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TMI Blog2022 (4) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... ' Contribution towards EPF ESI and if the same is found deposited before the due date of filing of return under section 139(1) of the Income Tax Act, the same be allowed. - ITA No. 27/ALLD/2021 - - - Dated:- 16-3-2022 - SHRI. VIJAY PAL RAO, JUDICIAL MEMBER Appellant by : None Respondent by : Mr. A.K. Singh, Sr. DR ORDER Vijay Pal Rao , Judicial Member This appeal by the assessee is directed against the order dated 27.10.2021 of CIT(A)-National Faceless Appeal Centre, Delhi for the assessment year 2018-19. 2. None has appeared on behalf of the assessee. However, the written submissions have been filed by the assessee in support of the appeal. In response to the written submissions filed by the assessee, the learned DR has also filed the written submissions. Accordingly, this appeal is taken up for disposal on the basis of the written submissions filed by the parties. The assessee has raised various grounds in this appeal. However, the solitary issue arises in this appeal of the assessee is regarding disallowance of Employees' Contribution to EPF/ESI deposited belatedly however claimed to have been paid before the due date of return of income un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case M/S Axis Motors Pvt. Ltd. vs DCIT (ITA No. 289/LKW/2019 AY 2014-15) Judgment date 31 July, 2019. 5. The ld. CIT (Appeal) has misled his authority in applying the non-jurisdictional High Court's judgment of Unifac Management Services (India) (P) Ltd. (2018) 100 taxmann.com 244 (Madras High Court) and more other cases. The conclusion drawn and decision based on the non-jurisdictional High Court's judgment is entirely against judicial discipline where there are several judgment of jurisdictional High Court and of Supreme Court. 6. The id. CIT (Appeal) went on to mislead the interpretation of judgment delivered by Apex Court in the cases of CIT Vs Alom Extrusions Ltd. (S. C.) and Allied Motors Pvt. Ltd. Vs CIT (S C) causing miscarriage of justice. Where his LD discretion finds that the issue is concerned to employer's contribution and not to employee's contribution. It is submitted that such interpretation of judgment cause grave injustice to the assessee appellant. 7. The ld. CIT (Appeal) has wrongly take the support of amended provision made in S. 36 (1) (va) as well as in S. 43B vide Finance Bill 2021 which application is restricted to with ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions of the submissions of the learned DR are reproduced as under:- A disallowance of ₹ 13,13,323/- made u/s. 36(1)(va) for not depositing the employees' contribution PF/ESI before the prescribed due dates under the relevant Acts is impugned in this appeal of the assessee. According to the assessee/appellant, this expenditure should have been allowed on payment basis u/s. 43B at par with employers' contribution to PF/ESI in view of the following judicial pronouncements; Vinay Cement Ltd. 213 CTR 268 (SC) Sagun Foundry (P) Ltd. V. CIT 291 CTR (all) 557 (2017) CIT v. Aimil Ltd. ITA No. 1063/2008 (Del HC) PCIT v. Planman HR Pvt. Ltd. ITA No. 599/2017 (Del HC) M/s. Tirubala International Pvt. Ltd. V. DCIT (ITA No. 716/LKW/2016 A.Y. 2013-14) judgments date 17 May, 2018 M/s. Axis Motors Pvt. Ltd. V. DCIT (ITA NO 289/LKW/2019 A.Y. 2014-15), Judgment date 31 July, 2019. Flying Fabrication V. DCIT (2011) 133 taxman.com 79 (Jabalpur-Trib.) B.R.S Precision Manufacturing (P) Ltd. v. DCIT (2022) 135 taxman.com 248 (Bangalore-Trib.) At the outset, it is pertinent to submit that no details/evidences have been furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees is first treated as Income in the hands of the assessee-employer as per sub-clause (x) of Clause (24) of Section 2, which reads as under. 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: 1.7 The employees' contributing which is so treated as income of the Employer u/s. 2(24)(x), is allowed as a Deduction under Section 36(1)(va) of the Income Tax Act, 1961 while computing the income under the head 'Profits and Gains of the business or profession' only if it has been deposited by the Employer within the due dates prescribed under the relevant Acts or Funds Clause (va) of Sub-section 1 of Section 36, which provides for such deduction, reads as under: Other deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any sum which 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. 1.18 Thereafter, a question arose as to whether this amendment brought by Finance Act, 2003 to the first and second proviso of section 43B was prospective or retrospective? This question has been decided by the Hon'ble Apex Court in the case of CIT v. Alom Extrusions Ltd. (2009) 319 ITR 306/185 Taxman 416, wherein after considering the legislative intent and purpose, it has been held that amendment as enacted by the Finance Act 2003 led to equating tax, duty, cess, and fee with contributions to welfare funds and that though the amendments were with effect from 1 St April 2004, they retrospective in nature and would operate from 1st April, 1988. 