9911796707
TMI Blog2020 (6) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) in deleting disallowance of expenditure. The Revenue fails on this issue. Deduction u/s. 36(1)(viii) disallowed - AO observed that the assessee has claimed deduction to the tune of 20% of total business income instead of profits derived from providing long term finance for construction or purchase of houses in India for residential purposes - HELD THAT:- Some of the incomes such as notice period salary, other income, interest on car/personal loan, interest on conveyance loans, PEMI on personal loans, penal interest on personal loans have no direct and immediate nexus with profits derived from loans granted for construction or purchase of house in India for residential purposes, while for other components of income, we are remitting the matter back to AO to decide the above in light of Hon ble Supreme Court decisions in the case of Pandian Chemicals [ 2003 (4) TMI 3 - SUPREME COURT] , Sterling Foods [ 1999 (4) TMI 1 - SUPREME COURT] , Cambay Electricity [ 1978 (4) TMI 1 - SUPREME COURT] and Bacha F Guzdar [ 1954 (10) TMI 2 - SUPREME COURT] and if it is found that there is direct and immediate nexus of the said income with grant of loans for construction or purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memo of appeal filed with Income-Tax Appellate Tribunal, Chennai (hereinafter called the Tribunal ) read as under:- 1. The order of the ld CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The ld CIT(A) erred in deleting the disallowance effected u/s. 14A r.w.r 8D made by the AO to the tune of ₹ 4,02,500/-, holding that the disallowance cannot be made in the absence of exempt income earned during a year. 2.2 The ld CIT(A) erred in deleting the disallowance made u/s. 14A r.w.r 8D, without appreciating the fact that the assessee had investments to the tune of ₹ 8.05 crores, capable of earning exempt income, thereby attracting the provisions of Sec. 14A read with rule 8D. 2.3 The CIT(A) ought to have appreciated that the Hon ble Bombay High Court in the case of Godrej Boyce has held that the provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid and that the provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann 709, the employees contribution received by the employer would be income in his hands and that would be allowed as permissible deduction under clause (va) of Sec.36(1) in computing the business income u/s 28, provided the assessee credits the same to the relevant fund as per the due dates specified. 4.3 The ld CIT(A) ought to have noted that as per the decision of the Hon ble Gujarath High Court in the case of CIT II Vs Gujarath State Road Transport Corporation, as per the definition of income as per Sec.2(24)(x), any sum received by the assessee from his employees as contribution to any PF or Superannuation Fund etc., as per the Relevant Acts, is to be treated as income and the employer-assessee is eligible to claim deduction of such amount as per Explanation to Sec.36(1)(v) only when the same is credited into the relevant fund within the due dates specified under those Acts. 4.4 The ld CIT(A) failed to note that in the case of M/s Gujarath State Road Transport Corporation, the Hon ble Gujarath High Court has clearly discussed that the Hon ble Apex Court in the case of Alom Extrusions Limited, never had the occasion to consider the deduction u/s 36(1)(va) with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .A. No. No.1717/Mds/2013 dated 31.07.2014 for ay: 2009-10. 5.2 Before the Bench during the course of hearing, Ld. D.R, at the outset, placed reliance on the assessment order passed by AO and drew our attention to the provisions of Section 14A of the 1961 Act, and submitted before the Bench that disallowance of expenditure incurred in relation to earning of exempt income as was made by AO while framing assessment, ought to have been upheld by learned CIT(A) as the assessee has made investment to the tune of ₹ 8.05 crores in securities, which are capable of earning an exempt income albeit admittedly no exempt income was received by the assessee during the year under consideration. It is admitted by learned DR that no exempt income was received by the assessee during the year under consideration. The Ld. A.R on the other hand submitted that there was no exempt income earned by assessee during the year under consideration and hence, there is no question of disallowance of any expenditure being incurred in relation to earning of an exempt income by invoking provisions of Section 14A of the 1961 Act. 5.3 We have heard both the parties through video conferencing and perused th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has held that no disallowance of expenditure u/s 14A of the 1961 Act is warranted when there is no exempt income received by tax-payer. We have also observed that Hon ble Delhi High Court in the case of M/s.Cheminvest Ltd., v. C.I.T reported in (2015) 378 ITR 33 (Delhi), had held that no disallowance of expenditure is warranted by invoking provisions of section 14A of the Act when no exempt income is received by the taxpayer during the year under consideration. Thus, on this short reasoning alone that no disallowance of expenditure incurred can be made by invoking provisions of Section 14A of the 1961 Act whence the tax-payer has not received any exempt income during the year under consideration, we dismiss the grounds raised by Revenue w.r.t. disallowances made u/s 14A of the 1961 Act and uphold decision of learned CIT(A) in deleting disallowance of expenditure. The Revenue fails on this issue. We order accordingly. 