2018 (10) TMI 1386 - HC - Income Tax

Additions towards EPF and ESI u/s 36(1)(va) - employee s contribution - sum paid towards Employees Provident Fund and ESI beyond the due date, but prior to filing of return - employees and employers cannot be brought under the same scope and ambit of Section 43B to claim deduction - Held that - The scope of Section 43B and Section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether the assessee is entitled to deduction in respect of the sum belatedly paid towards such contribution, especially when such sum is, admittedly, a sum received by the assessee/employer from his employee. Therefore, for considering such question, application of Section 36(1)(va) r.w.s. 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va). Thus we are in full agreement with the decisions in Commissioner of Income Tax-II vs Gujarat State Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT and Commissioner of Income Tax vs Merchem Ltd 2015 (9) TMI 560 - KERALA HIGH COURT . Consequently, with great respect, in agreement with the other decisions rendered by the High Courts of Karnataka, Punjab and Haryana and Allahabad, which in my view, did not consider the distinction of the scope and ambit of Section 36(1)(va) and Section 43B. Accordingly, find no error apparent on the face of the order passed by the Assessing Authority, based on the admitted facts. Accordingly, the writ petition fails and the same is dismissed.

Issues Involved:
1. Maintainability of the writ petition due to the availability of an alternative remedy.
2. Disallowance of the sum paid towards Employees Provident Fund (EPF) and Employees State Insurance (ESI) beyond the due date.
3. Interpretation and applicability of Sections 36(1)(va), 43B, and 2(24)(x) of the Income Tax Act.
4. Relevance and applicability of various judicial precedents and circulars.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Petition:
The respondent argued that the writ petition is not maintainable because the petitioner has an efficacious and statutory alternative remedy of appeal. The petitioner, however, contended that the issue is covered by various High Court decisions, making the writ petition maintainable despite the alternative remedy.

2. Disallowance of the Sum Paid Towards EPF and ESI Beyond the Due Date:
The core dispute is the disallowance of ?12,25,257/- paid by the petitioner as employees' contribution towards EPF and ESI, which was made beyond the due date stipulated under the relevant enactment. The petitioner argued that since the payment was made before filing the return, it should be allowed as a deduction under the proviso to Section 43B. The respondent countered that the payment pertains to "employees' contribution" and falls under Section 36(1)(va), which requires payment within the due date specified under the relevant legislation.

3. Interpretation and Applicability of Sections 36(1)(va), 43B, and 2(24)(x) of the Income Tax Act:
- Section 2(24)(x): Defines income to include any sum received by the assessee from employees as contributions to any provident fund or superannuation fund.
- Section 36(1)(va): Allows deductions for sums received by the assessee from employees if credited to the employees' account in the relevant fund on or before the due date specified under the relevant Act.
- Section 43B: Pertains to deductions on actual payment basis, specifically for employers' contributions to welfare funds, provided the payment is made before the due date for filing the return of income.

The court noted that Section 43B deals with the employer's contribution, whereas Section 36(1)(va) deals with the employees' contribution. The amendment to Section 43B does not extend to Section 36(1)(va), which remains unamended and mandates payment within the due date specified under the relevant enactment.

4. Relevance and Applicability of Various Judicial Precedents and Circulars:
- Petitioner's Reliance on Judicial Precedents: The petitioner relied on decisions from the Supreme Court and various High Courts (e.g., Alom Extrusion Ltd., Sabari Enterprises, Hemla Embroidery Mills) that allowed deductions for contributions paid before the filing of the return.
- Respondent's Reliance on Judicial Precedents: The respondent cited decisions from the Gujarat and Kerala High Courts (e.g., Gujarat State Road Transport Corporation, Merchem Ltd.) that upheld disallowance for payments made beyond the due date under Section 36(1)(va).
- Circular No. 22 of 2015: Issued by the Central Board of Direct Taxes, clarifies that the circular does not apply to employees' contributions governed by Section 36(1)(va).

The court found that the decisions relied upon by the petitioner did not consider the specific scope of Section 36(1)(va) and were focused on Section 43B. The court agreed with the Gujarat and Kerala High Courts' interpretation that Section 36(1)(va) and Section 43B operate in different fields and cannot be read together to extend the benefit of the amendment in Section 43B to employees' contributions.

Conclusion:
The court dismissed the writ petition, upholding the disallowance of the sum paid towards EPF and ESI beyond the due date stipulated under the relevant enactment. The court emphasized the distinction between the scope of Section 43B and Section 36(1)(va) and concluded that the benefit of the amendment to Section 43B cannot be extended to employees' contributions governed by Section 36(1)(va). The court also noted that the relevant circular and statutory provisions were not challenged by the petitioner.

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