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TMI Blog2021 (12) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... e deemed ought to have been applied for the purpose of determining the due date under this clause? - As before insertion of Explanation 2 to Section 36(1)(va) of the Act, there is ambiguity regarding due date of payment of employees contribution on account of provident fund and ESI, whether the due date is as per the respective acts or up to the due date of filing of return of income of the assessee. As noted by Hon ble Supreme Court an amendment made to a taxing statute can be said to be intended to remove hardship only of the assessee and not of the Department. Imposing of a retrospective levy on the assessee would be caused undue hardship and for that reason Parliament specifically chose to make the proviso affective from a particular date. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 01.04.2021 i.e. for and from assessment year 2021-22 of Explanation-2 to s. 36(1)(va) of the Act and not retrospectively. Thus, from the above, it is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, which are reproduced in CIT(A) order at pages 3 to 19. The assessee before CIT(A) contended that this issue is settled in favour of assessee by the judgment of Hon ble High Court of Madras in the case of M/s. Industrial Security and Intelligence India P Ltd., in TCA No.585/2015. The assessee before CIT(A) also contended that the amendment brought in by the Finance Act, 2021 in Section 36(1)(va) of the Act especially the insertion of Explanation 2 should be construed only as prospective inasmuch as the insertion of the amended provision should be construed only w.e.f. 01.04.2021 i.e., for from the assessment year 2021-22. The CIT(A) finally held that the insertion of Explanation 2 inserted by Finance Act, 2021 to Section 36(1)(va) of the Act is clarificatory, which clarify that the definition of due date as per Section 43B of the Act is deemed to have been applied for the purpose of employees contribution. Therefore, the CIT(A) held that the payment of employees contribution made after the due 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 as per the Employees Provident Fund Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the CIT(A) and stated that the CIT(A) has passed exhaustive order explaining all provisions of the Act. 6. We have heard rival contentions and perused the relevant material on record. Admitted facts are that the payment of ESI PF contribution regarding employees contribution is made within the due date of filing of return of income. The Revenue has disputed that the employees contribution received by the assessee would be treated as income of the assessee because the same has not been deposited in the Government account within the due date as prescribed under the respective acts. We noted that this issue is covered by the decision of Hon ble High Court of Madras in the case of M/s. Industrial Security and Intelligence India P Ltd., supra, wherein it is held as under:- 5. We find that the Tribunal has rightly relied on the decision of the Supreme Court in the case of CIT V. Alom Extrusions Ltd. reported in 319 ITR 306, whereby, the Supreme Court held that omission of second proviso to Section 43B and amendment to first proviso by Finance Act, 2003 are curative in nature and are effective retrospectively, i.e., with effect from 1.4.1988 i.e., the date of insertion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gra 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 this Court in the case of CIT v. Dharmendra Sharma: 297 ITR 320. 8. Despite the aforesaid judgments, the learned counsel for the Tribunal has contended that in view of the judgment of the Division Bench of the Madras High Court in the case of CIT v. Synergy Financial Exchange Ltd: (2007)288 ITR 366 and that of the Division Bench of the Bombay High Court in the case of CIT v. M/s Pamwi Tissues Ltd: (2008) Taxindiaonline.com 104 (TIOL) the issue requires consideration. According to us, in view of the dismissal of the Special Leave Petition in the case of Vinay Cement (supra) by the Supreme Court by a speaking order, the submission of the learned counsel for the Revenue has to be rejected at the very threshold. The reason for the same is as follows:- 9. The Gauhati High Court in the case of CIT v. George Williamson (Assam) Ltd: (2006) 284 ITR 619 (Gauhati) dealt with the very same issue. In the said judgment the Division Bench of the Gauhati High Court noted a contrary view taken by the Kerala High Court in the case of CIT v. South In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of CIT v. Nexus Computer (P) Ltd by a judgment dated 18.8.08 passed in Tax Case (A) No. 1192/2008 discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed and Others v. State of Kerala and another: 119 STC 505 at page 526 in Paragraph 40 and noted the following observations:- It the order refusing leave to appeal is a speaking order, ie., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue. As a consequence, the appeals filed by the assessees stand allowed and those filed by the Revenue are dismissed. 