1.19 Thus, it is very much clear that these changes in due dates for payments were brought about these amendments only in respect of the employer's contribution as covered u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as under:- 5. I have considered the rival submissions as well as relevant material on record. There is no dispute that prior to the amendment by Finance Act, 2021 in Section 36(1)(va), Section 43B, the issue of allowability of the employee's contribution deposited belatedly as per the due date of the respective Acts however, before the due of filling of return of income under Section 139(1) is covered by the decisions of Hon'ble jurisdictional High Court as well other High Courts. The Hon'ble Jurisdictional High Court in the case of Sagun Foundry Private Limited vs. Commissioner of Income Tax 291 CTR 557 decided this issue in favour of the assessee. At the outset, it is noted that this Tribunal in the case of Commercial Auto Sales Pvt. Ltd., vs. DCIT in ITA No. 13/Alld/2021, vide order dated 16.12.2021 has again considered and decided an identical issue in para 5 as under:- 5. We have considered rival contentions and perused the material on record including cited case laws. The only effective issue in this appeal is regarding delayed deposit of employee share of PF/ESI collected by employer from salaries of employees to the tune of ₹ 13,14,725/- whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2(24)(x) by A.O being employee contribution to P.F. which is deposited by assessee to the credit of employee with Relevant fund beyond the time stipulated under the relevant P.F. Act, but admittedly the said amount stood deposited before the due date prescribed for filing of return of income u/s. 139(1) of the 1961 Act, against which the assessee filed files first appeal with learned CIT(A) who was pleased to allowed deduction u/s. 36(1)(va) read with Section 2(24)(x) of the 1961 Act, which issue is raised by the Revenue in Ground Nos. 4.1 to 4.5 in memo of appeal filed with the tribunal. Admittedly, the assessee has not deposited a sum of ₹ 6,31,788/- being employee's contribution towards PF to the credit of employee with relevant fund within due date as was prescribed under the statute governing Provident Fund, as is required under Section 36(1)(va) read with Explanation 1 and Section 2(24)(x) of the 1961 Act, which led AO to disallow the said amount by invoking Explanation 1 to Section 36(1)(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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judication after considering aforesaid decision of Hon'ble Madras High Court in the case of Orchid Pharma (cited supra). The Ld. Counsel for the assessee on the other hand submitted that this issue is squarely covered in favour of assessee by decision of Hon'ble Madras High Court in the case of CIT v. M/s. Industrial Security and Intelligence India Pvt. Ltd., (Tax Case Appeal No. 585 and 586 of 2015 dated 24.07.2015, for ay: 2003-04 and 2004-05) and it is also submitted by learned counsel for the assessee that the Chennai Tribunal in IT.A. No. No. 3263/Chny/2018 for ay: 2013-14 in the case of the ACIT v. M/s. SPEL Semo conductor Ltd., vide order dated 23.07.2019 has decided this issue in favour of the assessee, to which one of us namely Hon'ble Judicial Member was part of Division Bench who pronounced the said order in ITA no. 3263/Chny/2018. 10.3 We have heard rival contentions through video conferencing and perused the material on record including cited case laws. We have observed that the assessee has deposited Employee's share of Provident Fund contribution amounting to ₹ 6,31,788/- to the credit of employees with respective PF fund beyond the due dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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. 10.3.2 It is by virtue of Finance Act, 1987 w.e.f 01.04.1988, the provisions of Section 36(1)(va) read with Section 2(24)(x) of the 1961 Act were inserted, which considered employee contribution towards PF/ESI and other employees welfare funds received by employer as income of the assessee by virtue of Section 2(24)(x) of the 1961 Act and deduction thereof the employee contribution shall be allowed by virtue of Section 36(1)(va) of the 1961 Act provided the said amount stood deposited by employer to the credit of employee with relevant fund on or before the due date as prescribed under relevant statute governing PF/ESI and other employees welfare funds. The Provision of Section 43B of the 1961 Act were also amended by Finance Act, 1987 w.e.f. 1.4.1988 and as it stood at that time is reproduced hereunder: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of employees. 10.3.3. Then came the amendment by Finance Act, 2003 w.e.f 01.04.2004, wherein the second proviso to Section 43B stood deleted and first proviso to Section 43B was amended so that now even 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 provided the said sum is actually paid during the previous year on or before the due date as prescribed under Section 139(1) for filing of return of income shall be allowed. The amended Section 43B, as amended by Finance Act, 2003 wef 01.04.2004, 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- ** ** ** (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] ** ** ** shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first proviso with effect from assessment year 2004-05. We quote hereinbelow the first proviso to section 43B of the Act after its