2014 (3) TMI 386 - HC - Income Tax

Court allows deductions for employer contributions under Section 36(1)(va) if deposited before return filing date.

M/s ESSAE TERAOKA PVT LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX

The appeal was allowed in favor of the appellant-assessee. The Court held that the employer is entitled to deductions under Section 36(1)(va) if the ... Disallowance under Section 36(1)(va) r.w.s 43B – Contribution made to PF - Whether the Tribunal was justified in denying the appellant’s claim of deductions of the employees contribution to PF/ESI – Held that:- By itself it is not sufficient to hold that the employer is not entitled for deduction as contemplated under Section 36(1)(va) of the IT Act r/w Section 43-B of the IT Act - The word “contribution” is used not only to mean contribution of the employer but also contribution to be made on behalf of the member employed by the employer directly - the word “contribution” used in Clause(b) of Section 43-B of the IT Act means the contribution of the employer and the employee - That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section(1) of Section 139 of the IT Act is made, the employer is entitled for deduction – thus, the assessee is entitled for deduction – Decided in favour of Assessee. Issues Involved:1. Disallowance under Section 36(1)(va) of the Income Tax Act.2. Interpretation of Section 43-B of the Income Tax Act in relation to employees' contributions to Provident Fund (PF) and Employees' State Insurance (ESI).Detailed Analysis:1. Disallowance under Section 36(1)(va) of the Income Tax Act:The primary issue concerns the disallowance of Rs. 12,51,737/- under Section 36(1)(va) of the Income Tax Act, 1961, which pertains to the employees' contribution to PF/ESI. The Tribunal upheld the Assessing Officer's decision to deny the appellant's claim for deductions, alleging that the payment was not made in accordance with the provisions of Section 36(1)(va).The Court considered whether the Tribunal was justified in affirming the finding of the Assessing Officer. The appellant argued that the question raised was already covered by a previous order of the Court, while the respondent referred to a judgment by the Gujarat High Court to support a differing view.2. Interpretation of Section 43-B of the Income Tax Act:The Court examined the relevant provisions of the Income Tax Act, the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (PF Act), and the Employees' Provident Funds Scheme, 1952 (PF Scheme). The Court noted that under the PF Scheme, the employer is liable to pay both the employer's and the employee's contributions and can recover the employee's contribution from their salary.The Court emphasized that Section 2(24)(x) of the Income Tax Act treats the employee's contribution deducted by the employer as the employer's income. However, Section 36(1)(va) allows for deductions if the contributions are deposited within the due date prescribed under Section 139(1) of the Income Tax Act.The Court disagreed with the Gujarat High Court's interpretation, which denied deductions if contributions were not deposited by the due date under the PF Act/ESI Act. Instead, the Court aligned with its previous judgment, stating that as long as the contributions are deposited before the due date for filing the return of income under Section 139(1), the employer is entitled to the deduction.The Court clarified that Section 43-B allows for deductions of contributions paid on or before the due date for furnishing the return of income, irrespective of the due date under the PF Act/ESI Act.Conclusion:The appeal was allowed, and the substantial question of law was answered in favor of the appellant-assessee. The Court held that the employer is entitled to deductions under Section 36(1)(va) if the contributions are deposited before the due date for filing the return of income under Section 139(1) of the Income Tax Act. The Court rejected the revenue's argument and the view taken by the Gujarat High Court, thereby dismissing the appeal with no order as to costs.