6. The second issue, which is agitated by Revenue before the tribunal vide Ground No. 3.1 to 3.3 raised in memo of appeal filed with tribunal, is with respect to disallowance of ₹ 8,78,08,404/- under Section 36(1)(viii) of the 1961 Act made by the A.O agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es outstanding as on 31.03.2013 were to the tune of 3,320.55 crores, while short term loans and advances outstanding were to the tune of ₹ 229.49 crores, totaling to ₹ 3550.04 crores from which the assessee is receiving interest income. The A.O. further observed that out of the aforesaid amount of ₹ 3550.04 crores, only an amount of ₹ 2833.25 crores were given as housing loans to individuals in India for purchase or construction of houses for residential purposes in India, which is an eligible transaction to claim deduction u/s. 36(1)(viii) of the 1961 Act. The A.O. observed from the submissions made by the assessee before the AO, as to details of various classes of home loans sanctioned by assessee that the assessee has sanctioned following loans:- i) Individual Home Loans: Loan provided for the purpose of construction and/or purchase of residential properties. ii) Plot loans: Loans given for the purpose of purchase of a residential plot promoted by Housing board development authorities, Registered cooperative Societies and approved layouts constructing dwelling unit thereon. iii) Repairs and renovation: This is one type of long tenure housin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual report has certified the exposure to the real estate sector with the breakup for residential and commercial mortgages. 6.5 The A.O. restricted and allowed deductions u/s. 36(1)(viii) of the Act to housing loans, thereby the A.O. allowed deduction to the tune of ₹ 14,34,06,350/- to the assessee u/s 36(1)(viii) of the 1961 Act, as against deduction of ₹ 23,12,14,754/- claimed by the assessee u/s 36(1)(viii) of the 1961 Act, which led to the disallowance of ₹ 8,78,08,404/- of the deduction claimed by assessee u/s 36(1)(viii) of the 1961 Act, vide assessment order dated 29.03.2016 passed by AO u/s 143(3) of the 1961 Act. 7. The assessee being aggrieved by an assessment framed by AO u/s 143(3) of the 1961 Act filed first appeal with learned CIT(A) and submitted before learned CIT(A) that the assessee is in business of providing finance for housing and holds certificate of registration granted by National Housing Bank(NHB). The assessee also submitted before learned CIT(A) that as per para-2(m) of the Housing Finance Companies NHB directions, the Housing Finance Company is defined as follows: housing finance company means a company incorporated under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowings or current liabilities. Similarly all the loans and advances due within one year need to be disclosed under short term loans and advances. Copy of the relevant portion of the advisory issued under the Companies Act is enclosed. (f) Further the learned assessing officer has notionally worked out the claim under Section 36(1)(viii) without calling for the income earned under the respective heads The assessee submitted before learned CIT(A), details of income earned under each of the activity :- S.No. Purpose of Loan Operating Income In Rs. Other Operating income In Rs. Total Revenue from Operations In Rs. A Construction 189,33,11,359 1,04,61,169 190,37,72,528 B Purchase 116,94,03,752 93,10,203 117,87,13,955 C Prosperity loan against mortgage of housing properties 49,67,31,193 36,97,789 50,04,28,982 D Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has excluded other operating income of ₹ 2,64,22,322/- from the profits of business amounting ₹ 92,71,93,360/-. After all these adjustments, AO has allowed deduction u/s.36(1)(viii) to the tune of ₹ 14,34,06,350/- and disallowed an amount of ₹ 8,78,08,404/-. So far, the facts narrated herein above indicate that disallowance is agreed even by the Ld.AR. However, Ld.AR is disputing the quantum of disallowance. As per the Ld.AR disallowance should be confined to only ₹ 4,29,53,958/- but not ₹ 8,78,08,404/-. I have considered facts relating to the loans advanced for housing by the appellant. I have also perused financials filed during the appellate proceedings. On perusal, I have found that AO has confined to housing loan to individuals under the head long term loans and advances amounting to ₹ 2833,25,22,221/- whereas Ld.AR has taken loans and advances for housing to the tune of ₹ 3300,34,07,722/-. The difference of opinion arose with regard to short term loans and advance amounting to ₹ 229,49,37,716/- as to whether said loans are part of housing loans or not. Ld.AR says that these are long term loans advanced for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 30.08.2017 passed by learned CIT(A) has filed an appeal with tribunal and has raised Ground Nos.3.1 to 3.3 in memo of appeal filed with the tribunal. The assessee has not filed an appeal with tribunal and so far as assessee is concerned, the appellate order passed by learned CIT(A) has attained finality. Nothing contrary to that effect is brought to our notice by rival parties during the course of hearing before the Bench. 