THE issues before the Bench are - Whether employees'
contribution to provident fund credited after the statutory date under the
respective Provident Fund Acts but within the due date of filing return u/s 139
is eligible for deduction u/s 36 of the Income Tax Act; Whether amendment in
section 43B vide Finance Act, 2003 which deleted the second proviso can be
applied for interpreting section 36(1)(va); Whether section 36(1)(va) and
section 43B operate in two different fields with respect to two different
contributions and Whether merely because with
respect to employer's contribution
Second Proviso to Section 43B which provided that even with respect to
employers' contribution, assessee was required to credit amount in the fund
within the due date of the relevant Act, is deleted, it can be said that section
36(1)(va) also stands amended. And the verdict goes against the
assessee.
Facts of the
case
The assessee is a
Corporation run by State of Gujarat, engaged in the business of public
transportation. The assessee filed their return of income declaring total loss
which was again filed through a revised return declaring more loss on the basis
of the final audited accounts and auditor report u/s 44AB after considering the
observations / comments of the Statutory Auditor. The case was selected for
scrutiny and several notices were issued u/s 142(1) followed by notice u/s
143(2), to which finally the Accounts officer of the assessee along with its
Chartered Accountant submitted submissions showing provident fund contribution
collected from the employees and deposited with PF Trust as well as
Corporation's contribution towards contributory provident fund and its deposit
with the PF Trust. Upon verification of the same, it was found that there was
shortfall in remittance of provident fund collected from the employees which was
required to be treated as income of the assessee as per section 2(24)(x) read
with section 36(1) (va) of the Income Tax Act. There was also shortfall in the
fund of remittance of assessee Corporation, which according to the AO was
required to be disallowed u/s 43B of the Income Tax Act. The AO also added
amount as shortfall towards the employers' contributory provident fund and
therefore disallowed the same u/s 43B and disallowed the said amount from the
expenses claimed by the assessee. On appeal, the CIT(A) directed to partly
delete the disallowance as shortfall in employees' contribution to PF Account
and partly shortfall in employers' contribution to PF Account by observing that
employees' contribution / employer's contribution was deposited before the
filing of the return under section 139(1) of the IT Act for the relevant period.
Aggrieved, the Revenue had filed an
appeal before the Tribunal, which relied upon the Supreme Court decision in the
case of Commissioner of Income-Tax Vs. Alom Extrusions Ltd., confirmed
the order of the CIT(A). Still aggrieved, the Revenue has filed this present
appeal before the High Court. Several appeals for different AYs were filed. Some
of the appeals were filed with respect to disallowance of shortfall of
employees' contribution to PF Account u/s 36(1)(va) of the IT Act, some with
respect to shortfall in employees' contribution as well as ESI contribution and
one of the appeals was related with respect to shortfall in ESI contribution
only.
The
Departmental Representative vehemently submitted that the Tribunal has
materially erred in relying upon the decision of the Supreme Court in the case
of Commissioner of Income-Tax Vs. Alom Extrusions Ltd., because in that
case, the issue involved was with respect to employer's contribution to PF
Account whereas in the present cases, the issue involved was with respect to
employees' contribution to PF Account. It was submitted that as such under the
Income Tax Act provisions with respect to employees' contribution to PF Account
and employers' contribution to PF Account are different i.e. section 43B and
section 36(1) (va) of the IT Act are different and distinct and operate in
different situation and with respect to different contributions. Therefore, the
provision applicable with respect to section 43B cannot be made applicable with
respect to section 36(1) (va). The DR also mentioned that any sum received by
the assessee from its employee as contribution towards any PF or superannuation
fund would be considered as income within Section 2(24) of the Act. The Act.
Further, the DR referred to Section 36(1) (va) and submitted that if the
employer has not deposited the entire amount towards employees' contribution
with the PF Department on or before the relevant date (Due Date) under the PF
Act / ESI Act, to the extent there is a shortfall in deposit of the said amount
i.e., contribution, the assessee shall not be entitled to the deduction. The DR
also argued that while the employees contribution was deposited before the due
date of filing return u/s 139 as per section 43B, however, that benefit cannot
be extended to employees contribution, and therefore, the deduction u/s 36
cannot be allowed.
The
Counsel of the assessee supported the order of the Tribunal and placed great
reliance on the decision of Commissioner of Income-Tax Vs. Alom Extrusions
Ltd.,. The counsel argued that the Tribunal has rightly deleted the disallowance
observing that as the respective assessee have deposited shortfall in employees'
contribution in PF Account on or before the due date of filing of the return as
provided u/s 139 of the IT Act. For this the Counsel relied on several decisions
of the High Courts, wherein the contribution deposited before the due date of
filing return was allowed as deduction u/s 36. It was submitted by the Counsel
with the deletion with effect from April 1, 2004 by the Finance Act, 2003 of the
second proviso to section 43B, which stipulated that contributions to the
provident fund and other employee funds should be made within the time mentioned
in section 36(1)(va), that is the time allowed under the respective statutes,
the position has considerably changed. It was further submitted in view of this
amendment, contributions deposited before due date of filing of the return u/s
139 were eligible for deduction. The Counsel relied on another Supreme Court
decision in the case of Commissioner of Income-Tax, Gujarat-I Vs. Sarabhai
Sons Ltd., and argued that if two views are possible and different High
Courts have taken a particular one view, this Court may not take a different
view.