amendment by Finance Act, 2003, which reads as under: 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. To answer the above controversy, we need to understand the Scheme of the Income-tax Act, 1961, as it existed prior to 1st April, 1984, and as it stood after 1-4-1984. Income has been defined under section 2(24) of the Act to include profits and gains. Under section 2(24)(x), any sum received by the assessee from his employees as contributions to provident fund/superannuation fund or any fund set up under Employees' State Insurance Act, 1948, or any other fund for welfare of such employees constituted income. This is the reason why every assessee(s) [employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote hereinbelow the Explanation below clause (va) of sub-section (1) of section 36: 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. 7. However, the second proviso stood further amended vide Finance Act, 1989, with effect from 1-4-1989, which reads as under: 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 realised within fifteen days from the due date. 8. On reading the above provisions, it becomes clear that the assessee(s)-employer(s) would be entitled to deduction only if the contribution stands credited on or before the du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Mercantile System of Accounting. At the same time, section 43B [main section] made it mandatory for the Department to grant deduction in computing the income under section 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act [octroi] and other Tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under the Income-tax Act [due date], the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P.) Ltd.'s case (supra), held that the first proviso was curative in nature, hence, retrospective in operation with effect from 1-4-1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis- -vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P.) Ltd.'s case (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively with effect from 1-4-1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the first proviso came to be inserted]. For the above reasons, we find no merit in this batch of civil appeals filed by the Department which are hereby dismissed with no order as to costs. Civil Appeal No. 7755/2009 @ S.L.P. (C) No. 20581/2008 and Civil Appeal No. 7757/2009 @ S.L.P. (C) No. 18380/2009: 11. Leave granted. 12. In view of our judgment in the case of CIT v. Alom Extrusions Ltd. [Civil Appeal arising out of S.L.P. (C) No. 23851 of 2007], we set aside the impugned judgment and order of the Bombay High Court and allow these civil appeals filed by the assessees with no order as to costs. 10.3.5 It is also pertinent to reproduce at this stage the decision of Hon'ble Delhi High Court in the case of Aimil Limited (supra) wherein Hon'ble Delhi High Court interpreted the decision of Hon'ble Supreme Court to be applicable to both employer and employees contribution and in case the said amounts were deposited by employer to the credit of employees with the respective funds before the due date as prescribed u/s. 139(1) of the 1961 Act, the deduction from the income shall be allowed, by holding as under: 4. In some other appeals preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under section 36(1) (va) of the Act. Section 43B stipulates that certain deductions are to be given only on actual payment. Clause (b) thereof talks about contribution by the assessee as employer to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. Since we are concerned only with clause (b), we reproduce the same for clearer understanding:- 43B. Certain deductions to be only on actual payment.-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 or superannuation fund or gratuity fund or any other fund for the welfare of employees, or, ** ** ** shall 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly mentioned that deduction in respect of any sum referred to in clause (b) shall not be allowed unless such sum has actually been paid in cash or by issuance of 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. Thus, the assessee would earn the entitlement only if the actual payment is made before the due date specified in Explanation below clause (va) of sub-section (1) of section 36 of the Act. As per the said Explanation, 'due date' means the date by which the assessee is required, as an employer, to credit the employees' contribution to the employees' account in the relevant fund under any Act, rules, order or notification issued thereunder or under any standing order award contract of service or otherwise. 