2014 (10) TMI 402 - HC - Income Tax

Employees and employer s contribution Effect of amendment u/s 43B - Applicability of Commissioner of Income Tax V/s. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT - Whether the Tribunal was right in ignoring the distinction between the employees contribution and employer's contribution Held that - The employer assessee would be entitled to deduction only if the contribution to the employee's welfare fund stood credited on or before the due date and not otherwise following the decision in Commissioner of Income Tax V/s. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT - both employees' and employer's contributions are covered under the amendment to Section 43B of I.T. Act - the Tribunal was right in holding that payments are subject to benefits of Section 43B Decided against revenue.

Summary

Issues involved:
1. Interpretation of provisions of Income Tax Act regarding deduction of employee's contribution to ESI, PF, and Pension fund.
2. Distinction between employee's and employer's contributions to ESI, PF, and pension fund.
3. Applicability of section 43B of the Income Tax Act to payment of employee's contribution to PF/ESI/pension fund.
4. Retrospective application of amendment to section 43B and its impact on employee's contribution.

Issue 1 - Interpretation of provisions of Income Tax Act regarding deduction of employee's contribution to ESI, PF, and Pension fund:
The judgment addressed the question of whether the decision of the ITAT regarding the deductibility of employee's contributions to ESI, PF, and Pension fund was erroneous. The ITAT had ignored the provisions of section 2(24)(x) r/w. 36(1)(va), which state that such contributions are deductible only if paid before the due date prescribed by the respective governing laws. The Tribunal's decision was challenged, and the High Court analyzed the provisions of the Income Tax Act in detail to determine the correct interpretation. The Court ultimately held that the decision of the Supreme Court in Alom Extrusions Ltd. applied to both employee's and employer's contributions, supporting the deductibility of such contributions.

Issue 2 - Distinction between employee's and employer's contributions to ESI, PF, and pension fund:
The judgment examined whether the Tribunal was correct in ignoring the distinction between employee's and employer's contributions to ESI, PF, and pension fund. It was argued that the decision of the Supreme Court in Alom Extrusions Ltd. applied only to employer's contributions. However, the Court held that the Alom Extrusions judgment applied to both employee's and employer's contributions, thus upholding the Tribunal's decision regarding the treatment of these contributions.

Issue 3 - Applicability of section 43B of the Income Tax Act to payment of employee's contribution to PF/ESI/pension fund:
The Court considered whether the Tribunal was correct in holding that the payment of employee's contribution to PF/ESI/pension fund is subject to the provisions of section 43B of the Income Tax Act. Section 43B makes it mandatory for deductions to be allowed only if payments are made within the specified due dates. The Court analyzed the legislative history and the implications of the Finance Act, 2003 on section 43B, ultimately affirming the Tribunal's decision that payments of both employee's and employer's contributions are subject to the benefits of section 43B.

Issue 4 - Retrospective application of amendment to section 43B and its impact on employee's contribution:
The judgment delved into whether the amendment to section 43B, which was made applicable from April 1, 2004, had retrospective effect and how it affected the deductibility of employee's contributions. The Court discussed the curative nature of the Finance Act, 2003, and the intention behind equating tax, duty, cess, and fee with contributions to welfare funds. It concluded that the Finance Act, 2003, was curative in nature and applied retrospectively, allowing for the deduction of employee's contributions under section 43B. The Court upheld the Tribunal's decision in this regard, answering the questions in favor of the assessee and against the revenue.