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TMI Blog2020 (6) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate 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 Rs. 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 Rs. 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 the Constitution. 2.4 The CIT(A) erred in placing relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respect to employees' contribution and the only controversy before the Supreme Court was with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 the material available on record. It is an admitted position now between rival parties that the assessee has not earned/recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 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 Rs. 8,78,08,404/- under Section 36(1)(viii) of the 1961 Act made by the A.O against which the assessee filed first appeal with learned CIT(A) who was pleased to grant partial relief to the assessee. The A.O. during the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores, totaling to Rs. 3550.04 crores from which the assessee is receiving interest income. The A.O. further observed that out of the aforesaid amount of Rs. 3550.04 crores, only an amount of Rs. 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 housing loan provided to needy people for the purpose of extension or reconstructing existing dwelling unit undertake major repairs. iv) Home Equity Loans: These are loan agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act to housing loans, thereby the A.O. allowed deduction to the tune of Rs. 14,34,06,350/- to the assessee u/s 36(1)(viii) of the 1961 Act, as against deduction of Rs. 23,12,14,754/- claimed by the assessee u/s 36(1)(viii) of the 1961 Act, which led to the disallowance of Rs. 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 the Companies Act, 1956 (1 of 1956) which primarily transacts or has as one of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly; The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (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 Commercial Loan 25,23,18,670 9,64,431 25,32,83,101 E Plot Loan 19,35,14,433 19,09,930 19,54,24,363 F Repairs Loan 2,54,18,073 78,800 2,54,96,876 Total A + B + C + D + E + F 403,06,97,480 264,22,322 405,71,19,802 The assessee submitted that out of the above bifurcation of loans granted by assessee, income derived from loans granted A - construction, B- purchase, E-Plot loan and F -Repairs loan, should be considered for allowing deduction u/s. 36(1)(viii) of the Act, which comes to Rs. 18.82 crores. Thus, the assessee itself submitted before the learned CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3300,34,07,722/-. The difference of opinion arose with regard to short term loans and advance amounting to Rs. 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 the purpose of housing but classified as short term loan as per the requirements of Schedule VI of Companies Act. It seems this argument has not been accepted by the AO. On perusal of financials and submissions made by the Ld.AR, I find there is a merit in the arguments of the Ld.AR. The schedule under short term loans and advances gives a details which are as under: Short Term Loans & Advances (Secured & considered Good excepting Provision made for non performing Advances) - 31.03.2013 In Rs. 31.03.2012 In Rs. Current Maturities of Housing Loan 183,29,26,110 144,61,67,768 Current Maturities of Mortgage / Other Loans 45,64,94,560 32,71,36,605 Other Loans & Advances (Unsecured, considered good unless otherwise stated) Advances recoverable in cash or in Kind 15,09,250 2,33,18,972 Loan to Employees 36,02,637 19,90,772 Travel Advance 4,05,159 2,41,495 To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial house on said plots during the stipulated period and conditions stipulated u/s 36(1)(viii) are not fulfilled. It was submitted that onus is on the assessee to segregate and exclude such plots loans which were later converted into commercial loans owing to the fact that the owners of the plot did not constructed residential houses on the said plots within prescribed stipulated period. Thus, it was prayed by learned DR that plot loans are to be excluded while allowing deduction u/s 36(1)(viii) of the 1961 Act. It was also submitted that mortgage loans be also excluded while computing deduction u/s 36(1)(viii) of the 1961 Act as these loans were not granted for construction or purchase of residential house property. It was submitted that all the loans given for commercial purposes be excluded while allowing deduction u/s 36(1)(viii) of the 1961 Act. It was prayed by learned DR that onus is on the assessee to prove that it is eligible for deduction u/s 36(1)(viii) of the 1961 Act and prayers were made to set aside and restore this matter back to the file of the AO for re-adjudication of the issue. 8.3 The Ld. Counsel for the assessee submitted before the Bench that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is to be held in favour of Revenue. Reference is drawn to 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 and decision of Hon'ble Supreme Court in the case of Ramnath & Co. v. CIT reported in (2020) 116 taxmann.com 885(SC)(refer para 17 to 20). It is profitable at this stage to refer to statutory Provision as are enshrined in Section 36(1)(viii) of the Act as it stood for relevant ay viz. ay: 2013-14, is reproduced hereunder:- " 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- (i) to (vii) *** (viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head "Profits and gains of business or profession" (before making any deduction under this clause) carried to such reserve account : Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) or clause (vi) of sub-section (4) of section 80-IA ; and (iii) an undertaking referred to in sub-section (10) of section 80-IB; (h) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years;" Thus, as can be seen from the statutory provisions, undisputedly the assessee is an housing finance company which holds registration certificate from