2014 (2) TMI 127 - HC - Income Tax

Benefit of amendment of section 43B of the Act - Whether the benefit of the amendment of Section 43B of the Income Tax Act equally applies to the employees contribution of provident fund Held that - The contributions payable by the employer under the scheme shall be at the rate of 10% of the basic wages, Dearness Allowance - The contribution payable by the employee shall be equal to the contribution payable by the employer in respect of such employee - the payment of contribution by the employer to the fund under the scheme means both employer s contribution and employee s contribution - Whether he deducts the employee s contribution from the salary or not, in law, he is liable to pay the said amount thus, Section 2(24)(x) of the Act makes it clear that the employee s contribution which the employer deducts from his salary before it is paid into the fund, is treated as the income of the employer, and the employer by contributing can get the deduction. The payment must be made within the due date i.e. the due date prescribed under Section 139(1) of the Act Relying upon Commissioner of Income Tax Versus M/s. Alom Extrusions Limited 2009 (11) TMI 27 - SUPREME COURT - Though such contributions are not paid within the time prescribed under the relevant act, if those contributions are paid before the due date prescribed under Section 139(1) of the Act, the employer shall be entitled to the deductions as provided under Section 36(1) of the Act - it is for the simple reason, under the provident fund scheme, an employer has to pay both the contribution and then recover from the salary of the employee Decided against Revenue.

Summary

Issues:
Interpretation of Section 43B of the Income Tax Act regarding the applicability of the benefit of the amendment to employees' contribution of provident fund.

Analysis:
The judgment involves a challenge to an order regarding the applicability of the benefit of the amendment of Section 43B of the Income Tax Act to employees' contribution of provident fund. The respondent, a private limited company, had delayed remittances of ESI/PF contributions deducted from employees, leading to disallowance by the assessing authorities. The respondent contended that the contributions were deductible as they were made before the last date for filing returns under Section 139(1) of the Act. The Commissioner rejected the plea, prompting a writ petition before the High Court. The Single Judge accepted the plea, leading to the current appeal.

The crux of the issue lies in the interpretation of Section 43B, specifically the phrase "any sum payable by the assessee as an employer by way of contribution to any provident fund." The revenue contended that the section only applies to the employer's contribution, not the employee's. However, the assessee argued that the term includes both employer and employee contributions based on the provisions of the Employees' Provident Funds Scheme, 1952. The Division Bench's decision in a previous case and the subsequent affirmation by the Apex Court were cited to support this interpretation.

The judgment delves into the definitions and provisions of the Provident Fund Act to establish that the employer is responsible for paying both employer and employee contributions initially, with the ability to recover the employee's contribution later. It highlights that the employer's deduction of the employee's contribution from the salary does not absolve the employer of the liability to pay both contributions. The judgment emphasizes that Section 2(24)(x) of the Act treats the employee's contribution deducted by the employer as the employer's income, making the employer eligible for deductions upon payment before the due date under Section 139(1) of the Act.

In conclusion, the judgment dismisses the appeal, affirming that the employer is entitled to deductions for both employer and employee contributions to the provident fund if paid before the due date under Section 139(1) of the Act. The judgment underscores that the Parliament did not differentiate between employee and employer contributions in extending this benefit, considering the employer's obligation to pay both contributions under the provident fund scheme.