Provident fund – employees contribution and due date under section 36(1)(va) – levy of interest means within ‘due date’ or extended due date - a point of view to make a case of allow ability of belated deposit of employees contribution towards EPF.

[DEVKUMAR KOTHARI]

Related judgments:

This aspect was  not considered in  case of CHECKMATE SERVICES P. LTD. VERSUS COMMISSIONER OF INCOME TAX-1 - 2022 (10) TMI 617 - SUPREME COURT and related judgment reported as  COMMISSIONER OF INCOME TAX - I VERSUS CHECKMATE SERVICES P. LTD. - 2014 (11) TMI 641 - GUJARAT HIGH COURT. In other  reported cases also, author did not recall any discussion on these aspects. Therefore, this contention may be considered a new contention which is supported by statutory provisions about levy of interest and judgment of SC on issue of extension of due date on payment/ levy of interest. in case COMMISSIONER OF INCOME-TAX, AP VERSUS M. CHANDRA SEKHAR - 1984 (12) TMI 1 - SUPREME COURT.

Scope of this article:

This article is restricted to the aspect about extension of ‘due date’ in view of payment or statutory  liability for payment of interest for period of delay in deposit of EPF contributions. Relevant provisions in this regard are reproduced with highlights added.

From Income-tax Act:

Other deductions.

36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-

(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, 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.

Explanation .-For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;]

Under PF laws interest is mandatory:

We find provisions in section 5 and 7Q in which words ‘shall be liable to pay’ has been used signifying that interest payable in mandatory. The provisions are reproduced below with highlights added.

The rate of interest is 12% per annum and it can be higher rate however, higher rate shall not exceed the lending rate of interest charged by any scheduled bank.

From

The Employees’ Provident Funds Scheme, 1952 vide clause 5 of Appendix  “A” provide as follows:

5. the employer shall transfer to the Board of Trustees the contributions payable to the provident fund by himself and employees at the rate prescribed under the Act from time to time by the 15th of each month following the month for which the contributions are payable. The employer shall be liable to pay simple interest in terms of the provisions of section 7Q of the Act for any delay in payment of any dues towards the Board of Trustees.

EMPLOYEES PROVIDENT FUND  & MISCELLANEOUS PROVISIONS ACT,1952 vide S.7Q provide as follows:

Section 7Q.   Interest payable by the employer

7Q. Interest payable by the employer.--The employer shall be liable to pay simple interest at the rate of twelve per cent. per annum or at such higher rate as may be specified in the Scheme on any amount due from him under this Act from the date on which the amount has become so due till the date of its actual payment:

Provided that higher rate of interest specified in the Scheme shall not exceed the lending rate of interest charged by any scheduled bank.

From these provisions it is clear that levy of interest is as per law and is mandatory.

The rate of interest is also reasonable upper limit can be rate of interest charged by banks.

Therefore, it is clear that delays in deposit of contributions is well-recognized aspect of ground realities of employers.

Employers, who run organizations, have many situations in which delay in deposit can take place. In view of delays and  uncertainties about inflow of funds sometimes, priorities of payment are to be worked out. In situations depositing of contributions can be at low priority , when other compelling payments are important. For example, paying wages to workers will have to be given priority in comparison to deposit of contributions. This is because, delay in payment of wages  will cause greater and immediate difficulties to large number of employees, whereas delay in deposit of contributions will not immediately affect work force. Running the organization like factory and office will be priority in comparison to deposit of contributions.

This happens when funds available are not sufficient. This can be due to several reasons, which causes delay in inflow of funds causing fund shortage.

Levy of interest is a commercial and financing aspect and means due date is extended:

Interest is to compensate for money paid late or money remaining with one party at cost of other, who receives payment late. Therefore, in commercial world, payment of interest is considered as consideration for making payment after due date. Interest is calculated for each day of delay. Therefore, it is considered as consideration for late payment accepted with compensation.

Even in tax laws, payment of interest can be considered as having effect of extending due date for making of payment and also incidental event or compliance. For example, and an authority and guidelines we can usefully refer and rely to the judgment in case COMMISSIONER OF INCOME-TAX, AP VERSUS M. CHANDRA SEKHAR - 1984 (12) TMI 1 - SUPREME COURT.

In this case the general  principal laid down is that on charging of interest the limitation period  or due date  get extended. Charging of interest means that payment is accepted and delay, if any,  is condoned.

Summary of judgment can be made like failure to file return within time allowed - Since interest under s. 139(1) has been laid by ITO, it must be presumed that ITO has granted extension of time to file return on the grounds made out by the assessee - hence penalty provision of s. 271(1)(a) does not come into play at all.

Though this case related to belated  filing of ROI, the AO charged interest  for the delayed period,  in that circumstance it was held that the presumption is that the AO exercised his discretion and   extended due date. Therefore, no penalty could be levied for alleged late filing of ITR.

Therefore, charging of interest means and presupposes that time is allowed and extended and delay, if any, is condoned etc.

Applying the principal it can be said  that when a payment to EPF authority  is made and interest is also charged or is chargeable , as per law, then  due date is extended till the date of payment. When making a payment, online , interest for delay, if any  can be included and paid  simultaneously  or it  can be  charged and  collected later on as per law then  this  means that the time is extended.

Under section 36.1.(va)  of Income-tax Act meaning of ‘due date ‘ and its extension is very wide by use of words like under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.

The use of words Or otherwise clearly shows that it cover the period for which interest is paid/ payable / chargeable for delay in payment.

To ensure that for any delay in deposit of employers contributions and employees contributions both, employees/ beneficiaries of EPF should not suffer and employer should not enrich himself. For this purpose, mandatory interest is chargeable.

Checkmate Service case:

It appears that provisions about levy of interest for delayed deposit and the judgment of the Supreme Court in case of CIT, AP VERSUS M. CHANDRA SEKHAR supra. Was not considered in Checkmate Services case by the Supreme Court and in related judgment by the  High Court also. Related judgment of Tribunal is not available. However, since there is no mention of these provisions and judgment in judgments of the SC and HC, it appears that the same were not considered by Tribunal also.

Therefore, this contention can be suitably raised in pending cases. A review petition before the Supreme Court can also be preferred.

Other contributions:

Provisions relating to other contributions towards ESI, Pension fund, Gratuity Fund, Super Annuation funds and other welfare funds also provide for levy of interest for delay in deposit.

Therefore similar contentions with suitable modifications can be raised.