues Involved:

1. Whether the contribution made by the employer to the Superannuation Fund up to ?1,00,000 for each employee is liable to Fringe Benefit Tax (FBT) under Section 115WB(1)(c) retrospectively or prospectively vis-a-vis the amendment made by Finance Act 2007.
2. Whether the ITAT was justified in deleting the addition made on account of depositing the PF payment beyond the prescribed time despite Section 36(1)(va) requiring timely deposit of employees' contributions.

Issue-wise Detailed Analysis:

1. Contribution to Superannuation Fund and Fringe Benefit Tax:

The primary issue revolves around the interpretation of the amendment made by the Finance Act 2007 concerning the contribution by employers to the Superannuation Fund up to ?1,00,000 per employee and whether it is exempt from Fringe Benefit Tax (FBT) retrospectively or prospectively.

The appellant argued that the provisions are clear and should apply prospectively, citing the Tribunal's error in its interpretation. The Tribunal, however, had relied on the Finance Minister's budget speech and the memorandum explaining the provisions of the Finance Bill 2006, which suggested the amendment was a welfare measure intended to align with Section 80CCD and thus should be considered clarificatory and applied retrospectively.

The Tribunal referenced several Supreme Court judgments, including Allied Motors Pvt. Ltd. vs. CIT and CIT vs. Suresh N. Gupta, to support the view that amendments intended to remedy unintended consequences and provide clarity should be applied retrospectively. The Tribunal concluded that the amendment to Section 115WB(1)(c) was clarificatory and thus should be applied from the assessment year 2006-07.

The appellant countered this by relying on the Supreme Court's decision in State of Jharkhand and Ors. vs. Ambay Cements and Anr., arguing that the amendment should be prospective. However, the Tribunal's interpretation, supported by the Supreme Court's principles of reasonable construction and the intention behind the amendment, prevailed.

2. Deletion of Addition Due to Late PF Payment:

In the case of late PF payments, the ITAT had deleted the addition made by the department for deposits made beyond the prescribed time. The department argued that as per Section 36(1)(va), employees' contributions should be deposited within the time prescribed by the relevant law, and Section 43B permits delayed payment only for the employer's contribution if paid before filing the Return of Income (ROI) under Section 139(1).

The Tribunal, however, found that the amendment to Section 43B by the Finance Act, 2003, which equated tax, duty, cess, and fee with contributions to welfare funds, was curative and thus retrospective. This interpretation was supported by the Supreme Court's judgment in Commissioner of Income Tax Kolkata-III vs. Alom Extrusions Limited, which held that such curative amendments should be applied retrospectively to avoid invidious discrimination and hardship to the assessee.

Conclusion:

The High Court dismissed the appeals, upholding the Tribunal's decision. It concluded that the amendment to Section 115WB(1)(c) was clarificatory and should be applied retrospectively, benefiting the overwhelming majority of employees. The court also supported the ITAT's deletion of the addition for late PF payments, aligning with the Supreme Court's interpretation that curative amendments should be applied retrospectively to ensure fairness and equity.

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