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2022 (12) TMI 221 - AT - Income TaxDelayed payment made to ESI/PF being employees share of contribution under section 36(1)(va) - employee's OR employers contribution - scope of Section 36(1)(va) and Section 43B(b) - HELD THAT - Hon ble Supreme Court in the case of CHECKMATE SERVICES PVT LTD 2022 (10) TMI 617 - SUPREME COURT Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. Thus we hold Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). Decided in favour of the Revenue.
Issues Involved:
1. Disallowance of payment made to ESI/PF being employees' share of contribution under section 36(1)(va) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of Payment Made to ESI/PF: - Statutory Framework: - The Employee Provident Fund and Miscellaneous Provisions Act, 1952, and the Employees State Insurance Act, 1948, mandate timely deposits of contributions from both employers and employees. - Under the Income Tax Act, 1961, any sum received by the employer from employees as contributions to provident or other welfare funds is treated as "income" under Section 2(24)(x). - Employer vs. Employee Contributions: - Employer's contribution is a statutory obligation treated as business expenditure. - Employee's contribution, deducted from the salary, is held in a fiduciary capacity and must be deposited by the 15th of the succeeding month. - Income Tax Provisions: - Section 36(1)(va) allows deduction of employees' contributions only if deposited within the due date prescribed under the respective Acts. - Section 43B allows deductions for employer's contributions if paid before the due date for filing the return of income under Section 139(1). - Judicial Interpretations: - The Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. held that amendments to Section 43B by the Finance Act, 2003, were retrospective, equating employer contributions to other liabilities like tax and duty. - However, this retrospective benefit did not extend to employees' contributions under Section 36(1)(va). - CBDT Circular: - Circular No. 22/2015 clarified that no disallowance shall be made for employer's contributions deposited before the due date for filing the return of income, but this does not apply to employees' contributions governed by Section 36(1)(va). - Amendments by Finance Act, 2021: - Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B clarified that Section 43B does not apply to employees' contributions, reinforcing the requirement to deposit these contributions within the due dates specified in the respective Acts. - Supreme Court Ruling in Checkmate Services Pvt Ltd: - The Supreme Court upheld that Section 36(1)(va) and Section 43B(b) operate on different equilibriums. Failure to deposit employees' contributions within the prescribed due date results in permanent disallowance of deduction under Section 36(1)(va), while delays in employer contributions are only deferred under Section 43B. - Conclusion: - The Tribunal concluded that the Revenue authorities were justified in disallowing the deduction for employees' contributions not deposited within the prescribed due dates under the respective Acts. - The appeal by the assessee was dismissed, affirming the distinction between employer and employee contributions and their respective due dates for deductions under the Income Tax Act, 1961. Final Judgment: The appeal of the assessee was dismissed, upholding the disallowance of employees' contributions to ESI/PF not deposited within the due dates specified under the respective Acts. The judgment reiterated the legal distinction between employer and employee contributions and the consequences of failing to meet the prescribed deadlines for each.
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