NHB. The assessee is engaged in providing housing loans to individual. It has several portfolios/house loan products which has been modulated by assessee to and offered to borrowers to suit their requirements. However, the deduction u/s 36(1)(viii) of the 1961 Act will only be available to the assessee to the tune of 20% of the profits derived from the business of providing long term finance ( repayable for a period of not less than five years) for the construction or purchase of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to Profits 'derived' and hence direct and immediate nexus of Profits and the business of providing long term finance for construction or purchase of house in India for residential purposes is to be seen. On this threshold, the decision of learned CIT(A) in allowing deduction with respect to mortgage and other loans is not correct and hence, we reverse the decision of learned CIT(A) in allowing deduction with respect to current maturities of mortgage/other loans, as these loans were not granted for construction or purchase of houses in India for residential purposes. We also hold that classification undertaken by assessee as to 'Short Term Loans and Advances' to include current maturities is to meet the new reporting requirements as prescribed as per the Government Notification no. F.No.2/6/2008-C.L-V dated 30-3-2011, wherein Revised Schedule VI for the Balance Sheet and Profit and Loss Account to be prepared for the financial year commencing on or after April 1, 2011 which provided current maturities of long term debts falling due within next one year to be classified as 'short term loans and advances' and assessee has rightly classified current maturities of long term debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(1)(viii) of the 1961 Act with respect to profits derived from these prosperity loans against mortgage of properties as proceeds of these loans can be utilized for any purposes and it was not for the purposes of construction or purchase of house in India for residential purposes. The stand of assessee to voluntarily disallow deduction u/s 36(1)(viii) is correct and further the assessee will not be entitled for deduction u/s 36(1)(viii) of the 1961 Act on profits derived from commercial loans as these loans were not granted for construction or purchase of residential house in India. Now, coming to Plot loans, the assessee is granting these plot loans for buying plots and undertaking is taken from the borrower that he/she will construct the residential house on the said plot of land within a period of three years. The NHB guidelines permit housing finance companies to lend for purchase of plot, vide directions No. NHB(ND)/DRS/Pol-No. 41/2011-12 dated 26.09.2011, but so far as deduction u/s 36(1)(viii) is concerned, it is deduction provision and it is to be strictly construed and onus is on assessee to prove that it is entitled for claim of deduction. Permission of activity by NHB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on record details of loans granted, construction of additional floor/area in the existing residential properties, fresh sanction plans issued by local municipal authorities etc. to substantiate that the loans were granted/utilised for the purposes of construction of additional floors etc to the borrowers. The matter is remitted back to AO and the assessee is directed to produce all details before the AO. The AO shall in remand proceedings after considering the submissions of the assessee shall grant deduction u/s 36(1)(viii) in accordance with our aforesaid directions/orders. It is also observed that the assessee is claiming 'other operating income' to the tune of Rs. 2.64 crores which was included as part of profits for the purposes of computing deduction u/s 36(1)(viii) of the 1961 Act, the details as furnished by assessee before tribunal are as under:- FY 12-13 GL Name Balance Admin Fees 1,22,72,626 Other Charges 61,63,645 Prepayment charges 27,79,854 Recovery in Bad Debts 14,40,957 Cersai Charges Received 12,57,894 Notice Period Salary 11,43,629 Other Income 8,41,955 Interest On Personal Loan 4,50,469 Interest On Car Loan 48,315 Interest On Conveyance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... va) of the 1961 Act but the said amount admittedly stood deposited by assessee to the credit of employee with relevant fund before the time prescribed for filing of return of income u/s 139(1) of the 1961 Act. Aggrieved by an assessment framed by AO u/s 143(3) of the Act, the assessee filed first appeal with learned CIT(A) who was pleased to delete the addition to the income to the tune of _6,31,788/- made by AO on account of delayed remission of employee's contribution towards EPF to the credit of employee with relevant fund beyond the time prescribed under relevant PF statute but admittedly the said amount stood deposited by assessee to the credit of employee with relevant fund before the due date prescribed for filing of return of income u/s 139(1) of the 1961 Act, by relying on following judicial decision(s) as stipulated hereunder:- 1. CIT v. 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: 2012-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution amounting to _6,31,788/- to the credit of employees with respective PF fund beyond the due date prescribed under the relevant statute governing Provident Fund, but the same was admittedly deposited before the due date of filing of return of income as is prescribed u/s 139(1) of the 1961 Act. Before proceeding further, it will be profitable to reproduce the relevant provisions of the 1961 Act as were applicable for ay: 2013-14, which are reproduced hereunder: "Definitions. 