Judgment about Employees Contributions - in case of Checkmate Services P/ Ltd (SC) – need reconsideration – part 2 – WORDS NOT FOUND IN PROVISIONS BUT ADDED BY THE COURT

[DEVKUMAR KOTHARI]

Judgment under study: CHECKMATE SERVICES P. LTD. VERSUS COMMISSIONER OF INCOME TAX-1 - 2022 (10) TMI 617 - SUPREME COURT

Words not found in provisions but read and applied:

We find Words that there are certain words which are not found in the provisions but they have been added while rendering the judgment. These are indicated in the table below:

Words in provision	Words as read  and applied by SC
S.2.24 (x) any sum received by the assessee ....	amount received or deducted from the employee
S.36(1)(va) any sum received by the assessee	amounts received by it or deducted by it (Section 36(1)(va)
if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date.	to be deposited by the employer.

In provisions:

In section 2.24 which defines “income’  we find no use of word ‘deducted’   in any of clauses including clause (x).

In section 2.24 which defines “income’  we find no use of word ‘credited’   in any of clauses including clause (x).

In section 2.24 we find use of word ‘received’ in four clauses including clause (x).

Therefore, it is clear that a mere deduction or ‘crediting’ is not considered as income or deemed income.

In section 36(1) (va) we do not find use of word ‘deducted’

In section 36 (1) (va)  we do not find use of  word ‘ deposited’ or  ‘paid’ or  ‘actually paid’ etc. The word used is ‘credited’.

In fact in entire section 36 we do not find use of words  ‘deposited’ and   ‘actually paid’ at all including history of various clauses. We find use of word ‘paid’  19 times in various clauses  of entire section 36.

Therefore, it is clear that the concept of ‘ actually paid’ is found only in section 43B in the context of deductions allowable. Otherwise word ‘paid’ is to be understood as per meaning given in Section 43(2) that is :  

         (2) "paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession";

The frequency of words  as appears in the  judgment :

 “Received” appeared 22 times

  “  deducted “ appears  16  times.

       “ retained”  appears 5   times with words amount or otherwise that is ‘ amount retained’ or ‘ otherwise retained’.

“ deposited” appears 17  times.

“Contribution” appeared 157  times”.

(However, no where in S. 2.24.x and 36.1. (va) we find use of word deducted, retained and  deposited)

Therefore, it is clear that these words have been used by honorable Supreme Court as part of provisions or it can be said as if these words are considered as if existed in the statute.

It is also well known that in the context of the Income-tax Act, 1961 the expressions like payment, actual payment, receipt, actual receipt, accrued and contingent, accounting entries etc. have significant purposes and outcomes.

Author could not find any reason given by any counsels and the honorable Court for including or adding these words while answering the questions.

Furthermore, honorable Supreme Court has considered provisions of S. 2.24 relating to income and provisions of section 36 relating to deductions both. However,  there appears emphasis on and about conditions applicable for deduction of expenditure and not about deemed income  u/s. 2.(24).

Even about conditions laid down in S.36  for allowing a deduction, provisions has been read with addition of words which are not found in the provisions.

On aspect of interpretation also it appears that rule of interpretation for allowable deductions have only  been applied and rules about interpretation of provisions relating to income have not been considered.

The general and golden rule about interpretation, though some of them have been mentioned but have not been applied.

For example, it has been held that

- One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. See for e.g., EAGLE FLASK INDUSTRIES LIMITED VERSUS COMMISSIONER OF C. EX., PUNE [2004 (9) TMI 102 - SUPREME COURT] - This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations.

As discussed and found from provisions the conditions are about sums received from employees. Whereas, in case of deductions from salary or wages, in fact there in sum received from employees.

Employer arranges funds for net  payment to be made to employees on salary day after preparing pay roll in which gross salary earned is worked out from which various deductions are made for employees contribution to employees PF , ESI, profession  tax deductible, income tax deductible  etc.

 In any such case employee pays any sum of money to employer. When there is no  payment of any sum of money by employee to the employer, there is no question of any ‘sum received’ from employee in such cases. Therefore, Section 36(1) (va) is not at all attracted because any sum is not received from his employee. A deduction cannot be called or equated with any sum received.

Furthermore, amount so deducted is simultaneously credited to respective accounts like employees PF / ESI  Contributions.

Therefore, requirement of S. 36.1. va is satisfied, if provisions are read and applied strictly as they stand in the statute book and without adding any word to the relevant provision.

We find that the word   “interpretation” appears  19 times in the judgment. Out of which in some of such mention we find rule of interpretation.

From paragraph 46 we find rule of interpretation

46. A discussion on the Principles of interpretation of tax statutes is warranted. In AJMERA HOUSING CORPORATION & ANR. ETC. VERSUS COMMISSIONER OF INCOME TAX - 2010 (8) TMI 35 - SUPREME COURT this court held as follows:  

         “27. It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 and FEDERATION OF ANDHRA PRADESH CHAMBERS OF COMMERCE AND INDUSTRY AND OTHERS VERSUS STATE OF ANDHRA PRADESH AND OTHERS - 2000 (8) TMI 78 - SUPREME COURT. In interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see: COMMISSIONER OF SALES TAX, UP. VERSUS MODI SUGAR MILLS LTD.   - 1960 (10) TMI 65 - SUPREME COURT)”

However, we find that the honorable Supreme Court has read word used in statute with addition of some other words, as already discussed earlier.

Therefore, the judgment need reconsideration.