2022 (8) TMI 218 - AT - Income Tax

Delayed payment of employees contribution deposited by employer with the EPF and ESIC authorities - Payment beyond the due date specified under the relevant laws relating to contribution of EPF and ESIC, but before the due date for filing the return of income under section 139 - Scope of amendment - HELD THAT - The Hon ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd., 2014 (3) TMI 386 - KARNATAKA HIGH COURT has taken the view that employee s contribution under section 36(1)(va) would also be covered under section 43B of the Act and therefore if the share of the employee s share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. Therefore, the issue is covered by the decision of the Hon ble Karnataka High Court. In this case there is no dispute that the assessee made payment of the Employees share of PF/ESI on or before the due date for filing return of income for AY 2017-18 u/s.139(1). Whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also? - The explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act, deserves to be deleted. The legislature did not choose to make the amendment retrospective. Secondly, the amendment seeks to fasten a liability on the Assessee and the amendment does not seek to remove any hardship faced by an Assessee. Therefore the amendment has to be regarded as only prospective, even going by the parameters laid down by the Hon ble Supreme Court in ZILE SINGH 2004 (10) TMI 553 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
- Justification of upholding the addition of Rs.9,49,615/- in Assessment Year 2018-19 u/s.43B of the Income Tax Act, 1961.
- Interpretation of the amendments made to section 36(1)(va) and 43B of the Act by the Finance Act, 2021.
- Distinction between employee's contribution and employer's contribution under the Income Tax Act.
- Applicability of the amendments retrospectively.

Detailed Analysis:

1. Justification of Addition under Section 43B: The appeal addressed the addition of Rs.9,49,615/- in Assessment Year 2018-19 u/s.43B of the Income Tax Act. The primary issue was whether the Revenue authorities were justified in upholding this addition due to delayed payment of employees' contribution deposited by the employer with EPF and ESIC authorities beyond the specified due date under relevant laws but before the due date for filing the return of income under section 139 of the Act.

2. Interpretation of Amendments by Finance Act, 2021: The CIT(A) referred to the amendments made by the Finance Act, 2021 to section 36(1)(va) and 43B of the Act. The amendments included Explanation-2 to section 36(1)(va) and Explanation-5 to section 43B. These explanations clarified that the provisions of section 43B shall not apply for determining the "due date" under certain clauses, impacting the treatment of sums received by the assessee from employees.

3. Distinction between Contributions: The CIT(A) highlighted the legal distinction between employee's contribution and employer's contribution under the Act. The failure to pay employee's contribution within the prescribed due date negates the employer's claim for deduction permanently under section 36(1)(va). In contrast, delay in paying employer's contribution leads to deferment of deduction under section 43B, preserving the claim partially.

4. Applicability of Amendments Retrospectively: The issue of whether the amendments by the Finance Act, 2021 should be construed as retrospective was crucial. The tribunal considered the retrospective application of these amendments and analyzed the explanatory memorandum to determine the effective date of the provisions. The decision emphasized that the amendments imposing liabilities on the assessee should not be applied retrospectively unless expressly stated by the legislature.

5. Judicial Precedents and Final Decision: The judgment referred to various decisions on similar issues, including the decision by the Hon'ble Karnataka High Court. Ultimately, the tribunal allowed the appeal of the assessee, emphasizing that the amendments were not retrospective as they did not seek to remove hardship but imposed liabilities. The decision was based on the legislative intent and the absence of retrospective language in the amendments.

In conclusion, the judgment extensively analyzed the issues related to the addition under section 43B, interpretation of amendments, distinction between contributions, and the retrospective applicability of the amendments, ultimately ruling in favor of the assessee based on the legislative intent and legal principles.