2018 (8) TMI 133 - HC - Income Tax

Failure to pay the employees contribution under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees State Insurance Act, 1948 before the due date provided under the said enactments - Held that - The learned Judges had elaborately considered the decision in Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT and has found the provisions having application in different fields. Section 43B(b) dealt with the employer s contribution and sub-clause (va) of Section 36(1) was concerned with the employees contribution as rightly held. We do not find ourselves persuaded to take a different view with respect to employee s contribution and we respectfully follow the decision of the Division Bench of this Court in Merchem Ltd. 2015 (9) TMI 560 - KERALA HIGH COURT . We, hence, answer the substantial question of law raised with respect to reconsideration of Merchem Ltd. in the negative, against the assessee and in favour of the Revenue. Whether the amounts payable , the reference obviously is to any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other funds for the welfare of employees as found in sub-clause (b) of Section 43B, which refers only to the employer s contribution and not the employee s contribution? - Held that - On remittance of this contribution, within the due date, it is allowed as a deduction under Section 36. If it is not paid to the welfare fund within the due date provided under the relevant statute, it remains as an income in the books of accounts of the assessee/employer Company. The said contribution having not been paid to the applicable welfare fund within the due date provided, the assessee for all time is deprived of claiming such a remittance, made subsequently, as deduction from the income. This, as the Hon ble Supreme Court noticed, is looking at the spirit behind the labour welfare legislation and the need for the employer to satisfy the remittance within the time provided under the statute creating the welfare fund. At least with respect to the employee s contributions, which the employer deducts from the salary of the employees, if it is not remitted into the fund within the due date, the employer not only has defaulted the stipulation in the labour legislation but has received an income; albeit an illegal enrichment. Sub-section (v) is with respect to and confined to a gratuity fund and does not have any relevance here. We, hence, answer the other questions of law framed, also against the assessee and in favour of the Revenue.

Summary

Issues Involved:
1. Whether the term 'amounts payable' includes employee's contribution or is confined to employer's contribution alone.
2. Whether Section 43B of the Income Tax Act overrides Section 36(1)(v)/(va) concerning deductions for employee's and employer's contributions.
3. Whether the deletion of the second proviso to Section 43B in 2004 affects the deductibility of belated employee contributions.

Issue-Wise Detailed Analysis:

1. Inclusion of Employee's Contribution under 'Amounts Payable':

The primary question was whether the term 'amounts payable' in the relevant provision includes employee's contribution or is limited to employer's contribution. The Court analyzed the specific clauses under the Income Tax Act and concluded that the Act treats employer's and employee's contributions distinctly. Section 36(1)(v) pertains to the employer's contribution, while Section 36(1)(va) specifically addresses the employee's contribution. The Court determined that the term 'amounts payable' under Section 43B(b) refers exclusively to the employer's contribution and not the employee's contribution. Therefore, the employee's contribution is governed by Section 36(1)(va) and its Explanation, which mandates that the contribution must be paid on or before the due date specified in the relevant statute.

2. Overriding Effect of Section 43B:

The appellant argued that Section 43B, being a non-obstante clause, should override Section 36(1)(v)/(va) concerning deductions for employee's and employer's contributions. The Court, however, clarified that Section 43B is a restrictive clause that mandates actual payment for deductions to be allowable. It does not convert into an enabling provision permitting deductions when other provisions of the Act do not allow them. The Court emphasized that the non-obstante clause in Section 43B does not affect the specific provisions under Section 36(1)(va) concerning employee's contributions. The Explanation to Section 36(1)(va) remains effective, requiring that employee contributions be paid within the due date specified in the statute creating the welfare fund.

3. Effect of Deletion of the Second Proviso to Section 43B:

The appellant contended that the deletion of the second proviso to Section 43B in 2004 should allow for the deduction of belated employee contributions. The Court reviewed the legislative history and amendments to the relevant provisions. It noted that the deletion of the second proviso to Section 43B was considered curative and applied retrospectively to employer's contributions, as held by the Supreme Court in Alom Extrusions Ltd. However, this did not affect the treatment of employee's contributions under Section 36(1)(va). The Court held that the deletion of the proviso under Section 43B does not override the specific requirements of Section 36(1)(va) and its Explanation. Thus, employee contributions not paid within the due date specified in the relevant statute remain non-deductible.

Conclusion:

The Court upheld the distinction between employer's and employee's contributions under the Income Tax Act. It reaffirmed that employee contributions must be paid within the due date specified in the relevant statute to qualify for deductions under Section 36(1)(va). The deletion of the second proviso to Section 43B does not alter this requirement. The appeal was dismissed, and the decision in Merchem Ltd. was followed, affirming that belated payment of employee contributions does not qualify for deduction. The Court answered all questions of law against the assessee and in favor of the Revenue.