2023 (10) TMI 1475 - AT - Income Tax

Disallowance of deposit of the employees share of EPF and ESI etc. belatedly -employees share was deposited prior to the due date of filing return u/sec. 139(1) - affect of law declared by the Supreme Court retropoctively or prospectively - Rectification application - HELD THAT - We observe that there is no dispute on the fact that the law prevalent at the time, when the Tribunal had passed the respective orders, was in favour of the assessee by virtue of various cited judgments including the judgment of Nipso Polyfabriks Ltd. 2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT granting deduction u/sec. 36(1)(va) of the employee's share of EPF etc. even if the deposit was made after the due date under the respective Acts, but before the time limit provided for filing the return u/sec. 139(1) of the Act. Such favourable view has been reversed by the Hon'ble Supreme Court in the case of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT . The fundamental question is no more res-integra that declaration of law by the Courts is always retrospective taking effect from the date of insertion of the provision. The Hon'ble Supreme Court in CIT v. Saurashtra Kutch Stock Exchange Ltd. 2008 (9) TMI 11 - SUPREME COURT has held that any existing order in derogation of a subsequent binding judgment requires rectification. To be more specific, the Hon'ble Apex Court has held that If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. Therefore, subsequent to any decision being passed by the Tribunal, if the law has been changed by the Hon'ble Supreme Court then that law has to be followed by all other subordinate judicial forums and that shall be binding upon all the stakeholders of a particular case. In view of the above discussion, it is observed and held that the subsequent judgment of Hon'ble Supreme Court in Checkmate Services P. Ltd. (supra) denying the benefit of deduction has rendered the impugned order of the Tribunal erroneous, necessitating its rectification in terms of sec.254(2) of the Act. Misc. Applications filed by the Revenue are allowed.

2024 (12) TMI 1488 - HC

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Tribunal's previous order allowing the deduction of the employees' share of EPF and ESI, deposited after the due date under the respective statutes but before the due date for filing income tax returns under section 139(1) of the Income Tax Act, requires rectification in light of a subsequent Supreme Court ruling.
Whether the law declared by the Supreme Court has retrospective effect, thereby necessitating the amendment of the Tribunal's order under section 254(2) of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction of Employees' Share of EPF and ESI

Relevant Legal Framework and Precedents: The legal framework involves section 36(1)(va) of the Income Tax Act, which governs the deduction of employees' contribution to EPF and ESI. The Tribunal had initially allowed deductions based on precedents like the Himachal Pradesh High Court's judgment in CIT v. Nipso Polyfabriks Ltd. However, the Supreme Court in Checkmate Services P. Ltd. v. CIT held that such deductions are permissible only if deposits are made within the statutory due date.
Court's Interpretation and Reasoning: The Tribunal observed that the law at the time of its original decision was in favor of the assessee, allowing deductions if deposits were made before the tax return filing deadline. However, the Supreme Court's subsequent ruling clarified that deductions are only permissible if deposits are made within the statutory deadlines, thus requiring rectification of the Tribunal's earlier order.
Key Evidence and Findings: The Tribunal relied on the Supreme Court's judgment, which overruled previous decisions that were favorable to the assessee. The Tribunal recognized that the Supreme Court's interpretation is binding and has a retrospective effect.
Application of Law to Facts: The Tribunal applied the Supreme Court's decision, which necessitated the rectification of its earlier orders granting deductions based on the timing of deposits relative to the tax return filing deadline.
Treatment of Competing Arguments: The Tribunal acknowledged the Revenue's argument that the Supreme Court's ruling altered the legal landscape, making the previous allowance of deductions erroneous. The Tribunal rejected the assessee's contention that the Supreme Court's decision should not affect past orders.
Conclusions: The Tribunal concluded that its previous orders were erroneous in light of the Supreme Court's ruling and required rectification under section 254(2) of the Income Tax Act.

Issue 2: Retrospective Effect of Supreme Court Decisions

Relevant Legal Framework and Precedents: The principle of retrospective effect of Supreme Court decisions is grounded in Article 141 of the Indian Constitution, which mandates that the law declared by the Supreme Court is binding on all courts in India.
Court's Interpretation and Reasoning: The Tribunal cited the Supreme Court's decision in CIT v. Saurashtra Kutch Stock Exchange Ltd., which established that subsequent Supreme Court rulings have retrospective effect, correcting the legal position from the date of the provision's insertion.
Key Evidence and Findings: The Tribunal noted that the Supreme Court's decision in Checkmate Services P. Ltd. clarified the correct legal principle, thus necessitating the rectification of earlier orders that were based on an incorrect understanding of the law.
Application of Law to Facts: The Tribunal applied the principle of retrospective effect to conclude that its earlier orders, which were contrary to the Supreme Court's ruling, must be rectified.
Treatment of Competing Arguments: The Tribunal dismissed the argument that the Supreme Court's decision should not apply retrospectively, emphasizing the binding nature of Supreme Court rulings.
Conclusions: The Tribunal concluded that the Supreme Court's decision has a retrospective effect, requiring the rectification of its previous orders under section 254(2) of the Income Tax Act.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively."
Core Principles Established: The law declared by the Supreme Court is binding on all courts and has retrospective effect, necessitating the rectification of any orders that contravene the Supreme Court's interpretation.
Final Determinations on Each Issue: The Tribunal's previous orders allowing deductions based on the timing of EPF and ESI deposits relative to the tax return filing deadline were erroneous and required rectification in light of the Supreme Court's ruling in Checkmate Services P. Ltd.

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