2008 (8) TMI 304 - 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 - the contribution has been paid prior to the filing of the return. The Supreme Court decision in Vinay Cement Ltd. s in which the the benefit extended to assessee squarely covers the issue and the assessee is entitled to the benefit under section 43B of the Income-tax Act amendment retrospective in nature.

Summary

Issues:
1. Disallowance of provident fund and ESI contribution under section 43B for assessment year 2000-01.
2. Retrospective effect of the omission of the second proviso to section 43B.
3. Allowability of deductions for payments made belatedly under section 43B.

Analysis:

Issue 1: Disallowance of provident fund and ESI contribution under section 43B for assessment year 2000-01:
The assessee-company, engaged in the business of manufacturing and trading computer systems, filed its return for the assessment year 2000-01. The Assessing Officer disallowed the payment of provident fund and ESI contribution under section 43B as they were made belatedly. The Commissioner of Income-tax (Appeals) partly allowed the appeal, restricting the disallowance to a specific amount. The Tribunal, following the decision in Kwality Milk Foods Ltd. v. Asst. CIT, emphasized the importance of actual payment of statutory liabilities related to labor during the financial year. As the exact dates of payment were not available, the Tribunal remitted the case back to the Assessing Officer to determine the payment dates and allow the claim.

Issue 2: Retrospective effect of the omission of the second proviso to section 43B:
The key question raised was whether the omission of the second proviso to section 43B should be deemed to have retrospective effect. The Division Bench of the High Court, in the case of CIT v. Synergy Financial Exchange Ltd., held that statutes are prima facie prospective unless expressly or implicitly made retrospective. The Division Bench emphasized that the deletion of the second proviso allows deductions for payments made towards provident fund when made by the due date for filing the return. The Gauhati High Court and the Supreme Court in CIT v. Vinay Cement Ltd. affirmed this view, allowing deductions for contributions made before filing the return.

Issue 3: Allowability of deductions for payments made belatedly under section 43B:
The Gauhati High Court's decision in CIT v. George Williamson (Assam) Ltd. held that contributions made before the due date for filing the return are entitled to deduction under section 43B(b). The Supreme Court's decision in CIT v. Vinay Cement Ltd. further supported this by allowing the benefit under section 43B for contributions made before filing the return. The Apex Court's decision binds the lower courts, establishing the entitlement of the assessee to the benefit under section 43B. Therefore, the appeal was dismissed, affirming the assessee's right to the deductions.

This detailed analysis of the judgment provides insights into the legal issues surrounding the disallowance of provident fund and ESI contribution, the retrospective effect of statutory provisions, and the allowability of deductions for belated payments under section 43B of the Income-tax Act, 1961 for the assessment year 2000-01.