2007 (7) TMI 169 - HC - Income Tax

36(1)(va) clear that amounts actually paid on or before the due date of filing return u/s 139 are allowable deductions so contributions by assessee to P.F. & Employees State Insurance are deductible even if made beyond period prescribed u/s 36(1)(va) but before the due date for furnishing return

Summary

Issues Involved:
1. Whether contributions made by the assessee to PF and ESI are allowable deductions even if made beyond the stipulated period as per section 36(1)(va) read with section 2(24)(x) and section 43B of the Income-tax Act.
2. Whether the amendment to section 43B introduced by the Finance Act, 2003, should be read retrospectively.

Issue-wise Detailed Analysis:

1. Allowability of PF and ESI Contributions Beyond Stipulated Period:

The Revenue questioned the orders of the Income-tax Appellate Tribunal, arguing that contributions to PF and ESI must be made within the specified date to avail deductions, as per section 36(1)(va) read with section 2(24)(x) and section 43B of the Income-tax Act. They relied on the Supreme Court's decision in Allied Motors P. Ltd. v. CIT, which emphasized that deductions for statutory liabilities should be allowed only in the year of actual payment to curb the practice of delayed payments.

The Tribunal, however, held that the contributions made before the due date for furnishing the return of income under section 139(1) are allowable deductions. The Tribunal's decision was supported by the proviso to section 43B, which was remedial in nature and aimed at eliminating unintended hardships caused by the original wording of section 43B.

The court examined the statutory provisions, including sections 2(24)(x), 36(1)(va), and 43B(b), and concluded that the amount paid by the assessee on or before the due date for filing the return under section 139(1) is deductible. The court found the Revenue's contention-that the deduction is permissible only if the statutory liability is paid within the due date under the respective enactments-untenable in law.

2. Retrospective Application of the Amendment to Section 43B:

The second question concerned whether the amendment to section 43B by the Finance Act, 2003, should be read retrospectively. The Revenue's counsel conceded that this issue had already been settled against them in the case of CIT v. Bharat Earth Movers Ltd., where the court held that the amendment should be read retrospectively.

Conclusion:

The court dismissed all appeals, directing the Revenue to accept the payments of ESI and PF contributions made by the assessees and to allow the claimed deductions in their returns. The substantial questions of law were answered in favor of the assessees, confirming that contributions made before the due date for filing the return under section 139(1) are allowable deductions.