11. Before we delve into this discussion, we may take note of some more provisions of the Act. Section 2(24) of the Act enumerates different components of income. It, inter alia, stipulates that income includes 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that these payments have been made beyond the due dates of making these payments under the respective statute. Thus, it was not an issue that the payments were not made by the assessee on the dates which have been stated to be the dates of deposits in the assessment order. If such is a factual aspect then according to latest position of law clarified by Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. that no disallowance could be made if the payments are made before the due date of filing the return of income. This issue came before Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. which was a special leave petition filed by the department against the High Court Order of 26th June, 2006 in ITA No. 2/05 and ITA No. 56/03 and ITA No. 80/03 of the High Court of Guwahati, Assam and it is order dated 7th March, 2007. A copy of the said order is placed on record. The observations of their Lordships on the issue are as under:- '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 particularl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to us, in view of the dismissal of the Special Leave Petition in the case of Vinay Cement Ltd. (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 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 India Corporation Ltd. [2000] 242 ITR 114. After noting the said judgment the fact that the amendments had been made to the provisions of section 43B of the Act by virtue of Finance Act, 2003 with effect from 1-4-2004 it agreed with the submission of the learned counsel for the assessee that by virtue of the omission of the second proviso and the omission of clauses (a), (c), (d), (e) and (f) without any saving clause would mean that the provisions were never in existence. For this purpose, in the said case the assessee had placed reliance on the judgment of a Constitution Bench of the Supreme Court in the case of Kolha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying upon the judgment of the Supreme Court in the case of Kunhayammed v. State of Kerala 119 STC 505 at page 526 in paragraph 40 and noted the following observations:- 'If the order refusing leave to appeal is a speaking order, i.e., 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, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the Court. Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.' 11. Upon noting the observations of the Supreme Court in Kunhayammed's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided the same is deposited to the credit of employees with respective PF/ESI funds before the due date prescribed u/s. 139(1) of the 1961 Act, albeit the same was deposited after the due date as prescribed for payment under statute governing PF/ESI. The Hon'ble Madras High Court while adjudicating the aforesaid appeal in the case of Industrial Security (supra) in favour of tax-payer referred to the decision of Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Limited reported in 319 ITR 306(SC) and decision of Hon'ble Delhi High Court in the case of CIT v. Aimil Limited reported in (2010) 321 ITR 508(Del.), and Hon'ble Madras High Court 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 Extrusion 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 of first proviso. The Delhi High Court in the case of CIT V. Aimil Ltd. reported in 321 ITR 508 held that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdictional High Court viz. in the case of CIT v. M/s. Industrial Security and Intelligence India Pvt. Ltd. (supra), which judgment is binding on us. At this stage we would like to refer to order in writ petition passed by Single Judge of Hon'ble Madras High Court in the case of Unifac Management Services (India) Private Limited v. DCIT in WP no. 5264 of 2020, WMP No. 6461 of 2018, vide order dated 23.10.2018 (reported in (2018) 409 ITR 225(Mad.), wherein Single Judge of Hon'ble Madras High Court decided this issue in favour of Revenue. However, subsequently, the said decision of Single Judge of Hon'ble Madras High Court was challenged by the tax-payer before the Division Bench of Hon'ble Madras High Court by filing writ appeal no. 2854 of 2018 and CMP No. 23727 of 2018 and the Division Bench of Hon'ble Madras High Court was pleased to grant permission to the tax-payer to withdraw the original writ petition namely WP No. 5264 of 2018 as well writ appeal no. 2854 of 2018, vide orders dated 09.01.2019. The Revenue has referred before us during the course of hearing, decision of Hon'ble Madras High Court in the case of Orchid Pharma (supra), wherein the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to literal construction. We have observed that Hon'ble Bombay High Court in the case of CIT v. Ghatge Patil Transports Limited reported in (2014) 368 ITR 749(Bom.) held that decision of Hon'ble Supreme Court in the case of Alom Extrusion (cited supra) shall apply both to employees as well employers contribution to various employees welfare funds, and if the amount towards employee's contribution to employees welfare funds is deposited before the due date prescribed for filing of return of income u/s. 139(1) of the 1961 Act, the assessee would be entitled for deduction. The aforesaid decision of Hon'ble Bombay High Court in the case of Ghatge Patil Transport (supra) is reproduced hereunder: 15. In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employees' Welfare Funds on the other. All this came up for consideration before the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jaipur Vidyut Vitran Nigam Limited reported in (2014) 49 taxmann.com 540(Raj) has decided this issue in favour of the tax-payer. Similarly, Hon'ble Karnataka High Court and Hon'ble Himachal Pradesh High Court has decided this issue in favour of the