2012 (11) TMI 592 - HC - Income Tax

Employee PF and ESI Contributions Deductible If Paid Before Filing Return Under Section 36(1)(va) and 43B

Commissioner of Income Tax, Shimla Versus M/s Nipso Polyfabriks Ltd.

The HC held that contributions received from employees for provident fund and ESI, though not deposited by the due dates under the respective statutes, ... Claim u/s 43B - Contribution to provident fund - Scope of the second proviso to Section 43B - Whether the Tribunal was correct in holding that amounts received by the assessee from employees for crediting to their accounts in provident fund and ESI, but not so credited on or before the due dates specified under the respective statutes, were allowable deductions under section 36 (1) (va) of the Income Tax Act? - HELD THAT:- The Apex Court while deciding the Alom Extrusions case [2009 (11) TMI 27 - SUPREME COURT] specifically considered the provisions of Section 36 (1) (va) of the Act, but made no distinction between the contribution of the employer or the employee. As held by the Apex Court in Alom Extrusions case, the purpose of introducing the provisos, the Explanation and amending the Act from time to time was to prevent unscrupulous assessees from taking benefit of law and claiming deductions even when they had not deposited the amount. The second proviso to Section 43B (b) specifically referred to the due date under Section 36 (1) (va) of the Act and as such, it cannot be urged that the provisions of Section 43B and Section 36 (1) (va) should not be read together. It is clear that the law was enacted to ensure that the payment of the contributions towards the provident funds, the ESI funds or other such welfare schemes must be made before furnishing the return of income under subsection (1) of Section 139 of the Act. According to us, the benefit of this amendment must be extended to the employees' contribution also. We are dealing with cases where though the amount was not deposited by the due date under the Welfare Acts, it was definitely deposited before furnishing the returns. We see no reason to make any distinction between the employees' contribution or the employers' contribution. Once the contribution is there, whether by the employee or by the employer, it is a contribution to a welfare fund held in trust by the employer, who is bound to deposit the same. When the employer does not deposit the same within the time prescribed under the Welfare Acts, such as the Provident Fund Act, ESI Act etc., he may face criminal prosecution under the said Act. He may also become liable to pay interest or penalty. However, that is no reason to deny him the benefit of Section 43B, which starts with a non obstante clause and which clearly lays down that the assessee can take benefit of deduction of such contributions, if the same are paid before furnishing of the return. Thus, we find no merit in the appeal filed by the revenue, which is accordingly dismissed. ISSUES: Whether amounts received by the assessee from employees for crediting to their provident fund and ESI accounts, but not credited on or before the due dates specified under the respective statutes, are allowable deductions under Section 36(1)(va) of the Income Tax Act.Whether a distinction exists between the employer's contribution and the employees' contribution for the purposes of claiming deduction under Sections 36(1)(va) and 43B of the Income Tax Act when such amounts are deposited after the due date but before filing the income tax return. RULINGS / HOLDINGS: On the issue of deductibility of employees' contributions not deposited by the due date but paid before filing the return, the Court held that such amounts are allowable deductions under Section 36(1)(va) read with Section 43B of the Act, rejecting the argument that employees' contributions should be treated differently from employer contributions.The Court held that the provisos to Section 43B, including the Explanation under Section 36(1)(va), must be read together, and that the amendment by the Finance Act, 2003, which deleted the second proviso to Section 43B(b), is curative and retrospective, applying from April 1, 1988.The Court concluded that the employer is entitled to deduction if the contributions (both employer and employee) are deposited before filing the return, even if not deposited by the due date under the welfare statutes, in line with the Apex Court's decision in Commissioner of Income Tax versus Alom Extrusions Ltd. RATIONALE: The Court applied the statutory framework comprising Section 2(24)(x), Section 36(1)(va), and Section 43B of the Income Tax Act, along with their provisos and explanations, as amended over time.The Court relied heavily on the Apex Court's ruling in Commissioner of Income Tax versus Alom Extrusions Ltd., which clarified that Section 43B's non obstante clause overrides other provisions to disallow deductions unless payment is actually made, but also recognized a relaxation allowing deduction if payment is made before filing the return.The Court noted that the legislative purpose behind these provisions is to prevent employers from 'sitting on the collected contributions and depriving the workmen of the rightful benefits under social welfare legislations.'The Court rejected the revenue's contention that Section 43B should not be read into Section 36(1)(va), emphasizing that the Explanation to Section 36(1)(va) defines 'due date' in a manner consistent with Section 43B's provisions.The Court further endorsed the reasoning of the Delhi High Court in Commissioner of Income-Tax versus Aimil Ltd., which held that late deposit of employees' contributions before filing the return entitles the employer to deduction, subject to statutory penalties or interest under welfare laws.The Court recognized that the Finance Act, 2003's deletion of the second proviso to Section 43B(b) was 'curative in nature' and retrospective, thus extending the benefit of late deposit before return filing to both employer and employee contributions.No dissenting or differing opinions were noted.