2016 (12) TMI 1479 - HC - Income Tax

Entitlement to claim deduction of employees contribution to provident fund and ESI under Section 43-B - Whether the provisions of Section 36 and Section 43-B are mutually exclusive and the Assessee/appellant is legally entitled to claim deduction of employees contribution to provident fund and ESI under Section 43-B as amended vide Finance Act, 2003, even if the said deduction was not admissible under Section 36(1) (va) of the Income Tax Act, 1962? - Held that - By way of First Proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax duty cess or fee is paid before the date of filing of the return under Act 1961, Assessee would than be entitled to deduction. This relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer should not sit on the collected contributions and deprive workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. But when implementation problems were pointed out for different due dates, uniformity was brought about in first proviso by Finance Act, 2003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f. 01.04.1988. Irrespective of the fact that deduction in respect of sum payable by employer contribution was involved, but Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of Section 43B applied it to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore over ride even if, anything otherwise is contained in Section 36 or any provision of Act 1961. Therefore, we are clearly of the view that Section 43B is rightly applied in respect to both contributions i.e. employer and employee - Decided in favour of Assessee.

Summary

Issues Involved:
1. Interpretation of Section 43-B of the Income Tax Act, 1961.
2. Retrospective effect of the omission of the second proviso to Section 43-B by the Finance Act, 2003.
3. Mutual exclusivity of Section 36 and Section 43-B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Interpretation of Section 43-B of the Income Tax Act, 1961:
The core issue revolves around whether the second proviso to Section 43-B overrides the first proviso, thus affecting the admissibility of deductions for employer's contributions to provident fund and ESI. The court analyzed the statutory provisions and the legislative intent behind Section 43-B, which was inserted to curb the practice of claiming deductions on a mercantile basis without actual payment. The court noted that Section 43-B, introduced with a non obstante clause, mandates deductions based on actual payment before the due date for filing returns under Section 139(1). The court concluded that Section 43-B applies to both employer and employee contributions, thus overriding any conflicting provisions in Section 36.

2. Retrospective effect of the omission of the second proviso to Section 43-B by the Finance Act, 2003:
The court examined whether the omission of the second proviso to Section 43-B by the Finance Act, 2003, which became effective from 01.04.2004, is curative and retrospective. The court referred to the Supreme Court judgment in Commissioner of Income-Tax Vs Alom Extrusions Ltd., which held that the amendment to Section 43-B by the Finance Act, 2003, is retrospective as it is curative in nature. The court concluded that the deletion of the second proviso and the amendment of the first proviso apply retrospectively from 01.04.1988, thus allowing deductions for contributions paid before the due date for filing returns under Section 139(1).

3. Mutual exclusivity of Section 36 and Section 43-B of the Income Tax Act, 1961:
The court addressed whether the provisions of Section 36 and Section 43-B are mutually exclusive, particularly concerning the admissibility of deductions for employee contributions to provident fund and ESI. The court analyzed the relationship between Section 36(1)(va) and Section 43-B, noting that while Section 36(1)(va) allows deductions for employee contributions credited to the relevant fund before the due date under the applicable statute, Section 43-B extends this allowance to contributions paid before the due date for filing returns under Section 139(1). The court held that Section 43-B, with its non obstante clause, overrides Section 36, thus allowing deductions for both employer and employee contributions if paid before the due date for filing returns.

Judgment Summary:
The court concluded that the law laid down by various High Courts, including Karnataka, Rajasthan, Punjab & Haryana, Delhi, Bombay, and Himachal Pradesh, correctly applied Section 43-B to both employer and employee contributions. The court dissented from the views of the Gujarat and Kerala High Courts. Consequently, the court answered all the questions in favor of the Assessee, allowing the appeal and setting aside the Tribunal's judgment.