tax-payer. However, Hon'ble Gujarat High Court has decided this issue in favour of Revenue in CIT v. Gujarat State Road Transport Corporation reported in (2014) 366 ITR 170(Guj.); Checkmate Facility Electronic Solutions (P.) Ltd. v. Dy. CIT [Tax Appeal No. 1256 of 2018, dated 15-10-2018 and PCIT v. Suzlon Energy Limited reported in (2020) 115 taxmann.com 340(Guj). Thus, Hon'ble Gujarat High Court held that to get deduction towards employees contribution towards PF/ESI and other welfare funds, the employer ought to have deposited the said amount to the credit of employees with the relevant Funds on or before the due date specified in PF/ESI Act or other welfare funds, keeping in view provisions of Section 36(1)(va) read with Explanation 1 and Section 2(24)(x) of the 1961 Act. Similarly, Hon'ble Kerala High Court has also decided this issue in favour of Revenue in the case of CIT v. Merchem Limited reported in (2015) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . S. 43B. Certain deductions to be only on actual payment 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 or superannuation fund or gratuity fund or any other fund for the welfare of employees . 8. Looking at the provisions we are definite that the Act treats employer's and employee's contribution distinctly. Sub-clause (v) of Section 36(1) speaks of a gratuity fund, wherein the employee does not contribute at all. Section 36(1)(va) speaks of the employee's contribution to a welfare fund for the benefit of employees alone, by virtue of the specific reference to Section 2 (24). Section 2 (24) includes as income, any contribution received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the contribution; which is of the employee. A contribution deducted from the employee's salary and paid by the employer cannot, for a moment, be termed as the employer's contribution. There is a clear distinction insofar as the contributions payable under the EPF MP Act as also the ESI Act. The employer's contribution has to be paid by the employer himself and there is possible no deduction from the salary of the employee, whereas with respect to the employee's contribution, it has to be deducted from the salary of the employee and paid to the relevant fund. 11. The Supreme Court in Alom Extrusions Ltd.'s case (supra) as was noticed, was specifically considering the issue with respect to the employer's contribution. The Hon'ble Supreme Court noticed that prior to 1983 even a book entry made with respect to an assessee following the mercantile system of accounting, making a provision for the payment of contributions towards EPF and ESI could be claimed as a deduction. By introduction of Section 43B in the Finance Act, 1983, the object was to disallow deductions claimed merely by making a book entry based on the mercantile system of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understood that the sub-clause took in both employee's and employer's contribution. The legislature then took note of the circumstance that many claim the deduction on the ground of maintaining accounts on mercantile or accrual basis and fail to discharge the liability. Hence by Finance Act 1987, clause (x) under Section 2 (24), sub-clause (va) of Section 36 (1) and the 2nd proviso to Section 43B were brought in. From that date the statute treats the employee's and employer's contribution differently. 13. Otherwise there was no requirement for bringing in a sub-clause under the definition clause of 'income' including the employee's contribution received by the employer and providing a deduction by sub-clause (va) and permitting the deduction only if that contribution is paid in accordance with the statute, which created the fund. The 2nd proviso to Section 43B then underwent a cosmetic change and later was deleted. There was also a new proviso added under Section 43B for permitting deduction on contributions paid before the returns are filed. This took in only the employer's contribution especially since Section 2(24) and sub-clause (va) were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the considered opinion that the assessee was entitled to get deduction for the sum received by the assessee from his employees towards contribution to the fund or funds so mentioned only if, the said amount was credited by the assessee on or before the due date to the employees account in the relevant fund as provided under Explanation 1 to Sec. 36(1)(va) of the Act. According to us, so far as Sec. 43B(b) is concerned, it takes care of only the contribution payable by the employer/assessee to the respective fund. Therefore, in that circumstances, Sec. 36(1)(va) and Sec. 43B(b) operate in different fields i.e. the former takes care of employee's contribution and the latter employer's contribution. The assessee was entitled to get the benefit of deduction under Sec. 43B(b) as provided under the proviso thereto only with regard to the portion of the amount paid by the employer to the contributory fund. Such an understanding of Sec. 43B is further exemplified by the phraseology used in the proviso, which reads thus: 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 applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees as found in sub-clause (b) of Section 43B, which refers only to the employer's contribution and not the employee's