2. In this Act, unless the context otherwise requires,- *** *** (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 ;] " "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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1988 and as it stood at that time is reproduced hereunder: "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- (a) **** (b) 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 the welfare of employees, [or] [(c) *** hall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. [Provided 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 furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this section shall apply in relation to any sum 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. *** ***" 10.3.4 It is pertinent at this stage to reproduce the decision of Hon'ble Supreme Court in 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on even prior to 1-4-1984, on Mercantile System of Accounting 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 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 [R.P.F.C.], 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 1st April, 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 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 1-4-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second proviso once again created further difficulties. In many of the companies, financial year ended on 31st March, which did not coincide with the accounting period of R.P.F.C. For example, in many cases, the time to make contribution to R.P.F.C. ended after due date for filing of returns. Therefore, the industry once again made representation to the Ministry of Finance and, taking cognizance of this difficulty, the Parliament inserted one more amendment vide Finance Act, 2003, which, as stated above, came into force with effect from 1-4-2004. In other words, after 1-4-2004, two changes were made, namely, deletion of the second proviso and further amendment in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1-4-2004, would become curative in nature, hence, it would apply retrospectively with effect from 1-4-1988. Secondly, it may be noted that, in the 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 releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the returns under the Income-tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to 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. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Assessing Officers. Under these circumstances, all these appeals were admitted and heard on the following question of law :- "Whether the ITAT was correct in law in deleting the addition relating to employees' contribution towards Provident Fund and ESI made by the Assessing Officer under section 36(1)(va) of the Income-tax Act, 1961?" 5. Section 36 of the Act deals with certain deductions which shall be allowed in respect of matters dealt with therein, in computing the income referred to in section 28 of the Act. Different types of deductions are provided therein in various clauses of section 36. Clause (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 clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnishing the return of income under subsection (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." [Emphasis supplied] 7. During the period in question with which we are concerned, section 43B contained second proviso also, which stands omitted by the Finance Act, 2003 with effect from 1-4-2004. Since, this provision existed at the relevant time, it also needs to be reproduced :- "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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above that as soon as employees' contribution towards provident fund or ESI is received by the assessee by way of deduction or otherwise from the salary/wages of the employees, it will be treated as 'income' at the hands of the assessee. It clearly follows therefrom that if the assessee does not deposit this contribution with provident fund/ESI authorities, it will be taxed as income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of section 36(1)(va) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear from the above that in Vinay Cement Ltd.'s case (supra), the SLP preferred by the Revenue against the judgment of the Guwahati High Court was dismissed making the aforequoted observations. The reasons are given and, thus, it amounts to affirmation of the view taken by the High Court of Guwahati. 14. When we keep that proposition in mind and also take into consideration various judgments where Vinay Cement Ltd.'s case (supra) is applied and followed, it will not be possible to accept the contention of the Revenue. 15. In CIT v. Dharmendra 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2002] 257 ITR 338 (SC). The said submissions found favour with the Division Bench of the Guwahati High Court and relying on earlier decisions of its own Court in CIT v. Assam Tribune [2002] 253 ITR 93 and CIT v. Bharat Bamboo & Timber Suppliers [1996] 219 ITR 212 the Division Bench dismissed the appeal of the revenue. It transpires that the aforesaid matter was taken up in appeal along with other matters including Vinay Cement Ltd.'s case (supra). The order in Vinay Cement Ltd.'s case (supra) was passed by the Supreme Court 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 amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Ltd.'s case (supra) would bind the High Court as it was not declared by the Supreme Court under article 141 of the Constitution. 12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P.) Ltd.'s case (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement Ltd.'s case (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma's case (supra). 13. In these circumstances, we respectfully disagree 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the provisions of Section 43B as amended by Finance Act, 2003. 6. In the present case, the assessee had remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income. Hence, following the above-said decision, we find no reason to differ with the findings of the Tribunal. Accordingly, we find no question of law much less any substantial question of law arises for consideration in these appeals. Accordingly, both the Tax 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 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal as the tax-payer was in liquidation. The Hon'ble Madras High Court observed in the case of Orchid Pharma(supra) that tribunal has decided the issue in favour of tax-payer by relying on decision of Hon'ble Madras High Court in the case of Industrial Security and Intelligence Private Limited(supra). The Revenue brought to the notice of the Hon'ble Madras High Court, decision(s) of Hon'ble Kerala High Court in the case of CIT v. Merchem Limited reported in (2015) 378 ITR 443(Ker.) and 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly answered in favour of the assessee and against the revenue." 