8.2 The Ld. D.R. at the outset submitted before the Bench through video conferring that deduction u/s 36(1)(viii) of the 1961 Act can only by allowed from profits derived from eligible business of providing long term finance for construction or purchase of houses in India for residential purposes. It was also submitted by learned DR that the assessee has classified loans under the head short term loans and advances , which cannot be considered for claiming deduction u/s 36(1)(viii) of the 1961 Act. It was also submitted by learned DR before the Bench that mortgage loans are not eligible for claiming deduction u/s 36(1)(viii) of the 1961 Act and only housing loans are to be considered for computing deduction u/s 36(1)(viii) of the 1961 Act. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Company mainly engaged in eligible business of providing long term finance for construction or purchase of houses in India for residential purposes and the assessee is admittedly entitled for deduction under Section 36(1)(viii) of the Act. The dispute between rival parties is with respect to quantum of deduction which the assessee is entitled for within the provisions of Section 36(1)(viii) of the 1961 Act, which dispute has mainly arisen with respect to some of the loans which were classified by assessee as Short Term Loans Advances in its audited financial statements as also certain categories of loans which assessee has granted which revenue is alleging that these loan products granted by assessee do not qualify to be housing loans granted for construction or purchase of houses in India for residential purposes. Before we proceed further, it is pertinent to mention that the assessee is claiming deduction u/s 36(1)(viii) of the 1961 Act being 20% of the profits derived by assessee from eligible business computed under the head Profits and Gains of Business or Profession and since this a deduction provision, it shall be strictly construed and onus is squarely on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance for- (A) industrial or agricultural development; (B) or development of infrastructure facility in India; or (C) development of housing in India; (ii) in respect of the specified entity referred to in sub-clause (v) of clause (a), the business of providing long-term finance for the construction or purchase of houses in India for residential purposes ; and (iii) in respect of the specified entity referred to in sub-clause (vi) of clause (a), the business of providing long-term finance for development of infrastructure facility in India ; (c) banking company means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act ; (d) co-operative bank , primary agricultural credit society and primary co-operative agricultural and rural development bank shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ; (e) housing finance company means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed under the head Profits and Gains of Business or Profession . These are deduction provision and hence it is to be strictly construed and onus in on the assessee to prove its eligibility. Any ambiguity is to be decided in favour of Revenue. The decision of Hon ble Supreme Court in the case of Dilip Kumar Co.(Supra) and Ramnath and Company(supra) are relevant to that effect to support the said propositions of law. The word used in the statute is derived from eligible business computed under the head Profits and Gains of Business or Profession and not profits attributable to the eligible business. The word derived is narrower in its interpretation and it required direct and immediate nexus of profits and the business of providing long term finance for construction or purchase of houses in India for residential purposes, than word attributable to profits from business of providing long term finance for construction or purchase of houses in India for residential purposes which is wider in its import and which could include receipts other than the actual conduct of the business. The decision(s) of Hon ble Supreme Court in the case of CIT v. Sterling Foods reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shall be included for the purposes of claiming deduction u/s 36(1)(viii) and profits derived thereof shall be included to compute deduction u/s 36(1)(viii) of the 1961 Act. Thus, the current maturities of mortgage/other loans which was allowed by learned CIT(A) shall not be included while computing deduction u/s 36(1)(viii) of the 1961 Act and to that effect the appellate order of learned CIT(A) stand reversed. From the perusal of the details submitted by assessee before learned CIT(A) which is not contradicted by Revenue, it is observed that it has revenues from following portfolios of loans are as under:- S.No. Purpose of Loan Operating Income Rs. Other Operating income Rs. Total Revenue from Operations Rs. A Construction 189,33,11,359 1,04,61,169 190,37,72,528 B Purchase 116,94,03,752 93,10,203 117,87,13,955 C Prosperity loan against mortgage of housing properties 49,67,31,193 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 36(1)(viii) of the 1961 Act can only be allowed on profits derived from loans granted for a period of not less than five years for construction or purchase of house in India for residential purposes. It is also brought to our notice by learned counsel for the assessee that in those cases, where the borrower fails to construct the plot of land for residential house within 3 years, the said loan is classified as commercial loan but it could not be brought on record by learned counsel for the assessee that the assessee had foregone deduction on all such plot loans which were later classified as commercial loans. In case the borrower constructs residential house on plot of land within three years by further borrowing for construction or by investing it own funds, then doctrine of relation back has to be applied and the assessee will be entitled for deduction u/s 36(1)(viii) of the 1961 Act but in case the borrower who had borrowed the funds from assessee to buy a plot of land either fails to construct residential house within three years or construct commercial property on such plot of land, no such deduction can be allowed to the assessee u/s 36(1)(viii) of the 1961 Act. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,41,955 Interest On Personal Loan 4,50,469 Interest On Car Loan 48,315 Interest On Conveyance Loan 11,564 Pemi On Personal Loan 11,297 Penal Interest On Personal Loan 117 Total 2,64,22,322 On consideration of the above, we observe that some of the incomes such as notice period salary, other income, interest on car/personal loan, interest on conveyance loans, PEMI on personal loans, penal interest on personal loans have no direct and immediate nexus with profits derived from loans granted for construction or purchase of house in India for residential purposes, while for other components of income, we are remitting the matter back to AO to decide the above in light of Hon ble Supreme Court decisions in the case of Pandian Chemicals(supra), Sterling Foods(supra), Cambay Electricity(supra) and Bacha F Guzdar(supra) and if it is found that there is direct and immediate nexus of the said income with grant of loans for construction or purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Alom Extrusions Ltd., in 319 ITR 306(SC) 2. CIT v. Industrial Security and Intelligence India Pvt. Ltd., (Mad) Tax Case Appeal Nos.585 and 586 of 2015 and M.P No.1 of 2015, dated 24.07.2015 3. ACIT v. M/s.Easun Products of India (P) Ltd., in I.T.A. No. No.182/Mds./2016, vide order of Chennai Tribunal dated 19.05.2016, for ay: 2012-13. 10.2 Aggrieved by an appellate order dated 30.08.2017 passed by learned CIT(A), the Revenue has now filed an appeal before the tribunal agitating against the decision of learned CIT(A) granting relief to assessee despite specific provision as is contained in Section 36(1)(va) read with Explanation 1 of the 1961 Act that deduction towards employees contribution to PF can be allowed only when the employer remits the said employee contribution to the credit of employee with relevant fund on or before the due date specified in statute governing PF, which admittedly was not complied by the assessee. Before us, the Ld. D.R. submitted that Section 36(1)(va) read with Explanation 1 of the 1961 Act clearly provides that employee contribution to Provident Fund amount should have been deposited before the due date as prescribed under the statute gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other fund for the welfare of such employees ;] Other deductions. 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 sub-clause (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.-For the purposes of this clause, due date means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise;] Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- *** (b) any sum payable by the assessee as an employer by way of contribution to any provident fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) [or clause (c)] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return: Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid during the previous year on or before the due date as defined in the Explanation below clause (va) of subsection (1) of section 36.] *** *** Thus, Section 43B of the 1961 Act as it stood vide amendment made by Finance Act, 1987 w.e.f. 01.04.1988, inter-alia, provided that notwithstanding anything contained in any other provision of the 1961 Act, a deduction which is otherwise allowable under the 1961 Act shall be allowed of 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 fund for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Alom Extrusions Limited(supra) wherein the amendments made by Finance Act, 2003 w.e.f. 01.04.2004 were held to be curative in nature and applicable retrospectively effective from 01.04.1988, which decision of Hon ble Supreme Court is reproduced hereunder: 6. The lead matter in this batch of civil appeals is CIT v. Alom Extrusions Ltd. [Civil Appeal arising out of S.L.P. (C) No. 23851 of 2007]. Prior to the amendment of section 43B of the Act, vide Finance Act, 2003, the two provisos to section 43B of the Act read as under : Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) or clause (e ) or clause (f), which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return : Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 1-4-1984, 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 1-4-1984 and 1-4-1988, when the Parliament amended section 43B and inserted first proviso to section 43B. By this first proviso, it was, inter alia, laid down, in the context of any sum payable by the assessee(s) by way of tax, duty, cess or fee, that if an assessee(s) pays such tax, duty, cess or fee even after the closing of the accounting year but before the date of filing of the Return of income under section 139(1) of the Act, the assessee(s) would be entitled to deduction under section 43B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, did not apply to the contribution made by the assessee(s) to the labour welfare funds. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first proviso, quoted above. