2010 (5) TMI 176 - HC - Income Tax

Late deposit of employee s contribution to the PF Additions on account of late deposit of EPF and FPF - . The CIT(A) held that since all the payments were made within the grace period the relief of Rs.21,99,799/- deserves to be granted. - Tribunal upheld the order of the CIT(A) by observing that payments have been made within the grace period, the additions made by the Assessing Officer have been rightly deleted by the CIT(A). Held that - Hon ble the Supreme Court (in Alom Extrusions Limited - 2009 -TMI - 35073 - SUPREME COURT) has held that the omission of the 2nd proviso to Section 43 B of the Act by Finance Act 2003 operated retrospectively from 1.4.1988 - The Honble Supreme Court further held that before amendment of the 2nd proviso to Section 43 B of the Act, the assessee were entitled to deduction only if the contribution stood credited on or before the due date given in the Provident Fund Act which created further difficulties. On a representation made to the Finance Ministry, one more amendment was made by Finance Act No. 2003 which was to apply retrospectively w.e.f. 1.4.1988. The rationale of Hon ble the Supreme Court is that when a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole. In order to achieve that object strict and literal construction should be avoided.

Summary

Issues:
Challenging order of Income Tax Appellate Tribunal on late deposit of provident fund contributions; Interpretation of Section 36(1)(va) and Section 2(24)(x) of the Income Tax Act, 1961.

Analysis:
The High Court dealt with the challenge against the order of the Income Tax Appellate Tribunal regarding the late deposit of employees' and employer's contributions to the provident fund. The Assessing Officer had made additions to the income of the assessee due to late deposits. The Commissioner of Income Tax (A) partially allowed relief to the assessee, emphasizing that since all payments were made within the grace period, a relief of Rs. 21,99,799/- was warranted. The CIT(A) relied on previous Tribunal judgments in similar cases to support this decision.

The Tribunal, on further appeal by the Revenue, upheld the CIT(A)'s order, stating that since the payments were made within the grace period, the additions made by the Assessing Officer were rightly deleted. The Tribunal also noted that the CIT(A)'s decision was in line with earlier Tribunal rulings. The Revenue challenged this decision, citing questions of law based on a judgment of the Bombay High Court in the case of CIT v. Pamwi Tissues Ltd.

The High Court considered the Bombay High Court judgment, which was later reversed by the Supreme Court in the case of Commissioner of Income Tax v. Alom Extrusions Ltd. The Supreme Court held that the omission of the 2nd proviso to Section 43 B of the Act by Finance Act 2003 operated retrospectively from 1.4.1988. The Court emphasized that when a proviso is inserted to remedy unintended consequences and to make a section workable, it should be read retrospectively to give effect to the section as a whole.

Consequently, the High Court dismissed the appeal, answering the questions of law against the Revenue. The judgment provides clarity on the interpretation of relevant sections of the Income Tax Act and the retrospective application of amendments to ensure fairness and practicality in tax assessments.