contribution. Employee's contribution, as has been already held by us, is covered by clause (va) of Section 36(1) and the deduction is restricted by the Explanation below it. With respect to employer's contribution, the deduction is allowable only on actual payment, as per Section 43B restricted only by the proviso as is now available in the Act, which requires payment before the filing of return. Any sum paid as employer's contribution, 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, then the same would be enabled deduction. Hence, in the present case if the employer's contribution under the EPF or ESI for the financial year 2007-08 is paid after the said year but before the date of filing of the return for that year, then necessarily it would be allowable as a deduction in the assessment year, de hors the fact that it was paid in the subsequent year. 18. Sub-clause (va) of Section 36(1) takes care of the employee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant statute applicable to PF/ESI and other funds for welfare of employees, but deposited prior to due date of filing of return of income u/s. 139(1) of the 1961 Act. If we apply strict interpretation as is normally applied as there is no equity in tax laws, we have observed that the employee contribution received by an employer is treated as income under the provisions of Section 2(24)(x) of the 1961 Act, while deduction is allowed u/s. 36(1)(va) read with Explanation of the amount received by an employer from employees as their contribution which stood deposited by employer to the credit of employee with relevant fund on or before the due date as is prescribed under relevant statute governing PF/ESI and other employees welfare funds. The provisions of Section 43B of the 1961 Act has a heading that certain deductions to be allowed only on actual payment basis and it starts with a non obstante clause that 'notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of...'. Thus, it stipulates that deduction shall be allowed only on actual payment basis in the year of payment of deduction which otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f no deduction u/s. 36(1)(va) read with Explanation 1 and Section 2(24)(x) of the 1961 Act can be allowed and consequently there cannot be any question of entering further into Section 43B of the 1961 Act as the deduction at threshold level of Section 36(1)(va) of the 1961 Act is itself not available. This are the literal and strict interpretation of provisions of Section 2(24)(x) read with Section 36(1)(va) of the 1961 Act. The deduction provisions are to be strictly construed and onus is on the assessee to prove that it is entitled for deduction/exemption as it falls within four corners of the statute. There is no equity in tax laws and exemption/deduction provisions are to be strictly construed. 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) are relevant. Admittedly, in the instant case the aforesaid sum of ₹ 6,31,788/- being employee contribution towards PF was not deposited by assessee to the credit of employees with PF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined several of the past decisions including that by another Constitution Bench in CCE v. Hari Chand Shri Gopal: [2011] 1 SCC 236 as also that by a Division Bench of this Court in the case of UOI v. Wood Papers Ltd.: [1990] 4 SCC 256 wherein, the principles were stated in clear terms that the question as to whether a subject falls in the notification or in the exemption clause has to be strictly construed; and once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the exemption clause liberally. This Court found that in Wood Papers Ltd. (supra), some of the observations in an earlier decision in the case of CCE v. Parle Exports (P) Ltd.: [1989] 1 SCC 345 were also explained with all clarity. This Court noted the enunciations in Wood Paper Ltd. with total approval as could be noticed in the following:- 46 In the judgment of the two learned Judges in Union of India v. Wood Papers Ltd. [1990] 4 SCC 256 (hereinafter referred to as Wood Papers Ltd. case , for brevity), a distinction between stage of finding out the eligibility to seek exemption and stage of applying the nature of exemption was made. Relyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Wood Papers Ltd. case. In para 6, it was observed as follows: (SCC p. 262) 6. ... In CCE v. Parle Exports (P) Ltd., this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base or Limca base or Thums Up base were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises and Salt Act and held 'that it should not be in consonance with spirit and the reason of law to give exemption for non-alcoholic beverage basis under the notification in question'. Rationale or ratio is same. Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed construe it liberally. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit. 59. The above decision, which is also a decision of a two- Judge Bench of this Court, for the first time took a view that liberal and strict construction of exemption provisions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be complied with and the distinction between the eligibility criteria with reference to the conditions which need to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas case, to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows: (Hari Chand case, SCC p. 247) 29. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit before the assessment year 1993-94. 19. Without expanding unnecessarily on variegated provisions dealing with different incentives, suffice would be to notice that the proposition that incentive provisions must receive liberal interpretation or to say, leaning in favour of grant of relief to the assessee is not an approach countenanced by this Court. The law declared by the Constitution Bench in relation to exemption notification, proprio vigore, would apply to the interpretation and application of any akin proposition in the taxing statutes for exemption, deduction, rebate et al., which all are essentially the form of tax incentives given by the Government to incite or encourage or support any particular activity 16. 20. The principles laid down by the Constitution Bench, when applied to incentive provisions like those for deduction, would also be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. The Hon'ble Delhi High Court and Hon'ble Bombay High Court after considering, analyzing and interpreting the decision in the case of Alom Extrusion (supra) has held that it will apply both to employers and employee contribution and if the same is deposited before the due date of filing of return of income u/s. 139(1) of the 1961 Act, the deduction shall be allowed, even if the same is deposited beyond the time stipulated as due date as prescribed under the provisions of Statute governing PF/ESI Act. Thus, the applicable provision as is contained in Section 36(1)(va) is read down by most of the Constitutional Courts including our Jurisdictional High Court (barring Hon'ble Gujarat High Court and Hon'ble Kerala High Court) to make it workable as otherwise the tax-payer will lose the deduction for ever if the employee contribution is not deposited within due date as prescribed under relevant statute, although the said contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,788/- towards employees contribution to PF which was deposited late beyond due date as prescribed under relevant statute governing PF, but the same stood deposited to the credit of employees with relevant fund before the due date for filing of return of income as prescribed u/s. 139(1) of the 1961 Act. The Revenue fails on this issue for the reasons cited above. We order accordingly. The Hon'ble jurisdictional High Court in the case of Sagun Foundry Private Limited v. CIT, Kanpur in ITA No. 87 of 2006, vide judgment dated 21.12.2016 has decided this issue in favour of the tax-payer, by holding that Section 43B is applicable to both employer and employee contribution and thus in case employee contribution towards PF received by employer is deposited to the credit of employees with the PF trust prior to due date of filing of return of income u/s. 139(1), the tax-employer shall be entitled for deduction u/s. 36(1)(va) read with Section 2(24)(x) and 43B of the 1961 Act. The Hon'ble Jurisdictional High Court has in para 29 has taken a view that the law laid down by Hon'ble High Court of Karnataka, Hon'ble High Court of Rajasthan, Hon'ble High Court of Punjab a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l: [2011] 1 SCC 236 as also that by a Division Bench of this Court in the case of UOI v. Wood Papers Ltd. [1990] 4 SCC 256 wherein, the principles were stated in clear terms that the question as to whether a subject falls in the notification or in the exemption clause has to be strictly construed; and once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the exemption clause liberally. This Court found that in Wood Papers Ltd. (supra), some of the observations in an earlier decision in the case of CCE v. Parle Exports (P) Ltd. [1989] 1 SCC 345 were also explained with all clarity. This Court noted the enunciations in Wood Paper Ltd. with total approval as could be noticed in the following:- 46. In the judgment of the two learned Judges in Union of India v. Wood Papers Ltd.: [1990] 4 SCC 256 (hereinafter referred to as Wood Papers Ltd. case , for brevity), a distinction between stage of finding out the eligibility to seek exemption and stage of applying the nature of exemption was made. Relying on the decision in CCE v. Parle Exports (P) Ltd. [1989] 1 SCC 345, it was held: (Wood Papers Ltd. case, SCC p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd., this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base or Limca base or Thums Up base were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises and Salt Act and held 'that it should not be in consonance with spirit and the reason of law to give exemption for non-alcoholic beverage basis under the notification in question'. Rationale or ratio is same. Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed construe it liberally. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit. 59. The above decision, which is also a decision of a two- Judge Bench of this Court, for the first time took a view that liberal and strict construction of exemption provisions are to be invoked at different stages of interpreting it. The question whether a subject falls in the notification or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas case, to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows: (Hari Chand case, SCC p. 247) 29. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. ** ** ** (emphasis in bold supplied) 17.3. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions dealing with different incentives, suffice would be to notice that the proposition that incentive provisions must receive liberal interpretation or to say, leaning in favour of grant of relief to the assessee is not an approach countenanced by this Court. The law declared by the Constitution Bench in relation to exemption notification, proprio vigore, would apply to the interpretation and application of any akin proposition in the taxing statutes for exemption, deduction, rebate et al., which all are essentially the form of tax incentives given by the Government to incite or encourage or support any particular activity16. 20. The principles laid down by the Constitution Bench, when applied to incentive provisions like those for deduction, would also be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. The Hon'ble Delhi High Court and Hon'ble Bombay High Court after considering, analyzing and interpreting the decision in the case of Alom Extrusion (supra) has held that it will apply both to employers and employee contribution and if the same is deposited before the due date of filing of return of income u/s. 139(1) of the 1961 Act, the deduction shall be allowed, even if the same is deposited beyond the time stipulated as due date as prescribed under the provisions of Statute governing PF/ESI Act. The Hon'ble jurisdictional High Court in the case of Sagun Foundry Private Limited v. CIT, Kanpur in ITA No. 87 of 2006, vide judgment dated 21.12.2016 has decided this issue in favour of the tax-payer, by holding that Section 43B is applicable to both employer and employee contribution and thus in case employee contribution towards PF received by employer is deposited to the credit of employees with the PF trust prior to due date of filing of return of income u/s. 139(1), the tax-employer shall be entitled for deduction u/s. 36(1)(va) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Reference is drawn to Section 7Q and 14 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. There is an recent amendment to Section 36(1)(va) by Finance Act, 2021, wherein Explanation 2 was inserted, which reads as under: 36(1)(va)**** **** Explanation 2-For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the 'due date' under this clause; Correspondingly, there was an amendment to Section 43B of the 1961 Act by Finance Act, 2021, wherein Explanation 5 was inserted, which reads as under: 43B**** **** Explanation 5- For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 applied. Although, on perusal of the above amendment by Finance Act, 2021, it transpires that the said explanation was inserted by way of removal of doubt to clarify the law as existed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, and there cannot be a class different now at this stage where the deduction is to be denied on the ground of strict interpretation of the provisions of Section 36(1)(va), unless the amendment made by Finance Act, 2021 is made specifically applicable retrospectively from the date of insertion of the provision or any other specified earlier date in the Finance Act, rather on the other hand, the Memorandum to Finance Bill, 2021 has specifically made this amendment applicable from 01.04.2021 and specified that the same shall be made applicable from assessment year 2021-22 and subsequent assessment years. We are presently concerned with ay: 2005-06. The relevant clause to Memorandum to Finance Bill, 2021 is reproduced hereunder: Rationalisation of various Provisions Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntribution 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-utilize employee 's contributions. Accordingly, in order to provide certainty, it is proposed to- i. amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the 'due date' under this clause; and ii. amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t tribunal being inferior judicial body to Hon'ble Allahabad High Court, are bound by decision of Hon'ble jurisdictional High Court in the case of Sagun Foundry (supra) as a cardinal principles of judicial discipline and to instill certainty among tax-payers, thus, Respectfully following the decision of Hon'ble Allahabad High Court in the case of Sagun Foundry (supra), we allow the claim of the assessee for deduction of ₹ 1,82,98,490/- towards employees contribution to PF which was deposited late beyond due date as prescribed under relevant statute governing PF, but the same stood deposited to the credit of employees with relevant fund before the due date for filing of return of income as prescribed u/s. 139(1) of the 1961 Act. The assessee has, however, itself conceded that the assessee has not deposited ₹ 49,96,680/- received towards employee contribution to PF before the due date for filing of return of income u/s. 139(1) of the 1961 Act and hence the said amount was rightly disallowed by authorities below. The Revenue fails on this issue for the reasons cited above. We order accordingly. 11. In the result, the appeal filed by Revenue in ITA no. 147/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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