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1-4-2004. Therefore, the argument of the assessee(s) is that the Finance Act, 2003, was curative in nature, it was not amendatory and, therefore, it applied retrospectively from 1-4-1988, whereas the argument of the Department was that Finance Act, 2003, was amendatory and it applied prospectively, particularly when the Parliament had expressly made the Finance Act, 2003, applicable only with effect from 1-4-2004. It was also argued on behalf of the Department that even between 1-4-1988 and 1-4-2004, Parliament had maintained a clear dichotomy between payment of tax, duty, cess or fee on one hand and payment of contributions to the welfare funds on the other. According to the Department, that dichotomy continued up to 1-4-2004, hence, looking to this aspect, the Parliament consciously kept that di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677(SC), the scheme of section 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax law should be disallowed under section 43B of the Act while computing the business income of the previous year? That was a case which related to assessment year 1984-85. The relevant accounting period ended on 30-6-1983. The Income-tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under section 43B which, as stated above, was inserted with effect from 1-4-1984. It is also relevant to note that the first proviso which came into force with effect from 1-4-1988 was not on the statute book when the assessments were made in the case of Allied Motors (P.) Ltd. (supra). However, the assessee contended that even though the first proviso came to be inserted with effect from 1-4-1988, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1-4-2004, and who pays the contribution after 1-4-2004, would get the benefit of deduction under section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1-4-1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1-4-2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. 10. Before concluding, we extract hereinbelow the relevant observations of this Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323, which reads as under: ...We should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (iv) of sub-section (1) deals with deductions on account of contribution towards a recognized provident fund or an approved superannuation fund made by the assessee as an employer, subject to certain limits and also subject to certain conditions as the CBDT may think fit to specify. Clause (v) of sub-section (1) of section 36 enables the assessee to seek deduction in respect of sum paid by it as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust. Then comes clause (va) which deals about employees' contribution in the provident fund and ESI and reads as under :- (va)any sum received by the assessee from any of his employees to which the provisions of sub-clause (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 - For the purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realized within fifteen days from the due date. 8. As per the first proviso, if the payment is actually made on or before the due date applicable in his case for filing the return, it would be admissible as deduction. Thus, the 'due date' is the date on which return is to be filed. The case of the Revenue is that for employees' contribution, the 2nd proviso was specifically incorporated and in the present case, as we are concerned with non-deposit of the employees' contribution towards provident fund as well as ESI contribution by the employer, only 2nd proviso be looked into. 9. What is sought to be argued is that distinction is to be made while treating the case related to employers' contribution on the one hand and employees' contribution on the other hand. It was submitted that when employees' contribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Section 43B(b), however, stipulates that such deduction would be permissible only on actual payment. This is the scheme of the Act for making an assessee entitled to get deduction from income insofar as employees' contribution is concerned. It is in this backdrop we have to determine as to at what point of time this payment is to be actually made. 12. Since the ITAT while holding that the amount would qualify for deduction even if paid after the due dates prescribed under the Provident Fund/ESI Act but before the filing of the income-tax returns by placing reliance upon the Supreme Court judgment in Vinay Cement Ltd.'s case (supra). at this juncture we take note of the discussion of ITAT on this aspect :- 11. We have carefully considered the rival submissions in the light of material placed before us. In the assessment order ld. Assessing Officer has categorically stated that what the amount due was for which month in respect of EPF, Family Pension, PF inspection charges and ESI deposits and what were the due dates for these deposits and on which date these deposits were made. The dates of deposits are mentioned between 23rd May, 2001 to 23rd April, 2002. