2009 (9) TMI 69 - HC - Income Tax

Business expenditure - Contribution made towards provident fund by the employer belatedly and contribution towards Employees State Insurance contribution, i.e., beyond the stipulated period provided under the Provident Fund Act, is an allowable deduction in the view of section 43B - Deposit made by the employer of the employee s contribution belatedly and contribution towards Employees State Insurance contribution, i.e., beyond the stipulated period under the Income-tax Act and under the Provident Fund Act and the Employees State Insurance Act cannot be treated as the income of the assessee under section 36(1)(va) read with section 2(24)(x) in view of section 43B

Summary

Issues:
1. Whether the contribution made towards provident fund by the employer belatedly and contribution towards Employees' State Insurance contribution is an allowable deduction under section 43B of the Income-tax Act, 1961?
2. Whether the deposit made by the employer of the employee's contribution belatedly and contribution towards Employees' State Insurance contribution cannot be treated as the income of the assessee under section 36(1)(va) and section 2(24)(x) in view of section 43B of the Act?

Analysis:

Issue 1:
The court addressed the question of whether contributions made towards provident fund and Employees' State Insurance beyond the stipulated period are allowable deductions under section 43B of the Income-tax Act, 1961. The appellant's counsel referred to a previous Division Bench judgment that ruled against the Revenue in a similar case. The counsel argued that a special leave petition is pending before the Supreme Court challenging the decision, and requested the matter to be admitted and kept pending until the Supreme Court's decision. However, the court, noting that the special leave petition is yet to be examined, dismissed the appeal at the admission stage, following the precedent set by the earlier Division Bench judgment in CIT v. Sabari Enterprises [2008] 298 ITR 141 (Karn).

Issue 2:
The court considered whether the delayed deposits of employee's contributions and contributions towards Employees' State Insurance could be treated as the income of the assessee under specific sections of the Income-tax Act. The appellant's counsel relied on the same Division Bench judgment that favored the assessee in a previous case. Despite the pending special leave petition before the Supreme Court, the court decided not to admit and keep the appeal pending based on the status of the special leave petition. Consequently, the court dismissed the appeal, aligning with the earlier Division Bench ruling in CIT v. Sabari Enterprises [2008] 298 ITR 141 (Karn).

In conclusion, the High Court of Karnataka dismissed the appeal by the Revenue, emphasizing the application of section 43B of the Income-tax Act in relation to contributions made towards provident fund and Employees' State Insurance beyond the stipulated period. The decision was based on the precedent set by a previous Division Bench judgment and the pending status of a special leave petition before the Supreme Court.