Employees' provident fund and ESI contributions remain deductible if paid before the income-tax return deadline

Employees' contribution to provident fund and ESI is treated as income on receipt by the employer under section 2(24)(x), but the Karnataka High Court stated that it remains deductible if credited to the relevant fund before the due date for filing the return under section 139(1). It construed sections 36(1)(va) and 43-B with the provident fund scheme provisions and held that delayed deposit under the welfare laws does not, by itself, justify denial of deduction under the Income-tax Act where payment is made before the return-filing deadline. The disallowance was therefore not sustainable.

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Issues: Whether the assessee was entitled to deduction of employees' contribution to provident fund and ESI, when the amount was deposited after the due date under the provident fund and ESI laws but before the due date for filing the return under section 139(1) of the Income-tax Act, 1961.

Analysis: The Court construed section 2(24)(x), section 36(1)(va) and section 43-B of the Income-tax Act, 1961 along with the provident fund scheme provisions. It held that employees' contribution, though treated as income upon receipt by the employer, remains deductible if credited to the relevant fund before the due date under section 139(1). The Court further held that section 43-B applies to contributions actually paid before the income-tax return due date and does not import the consequences of delay under the provident fund scheme for denial of deduction under the Income-tax Act.

Conclusion: The employees' contribution was deductible, and the disallowance was not sustainable.

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