Employees contributions- S. 2.24.x , 36.1.va and 43B addition challenged in WP and considered by Madras High Court – improper course and actions by all

[CA DEV KUMAR KOTHARI]

Judgment under present study:

M/S. UNIFAC MANAGEMENT SERVICES (INDIA) PRIVATE LTD. VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATION CIRCLE 3 (2) , CHENNAI 2018 (10) TMI 1386 - MADRAS HIGH COURT (in short UNIFAC)

Earlier articles on subject:

Section 2(24) (x) deeming contributions of employees as income appears to be ultravirse the Constitution of India (COI) and purposes of the Income-Tax Act (ITA).

Section 43B is applicable to employees PF contributions also so held by Supreme Court:

 

Assessment and addition challenged by way of Writ Petition was not proper course:

In the case of UNIFAC (supra.) the assesse challenged addition made by the AO for the sums which were paid after due date under applicable provisions. The AO applied S.2.24.x to deems deductions from salary as ‘sum received’ and then he restricted deduction thereof only if paid within due date under the respective provision ( in this case EPF).

In this case pursuing the matter by way of Writ Petition(WP) was not proper for the following reasons:

(a) There  was no challenge of provisions of S.2.24.x as unconstitutional and related provision of S.36.1. va.

(b) There is alternate and efficacious remedy available  by way of appeal, which should have been adopted instead of challenging assessment order and addition made therein by way of WP

(c) Therefore, validity of any of related provisions was not disputed.

(d) There was wrong admission that sums were received from employees. Whereas fact is that a deduction by way of book entry cannot be called ‘sum received’.

(e) There was wrong admission that sums were paid belatedly. Whereas fact and ground reality is that when such sum is paid by employer and accepted by concerned authority, it can be deemed that the due date is extended. This is because there are provisions for allowing grace period, charge of interest and damages. 

(f) There is judgments of Madras High Court also   in favour of assesse on the same issue, and on an appeal u/s 260A,  for example:

COMMISSIONER OF INCOME TAX VERSUS. M/S. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD  Tax Case (Appeal) Nos.585 and 586 of 2015 & M.P.No.1 of 2015  Dated: - 24 July 2015  2015 (7) TMI 1063 - MADRAS HIGH COURT

However, this judgment has been overlooked. Perhaps it was not mentioned by counsels of petitioner also or the honourable judge  had overlooked the same inadvertently.

Proper courses for assesse were as follows:

(a) To file appeal before the CIT(A) against assessment order challenging addition u/s 2.24.x and disallowance u/s 36.1.va and not applying S.43B. In this regard grounds could be raised and contested on lines suggested by author in his earlier articles.

(b) To file WP only  to challenge validity of S.2.24.x and consequently related provision of  S. 36(1) (va). In this regard contentions could be raised on lines suggested in earlier article by author.

Therefore, clause (x) of Subsection (24) of section 2 appears to be ultravirse the COI and ITA, however, so far, surprisingly, this provision has not be challenged. Particularly because the employers get deduction on deposit. However, as per views expressed after detailed discussion by author in earlier article,  on principal this clause need to be struck down as being ultravirse the COI and purposes of ITA.

Sorry to say that Counsels mislead the petitioners or it is a case of JIDDY CLIENR:

From above discussions it appears, (as so far as appears on reading of   reported judgment) that Counsels of petitioner had not done homework fully and  wrongly advised the petitioner to challenge order of assessment and addition by way of WP.

Sometimes a client may suggest a course of action and he may be adamant to purse course of action as per his wish. May be in this case situation was that the client was a JIDDY CLIENT ,  who insisted to file a WP. However, counsels should not have accepted such wrong dictates of client.

Sorry to say that Honourable  judge of High Court erred by admitting WP and by not following binding precedence and not applying judicial discipline :

Judges are also human being, so they are also not immune from committing errors and omissions. Sometimes there can be bias even in minds of judges.

Sometimes judgment are influenced by other factors like  mood, pressures, bias, presumptions, and different type of  mood prevailing in mind and soul of the judge.

With utmost respect to the lordship of honourable Madras High Court, author express that the course adopted by honourable Justice Mr. Justice K. Ravichandrabaabu is not correct. For the following reasons:

(a) First of all, in this case WP should not have been admitted, because challenge was not to the virse of provisions but only to additions made in assessment order and there was very effective alternate remedy available to the petitioner. Proper Course was to reject WP on this ground, and to allow time to petitioner to file appeal before CIT(A).  By  not doing so, author, with due respect feel that honourable justice has not followed basic fundamental rules about WP and has also not followed judicial precedence.

(b) Honourable Court must have regard to the ruling of the Supreme Court in case of Alom Extrusions. In that case though the question was not on S.2.24.x and S.36.1.va, but honourable Supreme Court had considered these provisions. Therefore, even an obiter dicta, of the honourable Supreme Court is binding on other Courts.

(c) Judgment of Madras High Court was not considered.

(d) Other High Courts have also adopted and applied reasoning in case of Alom Extrusion.

(e) The honourable Court must have adopted a view which is in favour of assesse. There are majority of judgments in which S.43B has been applied in relation to contributions covered u/s 2.24.x.

A fit case for recall of the judgment:

With due respect and regard, author feels that it is a fit case for recall  and review of  the judgment  not only to render justice and also to follow rules of binding precedence and judicial discipline, which appears to have been totally ignored by honourable justice.