1999 (10) TMI 44 - HC - Income Tax

For deduction under Section 43B, employer contributions to provident, superannuation or gratuity funds must be credited by statutory due date

HC held that for deduction under section 43B payments to provident, superannuation or gratuity funds must be credited to employees' accounts by the ... Interpretation of section 43B - Business Expenditure - disallowance of provident fund payments - expression 'due date' - HELD THAT:- Though section 43B is relatable to payments actually made, the modality to be adopted in respect of payments of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees for getting deduction has been prescribed. A time-limit has been fixed and only if payment is made during that period, deduction can be claimed. Undisputedly, the payment has not been made during the period prescribed under the relevant statute, i.e., the P. F. Act and the scheme thereunder. Clause 38 of the scheme deals with the period for payment of the contributions. Learned counsel for the assessee submitted that if payment is permissible to be made with damages after a prescribed period, the same is not unauthorised payment and in view of the broad language employed in clause (va) of sub-section (1) of section 36, it shall be deemed as if the payment was made within the due date. The expression 'due date' means the time stipulated for payment. As per the Explanation to clause (va) for the purpose of the 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. The amount is deductible only if the assessee credits the amount to the employee's account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost even if the sum is credited after the due date. It cannot be an indefinite date left to the choice of the assessee. It is to be noted that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund, etc., stress has been made on payment within the 'due date'. Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The Legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main provision and the proviso. They operate in different situations. The view of the Tribunal that payment having been made before the close of the financial year, qualifies for deduction is indefensible. The answer to the question referred is in the negative, i.e., in favour of the Revenue and against the assessee. The reference is disposed of accordingly. Issues involved: Interpretation of section 43B of the Income-tax Act, 1961 regarding disallowance of provident fund payments.Judgment Summary:Factual Background: The Assessing Officer disallowed provident fund payments for the assessment year 1991-92 under section 43B of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) held that the payments were not made within the allowed time periods. The Tribunal, however, held that the deduction should be allowed in the year of payment, irrespective of when the liability was incurred.Legal Analysis: Section 43B mandates deductions only when sums are actually paid, regardless of when the liability was incurred. The Tribunal emphasized the importance of actual payments and the legislative intent behind the provision to prevent disputes over liabilities. The proviso in section 43B sets conditions for allowable deductions, including payment by the due date.Interpretation of Proviso: The proviso in section 43B is an exception to the main provision, ensuring that deductions are only allowed for timely payments. The due date for payment is crucial, and any payments made beyond that date do not qualify for deductions. The Tribunal's view that payments made before the financial year's end qualify for deductions was deemed incorrect.Conclusion: The Tribunal's decision was overturned, and the judgment favored the Revenue, stating that payments made beyond the due date do not qualify for deductions under section 43B. The proviso serves a specific purpose and must be adhered to for claiming deductions.