2009 (12) TMI 481 - HC - Income Tax

Contribution to employees provident fund- the assessee deposited the amount of provident fund due to its employees prior to the due date of filing of the return of income under the Income-tax Act but the same was not deposited within the time prescribed under the Employees Provident Fund Act- whether omission (deletion) of the second proviso to section 43B of the Income-tax Act 1961 by the Finance Act 2003 operates with effect from April 1 2004 or whether it operated retrospectively with effect from April 1 1988. HElD - omission (deletion) of the second proviso to section 43B is curative in nature hence it is retro- spective and it would operate with effect from April 1 1988 (when the first proviso came to be inserted).

Summary

Issues:
1. Interpretation of the deletion of the second proviso to section 43B of the Income-tax Act, 1961.
2. Retrospective application of the Finance Act, 2003 regarding the deduction of contributions to employees' provident fund.

Issue 1: Interpretation of the deletion of the second proviso to section 43B of the Income-tax Act, 1961:
The main issue in this appeal was to determine whether the deletion of the second proviso to section 43B of the Income-tax Act, 1961, by the Finance Act, 2003, should be considered to operate from April 1, 2004, or retrospectively from April 1, 1988. The second proviso previously restricted deductions for contributions to provident funds only to amounts paid by the due date specified in the relevant Act. The argument was made that the deletion aimed to bring uniformity in deductions for various payments covered by section 43B, allowing deductions if payments were made before the due date for filing the return of income.

Issue 2: Retrospective application of the Finance Act, 2003 regarding the deduction of contributions to employees' provident fund:
The debate revolved around whether the omission of the second proviso by the Finance Act, 2003, providing relief to the assessee, should be effective only from April 1, 2004, or have retrospective application. The assessee contended that the deletion was curative in nature and should be given retrospective effect, enabling the deduction of contributions to the employees' provident fund. The Revenue argued that the omission only applied from April 1, 2004, and not to the assessment years in question, 2002-03 and 2003-04. The critical aspect was whether the amendment should be considered retrospective, impacting the entitlement to claim deductions for contributions made before the due date under the Employees' Provident Fund Act.

In conclusion, the High Court, guided by the Supreme Court's decision in CIT v. Alom Extrusions Ltd., held in favor of the assessee on both issues against the Revenue. The Court determined that the Finance Act, 2003, should be considered curative and retrospective in nature, operating from April 1, 1988, when the first proviso was introduced. The judgment emphasized the need to interpret legislative intent, especially when strict literal construction may lead to unjust outcomes, favoring equity in taxation matters.