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TMI Blog2012 (11) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2008 - - - Dated:- 7-11-2012 - Mr. Deepak Gupta, And Mr. Rajiv Sharma, JJ. For the appellant: Mr. Vinay Kuthiala, Senior Advocate, with Ms. Vandana Kuthiala, Advocate. For the respondent: Ms. Radhika Suri, Advocate. Deepak Gupta, J. Though the appeal was admitted on three questions of law, learned counsel for the parties agree that questions No. 2 and 3 already stand answered against the revenue by the judgment delivered by this Court in ITA No. 36 of 2007, titled H.P. Tourism Development Corporation Ltd. versus Commissioner of Income Tax, (2010) 328 ITR 508, and, therefore, the only question of law which survives for decision is as follows: 1. Whether the Tribunal was correct in holding that amounts received by the assessee from employees for crediting to their accounts in provident fund and ESI, but not so credited on or before the due dates specified under the respective statutes, were allowable deductions under section 36 (1) (va) of the Income Tax Act? 2. To appreciate the rival contentions of the parties, it would be pertinent to mention that for the assessment year 200102, the respondent-assessee declared an income of Rs.3,16,591/. During p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SI Act or Provident Fund Act, then the assessee cannot get benefit of deduction even if the amount is deposited before filing of the return. 5. To appreciate the rival contentions of the parties, it would be pertinent to refer to the definition of Income as provided under Section 2 (24) (x): 2. (24) income includes ....................................... (x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees. 6. Reference may also be made to Section 36 (1) (va) of the Act: 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28: ................................. (va) any sum received by the assessee from any of his employees to which the provisions of subclause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low Section 36 (1) (va) is rendered otiose and redundant and such meaning cannot be assigned to the Act. 10. We are not at all impressed by the arguments addressed on behalf of the revenue. The scheme of the Act clearly contemplates that while computing the income under the Head income from profits and gains of business or profession under Section 28 of the Income Tax Act, the assessee is entitled to avail all the deductions available to him under Section 30 to Section 43D as laid down under Section 29 of the Income Tax Act. 11. Here it would also be necessary to give some history of these provisions. Prior to the promulgation of the Finance Act, 1987, an employer was entitled to deduction under Section 36 (1) (iv v) of the amounts contributed by the employer towards provident fund, ESI and other superannuation schemes. By the Finance Act of 1987 Section 2 (24) (x) was inserted and the sums collected by the assessee from his employees as contributions to provident funds or ESI were to be treated as income. By the same Act, Section 36 (1) (va) was introduced. Resultantly, the contribution of the employees collected by the employer was treated as his income. At the same tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting as a business expenditure by making provision in his books of account in that regard. In other words, if an assessee(s) employer ( s) is maintaining his books on the accrual system of accounting, even after collecting the contribution from his employee(s) and even without remitting the amount to the Regional Provident Fund Commissioner (RPFC), the assessee(s) would be entitled to deduction as business expense by merely making a provision to that effect in his books of account. The same situation arose prior to April 1, 1984, in the context of assessees collecting sales tax and other indirect taxes from their respective customers and claiming deduction only by making provision in their books without actually remitting the amount to the exchequer. To curb this practice, section 43B was inserted with effect from April 1, 1984, by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and, under section 43B, it became mandatory for the assessee(s) to account for the aforestated items not on mercantile basis but on cash basis. This situation continued between April 1, 1984 and April 1, 1988, when Parliament amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate with effect from April 1, 1988 (when the first proviso came to be inserted). 17. We may also make reference to the decision of a Division Bench of the Delhi High Court in Commissioner of Income-Tax versus Aimil Ltd., (2010) 321 ITR 508. The question before the Delhi High Court was specifically in relation to the employees contribution as is the case before us. The Delhi High Court culled out the argument of the revenue in the following terms: What is sought to be argued is that distinction is to be made while treating the case related to the employers' contribution on the one hand and the employees' contribution on the other hand. It was submitted that when the employees' contribution is recovered from their salaries/wages, that is trust money in the hands of the assessee. For this reason, rigours of law are provided by treating it as income when the assessee receives the employees' contribution and enabling the assessee to claim deduction only on actual payment by due date specified under the provisions. 18. After referring to the judgment of the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other such welfare schemes must be made before furnishing the return of income under subsection (1) of Section 139 of the Act. When we read Section 36 (1) (va) and Section 43B together, it is obvious that earlier Section 43B made reference to the due date as prescribed under Section 36 (1) (va). There was a conflict between the first and the second proviso and the second proviso was deleted. The Apex Court held that this amendment being curative in nature was retrospective. According to us, the benefit of this amendment must be extended to the employees' contribution also. 22. We are dealing with cases where though the amount was not deposited by the due date under the Welfare Acts, it was definitely deposited before furnishing the returns. We see no reason to make any distinction between the employees' contribution or the employers' contribution. Once the contribution is there, whether by the employee or by the employer, it is a contribution to a welfare fund held in trust by the employer, who is bound to deposit the same. When the employer does not deposit the same within the time prescribed under the Welfare Acts, such as the Provident Fund Act, ESI Act etc., he may face ..... X X X X Extracts X X X X X X X X Extracts X X X X
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