2007 (11) TMI 373 - HC - Income Tax

Business expenditure- The assessee claimed deduction under section 43B of the Income Act of the amount contributed towards the provident fund and the employee state insurance. The Assessing Officer disallowed the claims on the ground that the amount was paid subsequent to the due date as specified in the second proviso to section 43B read with the Explanation to clause (va) of section 36(1) of the Act. The Commissioner (Appeals) set aside the order passed by the Assessing Office. Tribunal set aside the order of the Commissioner (Appeals) and restored order passed by Assessing Officer. Held that- non compliance with the second proviso to section 43B of the Act would result in disallowance so far as these payments were concerned. Since admittedly the assessee had failed to ensure compliance by the depositing the amount before the due date the benefit of section 43B was rightly denied by the Assessing Officer and Tribunal.

Issues Involved:
1. Whether the Tribunal was justified in holding that disallowance of provident fund for the assessment year 1995-96 and the amount deposited towards provident fund and ESI can be allowed to be deducted by taking recourse to the provisions of section 43B of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Disallowance of Provident Fund and ESI Contributions:

The primary issue in these appeals revolves around the disallowance of provident fund (PF) and Employees' State Insurance (ESI) contributions for the assessment year 1995-96. The appellant (assessee) claimed deductions for amounts deposited towards PF and ESI under section 43B(b) of the Income-tax Act. The Assessing Officer disallowed these deductions on the grounds that the payments were made after the due date specified in the second proviso to section 43B, read with the Explanation to clause (va) of section 36(1) of the Act.

The Commissioner of Income-tax (Appeals) reversed the Assessing Officer's decision, allowing the deductions. However, the Tribunal restored the Assessing Officer's order, stating that the appellant did not make the payments before the due date, thereby disqualifying them from claiming deductions under section 43B.

2. Retrospective Effect of the Omission of the Second Proviso to Section 43B:

The appellant argued that the second proviso to section 43B, which was omitted by the Finance Act, 2003, with effect from April 1, 2004, should have retrospective effect from the date of insertion of section 43B, as interpreted by the Supreme Court in the case of Allied Motors [1997] 224 ITR 677. The appellant contended that the omission should be deemed retrospective, thus invalidating the basis for disallowing the deductions.

3. Legislative Intent and Interpretation of Section 43B:

The court examined the legislative history and the specific provisions of section 43B. It was noted that the second proviso to section 43B was inserted on April 1, 1986, amended on April 1, 1989, and omitted by the Finance Act, 2003, with effect from April 1, 2004. The court highlighted that the Supreme Court's decision in Allied Motors' case dealt only with the first proviso to section 43B, which was held to be retrospective. The second proviso, however, was not considered in that case.

The court emphasized that legislative provisions are generally prospective unless explicitly stated otherwise. Since the omission of the second proviso was specified to take effect from April 1, 2004, it was deemed prospective. The court rejected the appellant's argument for retrospective application, stating that any action taken prior to April 1, 2004, based on the second proviso, would be legal and proper.

4. Compliance with the Second Proviso to Section 43B:

The court concluded that the appellant's case was governed by the second proviso to section 43B at the relevant time. Therefore, it was obligatory for the appellant to comply with the due date requirements specified in the second proviso. The appellant's failure to deposit the amounts before the due date resulted in the disallowance of the claimed deductions.

Conclusion:

The court found no merit in the appeals and upheld the Tribunal's decision, dismissing the appeals. The substantial question of law was answered against the appellant (assessee) and in favor of the respondent (Revenue). The court reiterated that the omission of the second proviso to section 43B is prospective, and compliance with the due date requirement was necessary for claiming deductions. The appeals were dismissed with no costs.

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