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TMI Blog2018 (8) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... “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 remit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyer's contribution alone? ( ii) Whether the separate course of action envisaged under Section 36(1)(v)/(va) of the Income Tax Act in respect of the employees' and employers' contribution will get vanished/eclipsed, by virtue of non-obstante clause contained in Section 43B of the Act? ( iii) Whether the effect of deletion of the second proviso to Section 43B in the year 2004 was considered by the Bench in Merchem Ltd.'s case (cited supra) in the context of the questions raised as above and whether the dictum in Merchem Ltd.'s case requires reconsideration? 4. The learned Counsel for the appellant took us through the provisions to argue that sub-clause (v) of Section 36(1) was applicable only with respect to an approved fund as distinguished from a statutory fund created under the EPF MP Act or the ESI Act. What is applicable is sub-clause (va) of Section 36(1), wherein there was an Explanation, enabling the deduction as available in Section 36 only if there was a payment made of the contribution before the due date . However, in considering the sustainability of the deduction claimed, one has to look at Section 43B, which has a nominal head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployee's contribution cannot be treated differently insofar as the deductions permissible under Section 36. 6. The learned Senior Counsel for Government of India (Taxes), however, would seek to sustain the orders of the Tribunal in the present case, which has relied on Merchem Ltd. . Merchem Ltd. , according to the learned Senior Counsel, has decided the issue of employee's contribution in the correct perspective while Alom Extrusions Ltd. considered the deduction permissible of the employer's contribution. The appeal has to be rejected, argues the learned Senior Counsel. 7. We will first notice the provisions. S.2(24) income includes - xxx xxx xxx ( 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 A(34 of 1948), or any other fund for the welfare of such employees . S.36. Other deductions ( 1) The deductions provided for in the following clauses shall be allowed in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee as an employer , to an employees welfare fund which is the employer's contribution. 9. We have carefully gone through the decisions of the Hon'ble Supreme Court as also of the Division Bench. The primary question to be considered is whether there should be a reconsideration of Merchem Ltd. . Alom Extrusions Ltd. and Merchem Ltd. applied in two different fields; the former with reference to Section 43B(b), being employer's contribution and the latter dealing with employee's contribution as covered by Section 36(1)(va). We would first deal with Alom Extrusions Ltd., which has dilated upon the history of the legislation and the reason for the various amendments brought in. We first notice that the question which arose for consideration in Alom Extrusions Ltd. was as to whether omission (deletion) of the second proviso to section 43B of the Income-tax Act, 1961, by the Finance Act, 2003, operated with effect from April 1, 2004, or whether it operated retrospectively with effect from April 1, 1988 (sic para 4) . The Hon'ble Supreme Court noticed that prior to Finance Act, 2003, the second proviso to Section 43B restricted the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction insofar as the tax, duties, cess or fee paid before the filing of the return under the IT Act though after the previous year; the liabilities having accrued in that previous year. This relaxation, however, was restricted to tax, duties, cess and fee and not applied to contributions to labour welfare funds. The reason also stated by the Hon'ble Supreme Court to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds ( sic - para 16). It is this declaration by the Hon'ble Supreme Court which is relied on by the learned Counsel for the appellant to contend that the Hon'ble Supreme Court was considering the question of employee's contribution also. Otherwise, there would not have been a reference to an 'employer sitting on the collected contribution' , is the compelling argument. 12. We have to understand this statement with reference to the question framed by the Hon'ble Supreme Court at the first instance in the opening paragraph of the judgment. We also have to notice that even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee's contribution is regulated by clause (x) of Section 2(24) and sub-clause (va) of Section 36(1) and would not be affected by Section 43B. Section 43B though a non-obstante clause, makes deductions to be allowable only on actual payment; when such deductions are otherwise allowable. Primarily it is to be noticed that it is a restrictive clause, the amendments to which or the deletion of a proviso in which cannot lead to it being converted as an enabling provision permitting deduction even when there was no deduction permissible by the other provisions of the Act. The non-obstante clause has no effect insofar as the employee's contribution which is specifically covered by sub-clause (va) of Section 36(1). By virtue of the Explanation below sub-clause (va), no deduction could be claimed if the contribution has not been paid, after collection from the employees by way of deduction from their salaries, within the due date under the EPF MP Act. The deletion of a proviso under Section 43B cannot render otiose the Explanation under Section 36(1)(va). 15. Merchem Ltd. , we notice, dealt with the specific question of disallowance of employee's contribution when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983 or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Therefore, according to us, since the Respondent has admittedly not paid the deduction so made within the due date as provided under Sec. 36(1)(va), the Respondent was not entitled to get deduction of the amounts deducted thereunder for and on behalf of the employees . 16. The learned Judges had elaborately considered the decision in Alom Extrusions Ltd. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided under the statute which created the welfare fund. The contributions which are deducted at the time of payment of salary is received by the employer-Company and is treated as income under Section 2(24). 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 legis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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