2018 (10) TMI 994 - HC - Income Tax

Disallowance u/s 2(24)(x) r.w.s. 36(1)(va) - delay in payment of employee s contribution to PF and ESI - whether it was deposited before due date of filling return of income? - Held that - Provision thus requires an employer before paying the employee his wages to deduct the employee s contribution along with the employer s own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. In terms of this provision thus, after deducting the employee s contribution towards the funds, the same has to be deposited with the Government within fifteen days of the close of every month. Reference to fifteen days of the close of the month must be in relation to the month during which the payment of wages is to be made and corresponding liability to deduct employee s contribution to the fund arises. The expression within fifteen days of the close of every month therefore must be interpreted as having reference to the close of the month, for which, the wages are required to be paid with corresponding duty to deduct employee s contribution and to deposit the same in the fund. Appellant is therefore not correct in contending that if such wages are paid in the following month, the liability to deposit the employee s contribution to the fund gets differed by another month. - Decided against assessee

Summary

Issues:
1. Disallowance of employee's contribution to PF and ESI for delay in payment.
2. Interpretation of the due date for depositing employee's contributions.

Issue 1 - Disallowance of employee's contribution to PF and ESI for delay in payment:
The appellant, a private limited company, challenged the Income Tax Appellate Tribunal's judgment confirming the disallowance of ?1,16,87,091 under section 2(24)(x) r.w.s. 36(1)(va) for the delay in depositing employee's contributions to PF and ESI. The Assessing Officer made this disallowance as the appellant failed to deposit the deducted contributions with the statutory authorities within the due date. The Assessing Officer considered the deposits made beyond the 20th of the month following the deduction period as delayed, applying the disallowance under section 36(1)(va) of the Income Tax Act, 1961.

Issue 2 - Interpretation of the due date for depositing employee's contributions:
The appellant argued that as per section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, the time limit for depositing contributions within 15 days of the month's close should be based on the month in which the salary payment is made. The appellant contended that if the salary for June is paid on 5th July, the employer has time until 15th August to deposit the employee's contribution to provident fund. However, the court clarified that the due date for depositing contributions within 15 days of the month's close is in relation to the month during which the wages are paid, and the liability to deposit the employee's contribution arises. Therefore, the appellant's argument that the liability gets deferred by another month if wages are paid in the following month was deemed incorrect.

In conclusion, the Tax Appeal was dismissed, upholding the disallowance of employee's contributions to PF and ESI for the delay in payment, and clarifying the interpretation of the due date for depositing employee's contributions based on the month of wage payment.