In
rejoinder, the DR submitted that the controversy in all the decisions cited by
the Counsel was with respect to shortfall in employers' contribution and/or
whether Amendment in section 43B of the IT Act made by Finance Act, 2003 would
have retrospective effect or not.
Having heard the parties,
the High Court held that,
+ by
the Finance Act 2003, Second Proviso of section 43B of the Act has been deleted
and First Proviso to section 43B has also been amended which is reproduced
hereinabove. Therefore, with respect to employer's contribution as mentioned in
clause (b) of section 43(B), 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 applicable in his case for furnishing the return of the income under
sub-section (1) of section 139, assessee would be entitled to deduction under
section 43B on actual payment and such deduction would be admissible for the
accounting year. However, it is required to be noted that as such there is no
corresponding amendment in section 36(1) (va). Deletion of Second Proviso to
section 43B vide Finance Act 2003 would be with respect to section 43B and with
respect to any sum mentioned in section 43(B) (a to f) and in the present case,
employer's contribution as mentioned in section 43B(b);
+
therefore, deletion of Second Proviso to section 43B and amendment in first
proviso to section 43B by Finance Act, 2003 is required to be confined to
section 43B alone and deletion of second proviso to section 43B vide amendment
pursuant to the Finance Act, 2003 cannot be made applicable with respect to
section 36(1)(va) of the Act. Therefore, any sum with respect to the employees'
contribution as mentioned in section 36(1)(va), assessee shall be entitled to
the deduction of such sum towards the employee's contribution if the same is
deposited in the accounts of the concerned employees and in the concerned fund
such as Provident Fund, ESI Contribution Fund, etc. provided the said sum is
credited by the assessee to the employees' accounts in the relevant fund or
funds on or before the ‘due date' under the Provident Fund Act, ESI Act, Rule,
Order or Notification issued thereunder or under any Standing Order, Award,
Contract or Service or otherwise. It is required to be noted that as such there
is no amendment in section 36(1) (va) and even explanation to section 36(1)(va)
is not deleted and is still on the statute and is required to be complied with.
Merely because with respect to employer's contribution Second Proviso to section
43B which provided that even with respect to employers' contribution [(section
43(B)b], assessee was required to credit amount in the relevant fund under the
PF Act or any other fund for the welfare of the employees on or before the due
date under the relevant Act, is deleted, it cannot be said that section
36(1)(va) is also amended and/or explanation to section 36(1)(va) has been
deleted and/or amended;
+
Section 2(24)(x) refers to any sum received by the assessee from his employees
as contribution and does not refer to employer's contribution. Under the
circumstances and so long as and with respect to any sum received by the
assessee from any of his employees to which provisions of sub-clause (x) of
sub-section 24 of section 2 applies, assessee shall not be entitled to deduction
of such sum in computing the income referred to in section 28 unless and until
such sum is credited by the assessee to the employees' account in the relevant
fund or funds on or before the due date as mentioned in explanation to section
36(1)(va). Therefore, with respect to the employees contribution received by the
assessee if the assessee has not credited the said sum to the employees' account
in the relevant fund or funds on or before the due date mentioned in explanation
to section 36(1) (va), the assessee shall not be entitled to deductions of such
amount in computing the income referred to in section 28 of the Act;
+ on
considering the controversy before the Supreme Court in the case of Alom
Extrusions Ltd. , the said decision would not be applicable to the facts of the
present case. In the said case before Alom Extrusions Ltd., the controversy was
whether the amendment in section 43B of the Act, vide Finance Act, 2003 would
operate retrospectively w.e.f. 1/4/1988 or not. It is also required to be noted
that in the case before the Supreme Court, the controversy was with respect to
employers' contribution as per section 43(B)(b) of the Act and not with respect
to employees' contribution under section 36(1)(va);
+ we
are of the opinion that in the present case, and as discussed hereinabove, only
one view is possible as canvassed on behalf of the revenue and as observed by
under section hereinabove and we are not in agreement with the view taken by the
Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and
Punjab and Haryana High Court in the cases refereed to hereinabove, and
therefore, the submission made on behalf of the assessee to follow the decisions
of the different High Courts refereed to hereinabove and/or not to take a
contrary view cannot be accepted;
+ in
view of the above and for the reasons stated above, and considering section
36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of
section 2, it is held that with respect to the sum received by the assessee from
any of his employees to which provisions of sub-clause (x) of clause (24) of
section (2) applies, the assessee shall be entitled to deduction in computing
the income referred to in section 28 with respect to such sum credited by the
assessee to the employees' account in the relevant fund or funds on or before
the “due date” mentioned in explanation to section 36(1)(va). Consequently, it
is held that the tribunal has erred in deleting respective disallowances being
employees' contribution to PF Account / ESI Account made by the AO as, as such,
such sums were not credited by the respective assessee to the employees'
accounts in the relevant fund or funds (in the present case Provident Fund
and/or ESI Fund on or before the due date as per the explanation to section
36(1)(va) of the Act i.e. date by which the concerned assessee was required as
an employer to credit employees' contribution to the employees' account in the
Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI
Act.
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