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndra Sharma [2008] 297 ITR 320, this Court specifically dealt with this issue and relying upon the aforesaid judgment of the Guwahati High Court, as affirmed by the Supreme Court in Vinay Cement Ltd.'s case (supra), the appeal of the Revenue was dismissed. More detailed discussion is contained in another judgment of this Court in CIT v. P.M. Electronics Ltd. [2009] 177 Taxman 1. Specific questions of law which were proposed by the Revenue in that case were as under :- (a)Whether amounts paid on account of PF/ESI after 'due date' are allowable in view of section 43B, read with section 36(1)(va) of the Act? (b)Whether the deletion of the 2nd proviso to section 43B by way of amendment by the Finance Act, 2003 is retrospective in nature (p.2) 16. These questions were answered by the Division Bench in the following manner :- 7. Having heard the learned counsel for the revenue, as well as, the assessee, we are of the view that the view taken by the Tribunal deserves to be sustained as it is no longer res integra in view of the decision of the Supreme Court in the case of CIT v. Vinay Cement Ltd. 213 ITR 268 which has been followed by a Division Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 7-3-2007 wherein it observed as follows:- 'Delay condoned. In the present case we are concerned with the law as it stood prior to the amendment of section 43B. In the circumstances, the assessee was entitled to claim the benefit in section 43B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return. Special leave petition is dismissed'. 10. In view of the above, it is quite evident that the special leave petition was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertain to a period prior to the amendment brought about in section 43B of the Act. The aforesaid position as regards the state of the law for a period prior to the amendment to section 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma's case (supra). Applying the ratio of the decision of the Supreme Court in Vinay Cement Ltd.'s case (supra) a Division Bench of this Court dismissed the appeals of the revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT v. Nexus Computer (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd.'s case (supra). 14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed. (p. 3) It also becomes clear that deletion of the 2nd proviso is treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the 1st proviso. 17. We may only add that if the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement Ltd.'s case (supra). 18. We, thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Case(Appeals) stand dismissed. No Costs. Consequently, M.P. N. 1 of 2015 is also dismissed. 10.3.7 We have also observed that Co-ordinate Division Bench of Chennai Tribunal in ACIT v. SPEL Semiconductor Limited in I.T.A. No. 3263/Chny/2018 for ay:2013-14 has decided this issue in favour of the tax-payer as in that case the employee contribution of the Provident Fund was deposited by employer to the credit of employees with respective PF fund after the due date as prescribed in the applicable PF Act, but was deposited before the due date as prescribed for filing of return of income under Section 139(1) of the 1961 Act, by relying on decision of Hon ble Madras High Court in the case of CIT v. Industrial Security Intelligence India Private Limited(supra). One of us namely Hon ble Judicial member was part of the Division Bench who pronounced the order in the case of SPEL Semiconductor Limited(supra). 10.3.8 We have observed that most of the Hon ble High Courts in India have taken a view on this issue of belated deposit of employee contribution towards PF/ESI and other employees welfare funds beyond the date prescribed under statute governing PF/ESI and other employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also decision in the case of Popular Vehicles and Services Private Limited v. CIT reported in (2018) 96 taxmann.com 13(Ker.), wherein this issue is decided by Hon ble Kerala High Court in favour of Revenue and with this background, Hon ble Madras High Court remanded the matter back to the file of learned CIT(A) for fresh adjudication of the issue, after considering entire law in statute and decisions of Courts post the decision of Hon ble Delhi High Court in the case of Aimil Limited(supra). We have observed that Hon ble Supreme Court in the case of Alom Extrusion(cited supra) while adjudicating on applicability of amended provision of Section 43B of the 1961 Act by virtue of deletion of second proviso and amendment of first proviso by Finance Act, 2003 which was applicable wef 01.04.2004, held the said amendments to be curative in nature and to apply retrospective wef 01.04.1988. The Hon ble Supreme Court also referred to larger bench decision in the case of Allied Motors Private Limited (1997) 224 ITR 677(SC) to hold amendment made by Finance Act, 2003 to be retrospective. While holding the same to be retrospective, the Hon ble Supreme Court referred to its decision in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payments but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. It further held that the statutes governing PF/ESI permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the 1961 Act is concerned, the assessee can get the benefit if the actual payment made is before the return of income is filed, as per the principle laid down by the Supreme Court in Vinay Cement Ltd. s case(supra). However, Hon ble Delhi High Court has now decided this issue in favour of Revenue in the case of CIT v. Bharat Hotels Limited reported in (2019) 410 ITR 417(Del.), while impliedly reversing the stand taken in its earlier decision in the case of Aimil Limited(supra). However, the decision in the case of Aimil Limited(supra) was not brought to the notice of Hon ble Judges of Delhi High Court while adjudicating in the case of Bharat Hotels(supra). The Hon ble Punjab and Haryana High Court has decided this issue in favour of the tax-payer in the case of CIT v. Rai Agro Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h respect of employees contribution to PF/ESI and it was only in context of employers contribution to PF/ESI, wherein amendments brought in by Finance Act, 2003 were held to be retrospective by Hon ble Supreme Court in the case of Alom Extrusion(supra). The decision of Hon ble Kerala High Court in the case of Popular Vehicles (supra) is reproduced as hereunder: 7. We will first notice the provisions. S.