10.3.9 The Hon'ble Bombay High Court has consistently held this issue in favour of the tax-payer in its other decisions also such as Geekay Security Services Private Limited v. DCIT reported in (2019) 101 taxmann.com 192(Bom.), CIT v. Hindustan Organics Chemicals Limited (2014) 366 ITR 1(Bom.). The Hon'ble Delhi High Court in AIMIL Limited (supra) held that if 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed under the statute governing PF/ESI keeping in view provisions of Section 36(1)(va) read with Explanation 1 and provisions of Section 2(24)(x) of the 1961 Act, thus applying strict interpretation and holding that otherwise Section 36(1)(va) read with Explanation 1 will become otiose which was not the intention of legislature. It further went on to hold that the issue before Hon'ble Supreme Court while adjudicating appeal in the case of Alom Extrusion(supra) was never with 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.'s case (supra). Alom Extrusions Ltd.'s case (supra)and Merchem Ltd.'s case (supra)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.'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Explanation to sub-clause (va) of Section 36(1) too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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.'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 legislation bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income u/s 139(1) of the 1961 Act. So, what is important for entering into provisions of Section 43B of the 1961 Act is that the deduction ought to be firstly allowable under the provision of the 1961 Act before recourse to Section 43B of the 1961 Act 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tipulated as due date under PF Act, there is no question of entering into provisions of Section 43B of the 1961 Act which deals with allowing deduction on payment basis provided the deduction is otherwise allowable under the provisions of the 1961 Act. Section 36(1)(va) of the 1961 Act is a provision which entitles taxpayer to claim deduction from the income 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons for limited period or with the specific objective, etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either 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) ** & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemption clause, has to be strictly construed. When once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the notification by giving full play bestowing wider and liberal construction. The ratio of Parle Exports case deduced as follows: (Wood Papers Ltd. case, SCC p. 262, para 6) "6.... Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed, construe it liberally." 60. We do not find any strong and compelling reasons to differ, taking a contra view, from this. We respectfully record our concurrence to this view which has been subsequently, elaborated by the Constitution Bench in Hari Chand 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ** **" (emphasis in bold supplied) 17.3. In view of above and with reference to several other decisions, in Dilip Kumar & Co., the Constitution Bench summed up the principles as follows:- "66. To sum up, we answer the reference holding as under: 66.1. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. 66.2. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue. 66.3. 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 sw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is subject to strict interpretation with the result that the benefit of such ambiguity cannot be claimed by the assessee, rather it would be interpreted in favour of the revenue. In view of the Constitution Bench decision in Dilip Kumar & Co. (supra), the generalised observations in Baby Marine Exports (supra) with reference to a few other decisions, that a tax incentive provision must receive liberal interpretation, cannot be considered to be a sound statement of law; rather the applicable principles would be those enunciated in Wood Papers Ltd. (supra), which have been precisely approved by the Constitution Bench. Thus, at and until the stage of finding out eligibility to claim deduction, the ambit and scope of the provision for the purpose of its applicability cannot be expanded or widened and remains subject to strict interpretation but, once eligibility is decided in favour of the person claiming such deduction, it could be construed 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction for ever if the employee contribution is not deposited within due date as prescribed under relevant statute, although the said contribution stood deposited by employer belatedly before the due date for filing of return of income u/s 139(1) of the 1961 Act and the amount will stood brought to tax as income keeping in view provisions of Section 2(24)(x) of the 1961 Act so far employee share of contribution towards PF,ESI and other employees welfare funds is concerned. No doubt it is well cherished objective that there should not be an unjust enrichment of the employer of the amount which it collects from its employees towards employees share of PF, ESI and other employees welfare funds and in the ideal situation, the said amounts ought to have been deposited by employer which it collected from its employees, to the credit of employee with relevant funds within time stipulated as due date by respective statute governing PF/ESI etc. but at 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 Penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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