2003 (10) TMI 9 - HC - Income Tax

Court rejects deductions for delayed contributions; stresses adherence to due dates; equity not considered

The court held that the Income-tax Appellate Tribunal erred in allowing deductions for contributions not paid within specified due dates under relevant ... Deduction in respect of the contributions made to PF, EPF, DLI and ESI - Whether Tribunal was justified in deleting the disallowances made under section 43B read with the second proviso thereto and the Explanation below clause (va) of sub-section (1) of section 36(1) of the Act in spite of the fact that the payments in respect of PF, EPF, DLI and ESI, etc., were not paid within the due date specified?' – Held that order of tribunal is set aside to the extent the Tribunal has allowed the deduction claimed by the assessee in respect of the contributions towards ESI, PF, etc., by misplacing reliance on equity by holding that because of the omission of the expression 'during the previous year' in the second proviso to section 43B, so long as the payments were made within the previous year the payments are to be allowed as deduction under the main section even though the payments are made a few days later than the due date is reckoned qua the month for which the salary has been paid Issues Involved:1. Whether the Income-tax Appellate Tribunal was justified in deleting the disallowances made under section 43B read with the second proviso thereto and the Explanation below clause (va) of sub-section (1) of section 36(1) of the Act, despite the fact that payments in respect of PF, EPF, DLI, and ESI, etc., were not paid within the due date specifiedRs.Detailed Analysis:Issue 1: Justification of Deleting Disallowances under Section 43BFacts and Circumstances:- The appeal pertains to the assessment year 1992-93.- The Assessing Officer disallowed the deduction claims for contributions towards provident fund, ESI, and superannuation fund because the payments were made beyond the due date.- The assessee contended that although the payments were delayed, they were made within the previous year, hence should be allowable as deductions.Relevant Legal Provisions:- Section 43B: This section mandates that deductions otherwise allowable under the Act in respect of certain payments, including contributions to provident funds, are only allowed in the year the payment is actually made.- Second Proviso to Section 43B: Introduced with effect from April 1, 1988, and amended by the Finance Act, 1989, it stipulates that no deduction shall be allowed unless the sum has been paid on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36.- Explanation below Clause (va) of Section 36(1): Defines 'due date' as the date by which the employer is required to credit the employee's contribution to the relevant fund under any Act, rule, order, or notification.Tribunal's Decision:- The Tribunal upheld the order of the Commissioner of Income-tax (Appeals), allowing the deductions on the grounds that the payments were made within the relevant previous year, despite being delayed.Court's Analysis:- The court examined the legislative intent and the statutory provisions of section 43B and its provisos.- The main provision of section 43B allows deductions only in the year the payment is actually made, irrespective of the method of accounting employed by the assessee.- The first proviso to section 43B allows certain payments to be deductible if made before the due date for filing the return of income under section 139(1).- The second proviso, specific to contributions to provident funds and other employee welfare funds, mandates that payments must be made on or before the due date as defined in section 36(1)(va).Court's Conclusion:- The second proviso to section 43B, as amended, requires strict adherence to the due dates for payments to be eligible for deductions.- The court held that the Tribunal erred in allowing deductions for contributions that were not paid within the due dates specified under the relevant statutes.- The appeal was allowed, and the Tribunal's judgment was set aside to the extent it allowed the deductions based on payments made beyond the due dates.Final Judgment:- The court concluded that the deductions claimed by the assessee in respect of contributions towards PF, EPF, DLI, and ESI, which were not paid within the due dates, are not allowable.- The Tribunal's reliance on equity and the omission of the expression 'during the previous year' in the second proviso to section 43B was misplaced.- The appeal was allowed, and the Tribunal's judgment was set aside accordingly.Order:- No order as to costs.