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 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 of the matters dealt with therein, in computing the income referred to in the section 28- ** ** ** (v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust; (va) any sum received by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contribution as covered by Section 36(1)(va). We would first deal with Alom Extrusions Ltd.'s case (supra)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.'s case (supra)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 deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date. 10. Here we have to notice that sub-clause (b) of Section 43B speaks of sum payable by the employer which is the 'employer's contribution', payable by the employer without deduction from the salary of the employee. Employees contribution though remitted to the fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 the Explanation to sub-clause (va) of Section 36(1) took care of the employee's contributions; which was introduced by the Finance Act, 1987 with effect from 01.04.1988, from which date the statute recognised the distinction between employee's and employer's contribution. In this context we have to necessarily dwell upon the various amendments over the years and look at the sequence in which they were brought in. Only on introduction of Section 43B with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n enabling provision permitting deduction even when there was no deduction permissible by the other provisions of the Act. The nonobstante 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 subclause (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.'s case (supra), we notice, dealt with the specific question of disallowance of employee's contribution when the same was not paid within the time provided under the statute under which the welfare fund was created and held so in paragraph 19: '19. Therefore, income of the assessee includes any sum received by the assessee from his employee as contribution to any Provident Fund or superannuation fund or funds set up under the provisions of the Employees' State Insurance Act, 1948 (34 of 1948) or any other fund for the welfare of such emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.'s case (supra)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. We do not find ourselves persuaded to take a different view with respect to employee's contribution and we respectfully follow the decision of the Division Bench of this Court in Merchem Ltd.'s case (supra). We, hence, answer the substantial question of law raised with respect to reconsideration of Merchem Ltd.'s case (supra)in the negative, against the assessee and in favour of the Revenue. 17. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 legislation but has received an income; albeit an illegal enrichment. Sub-section (v) is with respect to and confined to a gratuity fund and does not have any relevance here. We, hence, answer the other questions of law framed, also against the assessee and in favour of the Revenue. We dismiss the appeal, leaving the parties to suffer their respective costs. 10.3.10 Thus, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct can be taken. Provisions of Section 36(1)(va) allows deduction towards employees contribution to PF/ESI and other welfare funds of employees which is required to be deposited by employer to the credit of employee with relevant fund on or before the due date as is prescribed under the relevant statute applicable for PF/ESI and other welfare funds of employees, otherwise deduction u/s 36(1)(va) of the 1961 Act is not allowable and employee contribution towards PF/ESI and other employees welfare funds received by employer shall be deemed to be income of the assessee u/s 2(24)(x) of the 1961 Act. Thus, firstly to get deduction u/s 36(1)(va) of the 1961 Act of the employee contribution received by employers towards PF/ESI which constitute income in the hands of employer by virtue of Section 2(24)(x) of the 1961 Act, the employers is required to deposit the employees contribution to the credit of employees with relevant funds on or before the due date prescribed under the statute governing PF/ESI and other employees welfare funds. But once at threshold stage of Section 36(1)(va) read with Explanation 1 and Section 2(24)(x) of the 1961 Act, infringement took place viz. the employer fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence the provision is to be strictly construed and the onus is on the assessee to prove that it fulfills all the conditions as stipulated under Section 36(1)(va) read with Explanation before claiming deduction from its income. The decision of Constitution Bench of Hon ble Supreme Court in the case of Commissioner of Customs (Imports) v. Dilip Kumar Co. reported in (2018) 9 SCC 1 is relevant. The recent decision of Hon ble Supreme Court in the case of Ramnath Co. v. CIT reported in (2020) 116 taxmann.com 885(SC) is relevant (refer para 17 to 20), which is reproduced hereunder: Dilip Kumar Co. 17. The core question referred for authoritative pronouncement to the Constitution Bench in the case of Dilip Kumar Co. ( supra ) was as to what interpretative rule should be applied while interpreting a tax exemption