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TMI Blog2022 (7) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... dments in the Income Tax Act inserted by Finance Act 2021, Memorandum, plethora of orders passed by the various benches of Tribunal and the judgments of Hon ble High Courts of various Judicatures. 7. Co-ordinate Benches of the Tribunal have been taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the due date as per explanation to section 36(1)(va) of the Act. BOMBAY HIGH COURT: [2014] 368 ITR 749 (Bom): October 14, 2014 THE COMMISSIONER OF INCOME TAX VERSUS GHATGE PATIL TRANSPORTS LTD. The employer assessee would be entitled to deduction 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 Gujarat 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The CIT in this case confirmed the additions - made by the AO based on the entire amounts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Commissioner of Income-Tax v. Alom Extrusions Ltd. (supra), Tribunal dismissed appeal and confirmed order passed by CIT(A). That is how matter came before High Court in appeal. Court considered following question, posed in para 7.01, reads as under: Short question which is posed for consideration of this court is 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Punjab and Haryana High Court in Commissioner of Income-Tax v. Hemla Embroidery Mills P. Ltd., (2014) 366 ITR 167 , Himachal Pradesh High Court in Commissioner of Income-Tax v. Nipso Ployfabriks Ltd., (2013) 350 ITR 327 and Karnataka High Court in Commissioner of Income-Tax v. Sabri Enterprises, (2008) 298 ITR 141. 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. 200809. 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 Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd., (supra) not only followed Commissioner of IncomeTax v. Alom Extrusions Ltd. (supra) but also its own earlier judgment in Commissioner of Income-Tax v. Rai Agro Industries Ltd., (2011) 334 ITR 122 , to hold that Section 43B shall apply to both contributions i.e. employers and employees. 24. Kerala High Court in recent judgment in Commissioner of Income-Tax v. Merchem Ltd., (2015) 378 ITR 443, has followed the decision of Gujrat High Court in Commissioner of IncomeTax 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 Patil 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 IncomeTax v. Alom Extrusions Ltd. (supra) to find out whether it can be confined only in respect to employers contribution or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted in 1984, commences with a non obstante clause. The underlying object being to disallow deductions claimed merely by making a book entry based on the mercantile system of accounting. At the same time, Section 43B made it mandatory for the Department to grant deduction in computing income under Section 28 in the year in which tax, duty, 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 welfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indiscipline, which is not called for even in such cases. It would lead to a chaotic situation . 13. The Hon ble Apex Court in Baradakanta Mishra vs. Bhimsen Dixit AIR 1972 SC 2466 held that it would be anomalous to suggest that a Tribunal over which a High Court has superintendence can ignore the law declared by it and if a Tribunal can do so, all 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 culle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 06.09.2018) 2. Whether the payment of provident fund and employees state insurance dues deposited by the assessee within the grace period would qualify for deduction under Section 43B of the Income Tax Act, 1961? 23. The said question was dealt at para 7 8 of the order, it has been held that the assessee undoubtedly was entitled to claim the benefit 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 empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the effect that if the employers' as well as employees' contribution towards provident fund and ESI is paid before the due date of filing of return, no disallowance can be made by the Assessing Officer. 28. The relevant part of the order of the ITAT relying on the CIT Vs. Vinay Cements Ltd. (supra) is as under: 11. We have carefully considered the rival submissions in the light of material placed before us. In the assessment order ld. Assessing Officer has categorically stated that what the amount due was for which month in respect of EPF, Family Pension, PF inspection charges and ESI deposits and what were the due dates for these deposits and on which date these deposits were made. The dates of deposits are mentioned between 23rd May, 2001 to 23rd April, 2002. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. FINANCE ACT, 2021 [13 OF 2021] An Act to give effect to the financial proposals of the Central Government for the financial year 2021-2022.BE it enacted by Parliament in the Seventy-second Year of the Republic of India as follows:- CHAPTER I PRELIMINARY Short title and commencement. 1. (1) This Act may be called the Finance Act, 2021. (2) Save as otherwise provided in this Act,- (a) sections 2 to 88 shall come into force on the 1st day of April, 2021; (b) sections 108 to 123 shall come into force on such date as the Central Government may, by notification in 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 is hereby clarified that the provisions of section 43B shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. 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 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 welf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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