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TMI Blog2022 (2) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... no disallowance is called for belated payment of the employee s contribution to the respective ESI and EPF fund in the case of assessee who have deposited the same before the due date of filing of Income Tax Return. - Decided in favour of assessee. - ITA/IT(SS)A/CO No. 1392/Del/2021, 1383/Del/2021, 1384/Del/2021, 1265/Del/2021,1266/Del/2021, 1267/Del/2021, 1262/Del/2021, 1263/Del/2021, 1252/Del/2021, 1248/Del/2021, 1249/Del/2021, 1236/2021, 1237/Del/2021, 1229/Del/2021, 1228/Del/2021 - - - Dated:- 28-2-2022 - ITA/IT(SS)A/CO No. 1225/Del/2021, 1223/Del/2021, 1182/Del/2021, 1162/Del/2021, 1144/Del/2021 1137/Del/2021, 1082/Del/2021, 1072/Del/2021, 1070/Del/2021, 1056/Del/2021, 1021/Del/2021, 1020/Del/2021, 1019/Del/2021, 1018/Del/2021, 898/Del/2021, 897/Del/2021 882/Del/2021, 865/Del/2021, 818/Del/2021, 805/Del/2021, 798/Del/2021, 756/Del/2021, 746/Del/2021, 666/Del/2021, 1815/Del/2021, 1814/Del/2021, 1576/Del/2021, 1574/Del/2021, 1570/Del/2021, 1567/Del/2021, 1432/Del/2021, 1421/Del/2021, 1419/Del/2021, 1264/Del/2021, 1737/Del/2021, 1625/Del/2021, 1483/Del/2021, 1620/Del/2021, 1480/Del/2021, 1479/Del/2021, 1396/Del/2021, 1391/Del/2021, 1320/Del/2021, 1208/Del/2021, 895/Del/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en view that the employee s contribution to PF and ESI, if paid before the due date of filing of the Income Tax Return u/s 139(1), is an allowable deduction and no disallowance can be made. To mention a few Order of the ITAT, Hyderabad in the case of Crescent Roadways Pvt. Ltd., vs., DCIT vide ITA.No.1952/ Hyd/2018 dated 01.07.2021. Order of the ITAT, Delhi in the case of DCIT vs. Dee Development Engineers Ltd., vide ITA.No.4959/Del./2016 dated 08.04.2021. Order of the ITAT, Delhi in the case of DCIT vs. Planman HR (P) Ltd., vide ITA.No.5152/ Del./2017 dated 15.07.2021. Order of the ITAT, Chennai in the case of DCIT vs. Talenpro India HR Pvt. Ltd., vide ITA.No.265/ Chennai/2019 dated 09.04.2021. Order of the ITAT, Agra in the case of Mahadev Cold Storage vs. Jurisdiction Assessing Officer vide I.T.A. Nos. 20 21/Agra/2021 dated 14.06.2021. Order of the ITAT, Chennai in the case of DCIT vs. Repco Home Finance Pvt. Ltd., reported in [2020] 183 lTD 782 ITAT-Chennai. Order of ITAT in the case of Eagle Trans Shipping Logistics (India) (P.) Ltd. Vs AGIT in ITA No. 324/Del/2017 order dated 25.07.2019 wherein the issue has been ruled against the assessee based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction only if the contribution to the employee s welfare fund stood credited on or before the due date and not otherwise - following the decision in Commissioner of Income Tax V/s. Alom Extrusions Ltd. [SUPREME COURT] - both employees and employer s contributions are covered under the amendment to Section 43B of I.T. Act - the Tribunal was right in holding that payments are subject to benefits of Section 43B. 8. We have examined the decision of the Hon ble Guja rat High Court in the case of State Road Transport Corporation (366 ITR 170) wherein the court has held the the payment were not allowable u/s 36(1)(va).It was held as under: Section 43B, read with section 36(1)(va) of the Income Tax Act, 1961 Business disallowance - Certain deductions to be allowed on actual payment (employee s contribution) - whether where an employer has not credited sum received by it as employee s contribution to employee s account in relevant fund on or before due date as prescribed n Explanation to section 36(1)(va), assessee shall not be entitled to deduction of such amount though he deposits same before due date prescribed under section 43B i.e. prior to filing of return under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts that were disallowed. The ITAT however granted complete relief. 8. Having regard to the specific provisions of the Employees Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace, period in terms of the extent notification). As far as the amounts constituting deductions from employees salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns. 9. In view of this discussion, the Revenue s appeal is partly allowed. The AO s directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms of the prevailing provisions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court s with respect to the disallowance of the amount being the employees contribution to the PF account/ESI contribution which admittedly which the concerned assessee did not deposit with the PF Department/ESI Department within due date under the PF Act and/or the ESI Act. 18. Gujarat High Court referred to Section 2(24)(x) and found that any sum received by Assessee (employer) from his employees as contributions to any provident fund or superannuation fund or any fund set up under Act, 1948, or any other fund for welfare of such employees, constitute income. However, Section 36 of Act 1961 provides for deduction in computing income referred to in Section 28. The relevant provision of Section 36 applicable to the case before Gujarat High Court was Section 36(1)(va) with which we are also concerned. It entitles an Assessee for deduction in computing income referred to in Section 28 with respect to any sum received by Assessee (employer) from his employee to which Section 2(24)(x) apply, if such sum is credited by Assessee to employees accounts n the relevant fund before due date i.e. date prescribed in the relevant statute applicable to the concerned fund. Court also notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. Karnataka High Court had an occasion to consider, whether it should dissent with the view taken in the earlier judgments and follow the view taken by Gujarat High Court in Commissioner of Income-Tax v. Gujarat State Road Transport Corporation (supra) and this occasion came in Essae Teraoka P. Ltd. v. Deputy Commissioner of Income-Tax, (2014) 366 ITR 408. Dispute relates to A.Y. 2008-09. Assessee filed Return on 26.09.2008. Return was processed under Section 143(1) and thereafter on scrutiny, notice under Section 143(2) was issued. Assessing Officer completed assessment by order dated 