6.2 From the above, it is clear that there are series of decisions of various High Courts on this issue and even Hon ble Jurisdictional High Court in the case of M/s. Industrial Security Intelligence India P Ltd., supra held that the payment of employees contribution in regard to PF ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Act 6.3 Now, the question arises, whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause. This amendment has brought in the statute book to provide certainty about the applicability of provisions of Section 43B of the Act inspite of belated payment of employees contribution. We also noted from the memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer 40 contribution and employee s contribution towards welfare fund. It may be noted that employee s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee s contribution towards welfare funds. Employee s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays P Ltd in ITA No. 1952/HYD/2018 and of Delhi Bench of the Income Tax Appellate Tribunal in the case of Indian Geotechnical Services in ITA No. 622/DEL/2018 to advance its plea that the above amendment is prospective. However, it apposite to refer to the latest decision of the Hon b1e ITAT Delhi in ITA NO.1312/Del/2020 :Asstt. Year : 2018-19 in the case of Vedvan Consultants Pvt. Ltd., Vs DCIT, CPC, Bengaluru vide order dated 26/08/2021 has, after considering most of the judgments cited by the appellant including that of the decion of the Hon ble High Court of Madras in the case of CIT Vs. Industrial Security and Intelligence India Ltd.(supra) considered the clarificatory amendment in the Finance Act 2021 and decided the issue in favour of Revenue. 7.19 Thus, the aforesaid Explanations inserted by Finance Act, 2021 have clarified that definition of due date as per Sec 43B is deemed never to have been applied for the purpose of employee's contribution. As discussed above, the said amendments are clarificatory in nature and are retrospective in operation. Hence, I am of the view that this provision is retrospective applies to the current AY under consideration as the law i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t neither purports to be merely clarificatory nor is there any material to suggest that it was intended by parliament. 6.6 The Hon ble Supreme Court finally held that the proviso to Section113 of the Act is prospective and not retrospective. For this Hon ble Supreme Court held as under:- Notes on Clauses appended to Finance Bill, 2002 while proposing insertion of proviso categorically states that this amendment will take effect from 1st June, 2002 . These become epigraphic words, when seen in contradistinction to other amendments specifically stating those to be clarificatory or retrospectively depicting clear intention of the legislature. It can be seen from the same notes that few other amendments in the Income Tax Act were made by the same Finance Act specifically making those amendments retrospectively. For example, clause 40 seeks to amend S.92F. Clause iii (a) of S.92F is amended so as to clarify that the activities mentioned in the said clause include the carrying out of any work in pursuance of a contract. This amendment takes effect retrospectively from 01.04.2002. Various other amendments also take place retrospectively. The Notes on Clauses show that the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (3) of Section 2 of Finance Act, 2003. This proviso reads as under: Provided further that the amount of income-tax computed in accordance with the provisions of section 113 shall be increased by a surcharge for purposes of the Union as provided in Paragraph A, B, C, D or E, as the case may be, of Part III of the First Schedule of the Finance Act of the year in which the search is initiated under section 132 or requisition is made under section 132A of the income-tax Act. Addition of this proviso in the Finance Act, 2003 further makes it clear that such a provision was necessary to provide for surcharge in the cases of block assessments and thereby making it prospective in nature. The charge in respect of the surcharge, having been created for the first time by the insertion of the proviso to Section 113, is clearly a substantive provision and hence is to be construed prospective in operation. The amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended by Parliament. Furthermore, an amendment made to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is ambiguity regarding due date of payment of employees contribution on account of provident fund and ESI, whether the due date is as per the respective acts or up to the due date of filing of return of income of the assessee. As noted by Hon ble Supreme Court an amendment made to a taxing statute can be said to be intended to remove hardship only of the assessee and not of the Department. Imposing of a retrospective levy on the assessee would be caused undue hardship and for that reason Parliament specifically chose to make the proviso affective from a particular date. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 01.04.2021 i.e. for and from assessment year 2021-22 of Explanation-2 to s. 36(1)(va) of the Act and not retrospectively. 6.9 Thus, from the above, it is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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