provision/notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax? The reference to the Constitution Bench was necessitated essentially for the reason that in a few decisions, one of them by a 3-Judge Bench of this Court in the case of Sun Export Corpn. v. Collector of Customs : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject, but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. (emphasis supplied) ** ** ** 58. In the above passage, no doubt this Court observed that: (Parle Exports case, SCC p. 357, para 17) 17. when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment. This observation may appear to support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case (emphasis in bold supplied) 17.2 . The Constitution Bench decision in Hari Chand Shri Gopal ( supra ) was also taken note of, inter alia, in the following:- 50. We will now consider another Constitution Bench decision in CCE v. Hari Chand Shri Gopal (hereinafter referred as Hari Chand case , for brevity). We need not refer to the facts of the case which gave rise to the questions for consideration before the Constitutional Bench. K.S. Radhakrishnan, J., who wrote the unanimous opinion for the Constitution Bench, framed the question viz. whether manufacturer of a specified final product falling under the Schedule to the Central Excise Tariff Act, 1985 is eligible to get the benefit of exemption of remission of excise duty on specified intermediate goods as per the Central Government Notification dated 11-8-1994, if captively consumed for the manufacture of final product on the ground that the records kept by it at the recipient end would indicate its intended use and substantial compliance with procedure set out in Chapter 10 of the Central Excise Rules, 1994, for consideration? The Constitution Bench answering the said question concluded that a manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ratio in Sun Export case is not correct and all the decisions which took similar view as in Sun Export case stand overruled. (emphasis in bold supplied) 17.4 . Obviously, the generalised, rather sweeping, proposition stated in the case of Sun Export Corporation ( supra ) as also in other cases that in the matters of taxation, when two views are possible, the one favourable to assessee has to be preferred, stands specifically disapproved by the Constitution Bench in Dilip Kumar Co. ( supra ). It has been laid down by the Constitution Bench in no uncertain terms that exemption notification has to be interpreted strictly; the burden of proving its applicability is on the assessee; and in case of any ambiguity, the benefit thereof cannot be claimed by the subject/assessee, rather it would be interpreted in favour of the revenue. 18. It has been repeatedly emphasised on behalf of the appellant that Section 80-O of the Act is essentially an incentive provision and, therefore, needs to be interpreted and applied liberally. In this regard, we may observe that deductions, exemptions, rebates et cetera are the different species of incentives extended by the Act of 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liberally in regard to other requirements, which may be formal or directory in nature. 10.3.11 Thus, keeping in view strict and literal interpretation of provisions of Section 36(1)(va) of the 1961 Act read with Explanation 1 and Section 2(24)(x) of the 1961 Act, the assessee will not be entitled for deduction as the employee contribution towards PF received by assessee was deposited late beyond the time stipulated under the relevant statute governing PF. But, it is equally true that the Constitutional Courts viz. Hon be High Courts and Hon ble Supreme Court in India have powers to read down the provisions of the 1961 Act to make it workable and to avoid absurdity. On perusal of the decision of Hon ble Supreme Court in the case of Alom Extrusion(supra), it is observed that Hon ble Supreme Court has elaborately discussed provisions of Section 36(1)(va),2(24)(x) and amendments made by Finance Act, 2003 to Section 43B of the 1961 Act, which amendments to Section 43B of the 1961 Act were held to be retrospective in nature. The Hon ble Supreme Court also referred in its decision in Alom Extrusion (supra) to its earlier decision in CIT v. J.H. Gotla [1985] 156 ITR 323(SC), para 10 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same time if the employer does not deposit the contribution towards PF/ESI etc within due date as prescribed under relevant statute governing PF/ESI etc, the employers are visited with Interest for delayed deposit of PF/ESI as well Penalties for late deposit beyond the time stipulated under the relevant statute governing PF/ESI and other employees welfare funds. Reference is drawn to Section 7Q and 14 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952. Similarly, Hon ble Madras High Court in the case of Industrial Security and Intelligence India Private Limited (supra) after considering and interpreting the decision of Hon ble Supreme Court in the case of Alom Extrusion (supra) and Hon ble Delhi High Court in the case of Aimil Limited(supra) held that deduction is to be allowed for belated payment of employee contribution to PF/ESI which is deposited beyond the due date stipulated under the relevant statutes governing PF/ESI, but the same stood deposited before the due date for filing of return of income as is prescribed u/s 139(1) of the 1961 Act. We at tribunal being inferior judicial body to Hon ble Madras High Court, are bound by decision of Hon ble j ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