24.12.2010 under Section 143(3) disallowing Rs.12,51,737/under Section 36(1)(va) and also disallowing Rs. 1,04,621/under Section 14A read with Rule 8D. In appeal, CIT (A) reversed findings of Assessing Officer but on appeal preferred by Revenue, Tribunal restored Assessing Officers order and that is how matter came to Karnataka High Court. The question up for consideration was, whether Tribunal was justified in affirming finding of Assessing Officer and denying Assessees claim of deduction of employees contribution to PF/ESI alleging that the payment was not made by appellant in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent judgment in Commissioner of Income-Tax v. Merchem Ltd., (2015) 378 ITR 443, has followed the decision of Gujrat High Court in Commissioner of Income Tax v. Gujrat State Road Transport Corporation (supra) and dissented with the otherwise judgments of Rajasthan High Court in Commissioner of Income-Tax v. State Bank of Bikaner and Jaipur, (2014) 363 ITR 70, Karnataka High Court in Commissioner of Income-Tax v. Spectrum Consultants India P. Ltd. (supra) and Bombay High Court in Commissioner of Income-Tax v. Ghatge Path Transports Ltd., (2014) 368 ITR 749. 25. Before following a particular view when there is divergence in views of different High Courts, we find it appropriate to examine Supreme Court judgment in Commissioner of Income- Tax v. Alom Extrusions Ltd. (supra) to find out whether it can be confined only in respect to employers contribution or is applicable to both contributions, whether by employer or employee. 26. The question, whether benefit under Section 43B, as a result of amendment of Finance Act, 2003, is retrospective or not, came to be considered in Commissioner of Income-Tax v. Alom Extrusions Ltd. (supra). Court considered the intent, purpose and object i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty, cess etc. is actually paid. Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under 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 Act 1961, Assessee would than be entitled to deduction. 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 should not sit on the collected contributions and deprive workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. But when implementation problems were pointed out for different due dates, uniformity was brought about in first proviso by Finance Act, 2003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subordinate courts can equally do so, for there is no specific provision as in respect of Supreme Court, making the law declared by the High Court binding on subordinate Courts. 14. At this juncture, we would like to mention that there is no fixed rule or direction as to what should be apposite course to resort in case of conflicting decisions of Hon ble Jurisdictional High Court and non-jurisdictional High Court. 15. Article 141 of the Constitution lays down that the law declared by the Supreme Court is binding upon all the courts with the territory of India. The law declared has to be construed as a principle of law that emanates from a judgment, or an interpretation of a law or judgment by the Supreme Court, upon which, the case is decided. Hence, it flows from the above that the law declared is the principle culled out on the reading of a judgment as a whole in the light of the questions raised, upon which the case is decided. Ambica Quarry Works vs. State of Gujarat (1987) 1 SCC 213; and CIT vs. Sun Engg. Works (P) Ltd. (1992) 4 SCC 363. 16. The Hon ble Supreme Court in CIT vs. RaIson Industries Ltd. (288 ITR 322) observed that when an order is passed by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit and properly treat such amounts as having been duly deposited, which were infact deposited within the period prescribed (i.e. 15+5 days in the case of EPF and 21 days + any other grace period in terms of extent notification). 24. Thus, the Hon ble Court has held that the employers contribution is an allowable deduction, if paid before the due date answering the question of law framed. The Hon ble Court went further and held that as far as the amounts constituting deductions from employee s salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns. 25. We have perused the order of the Hon ble Jurisdictional High Court in the case of CIT Vs. AIMIL Ltd. 321 ITR 508 vide order dated 23.12.2009 held that if the employees contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these deposits and on which date these deposits were made. The dates of deposits are mentioned between 23rd May, 2001 to 23rd April, 2002. The latest payment is made on 23rd April, 2002 and assessee being limited company had filed its return on 20th October, 2002 which is a date not beyond the due date of filing of the return. Thus, it is clear beyond doubt that all the payments which have been disallowed were made much earlier to the due date of filing of the return. The disallowance is not made by the Assessing Officer on the ground that there s no proof of making such payment but disallowance is made only on 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 f the payments are made before the due date of filing the return of income. This issue came before Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) sections 108 to 123 shall come into force on such date as the Central Government may, by notification n the Official Gazette, appoint. Amendment of section 36. 9. In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:- Explanation 2.-For the removal of doubts, it s 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; . Amendment of section 43B. 11. In section 43B of the Income-tax Act, after Explanation4, the following Explanation shall be inserted, namely:- Explanation5.-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 applies. . 32. We have also perused the Memorandum Explaining the Provisions in the Finance Bill, 2021. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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-utilize employee s contributions. Accordingly, n order to provide certainty, it is propose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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