2008 (5) TMI 275 - HC - Income Tax

Nature and effect of amendment to Section 43B payment of contribution to provident fund - the amendment is made applicable from the assessment year 2004-05 - held that amendment is retrospective - Decision of Allied Motors P. Ltd. v. CIT 2008 -TMI - 5575 - SUPREME Court followed in which the three judges-Bench of the apex court having considered views of various High Courts on a similar issue relating to deduction of deposits of sales tax under clause (a) of section 43B and Explanation 2 to the said section has held that the first proviso to section 43B and Explanation 2 if read together make it clear that Explanation 2 is retrospectively applicable

Summary

Issues:
1. Interpretation of the retrospective effect of the deletion of the second proviso to section 43B of the Income-tax Act, 1961.

Analysis:
The judgment delivered by the High Court of UTTARAKHAND involves the interpretation of the retrospective effect of the deletion of the second proviso to section 43B of the Income-tax Act, 1961. The appeal was filed by the Revenue against the order of the Income-tax Appellate Tribunal, which had partly allowed the appeal of the respondent/assessee regarding an addition made by the Assessing Officer on account of delay in depositing employees' contribution towards provident fund. The key question in this case was whether the deletion of the second proviso to section 43B, brought in by the Finance Act, 2003, had retrospective implementation for the assessment year 1998-99.

The court analyzed the relevant provision of law, section 43B of the Income-tax Act, 1961, which deals with certain deductions to be allowed only on actual payment. The second proviso of this section, which was deleted by the Finance Act, 2003, had implications on deductions related to provident fund contributions. The court noted that the intention of the Legislature behind the proviso was to ensure that deductions are given only if the deposits are made within due dates to prevent employers from earning interest on such amounts. However, the court observed that the Legislature later realized that amounts deposited in the Government treasury should not be considered taxable income of the employer.

The court deliberated on whether the deletion of the second proviso should be considered retrospective. The Revenue argued that there was no express provision in the Finance Act, 2003, indicating retrospective application. On the other hand, the respondent/assessee contended that the deletion was curative and explanatory in nature, thus having a retrospective effect. Drawing from a Supreme Court case precedent, the court concluded that the deletion of the proviso was curative and had a retrospective effect. The court held that the deletion of the proviso should be interpreted in a manner similar to the precedent case concerning deductions of deposits made by an assessee, thus ruling in favor of the respondent/assessee.

In conclusion, the court answered the substantial question of law in favor of the respondent/assessee and dismissed the appeal by the Revenue. The judgment highlighted the importance of interpreting legislative amendments in line with judicial precedents to determine the retrospective effect of statutory changes.