2014 (8) TMI 677 - HC - Income Tax

Provident Fund and ESI Contributions Deductible Under Section 36(1)(va) If Paid By Return Due Date

Commissioner of Income Tax, Udaipur Versus M/s. Udaipur Dugdh Utpadak Sahakari Sangh Limited, Udaipur

The HC held that contributions to the provident fund and employees' state insurance are deductible under section 36(1)(va) if paid by the due date of ... Disallowance of contribution to provident fund and employees' State insurance fund under section 36(1)(va) read with section 2(24)(x) - effect of the deletion of the second proviso to section 43B - Held that:- The CIT(A) as well as Tribunal was rightly of the view that where the payments on account of contribution to the provident fund, employees' State insurance, etc., are made within the due date of filing the return, such deductions are allowable - the provident fund contribution and the employees' State insurance was deposited before the due date of filing the return - Following the observations of the hon'ble Supreme Court in Vinay Cement [2007 (3) TMI 346 - SC ORDER], the Delhi High Court in CIT v. AIMIL Ltd.[2009 (12) TMI 38 - DELHI HIGH COURT] - if the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Funds Act as well as the Employees' State Insurance Act – Decided against Revenue. Issues:- Disallowance of contribution to provident fund and employees' State insurance fund under section 36(1)(va) read with section 2(24)(x) of the Income-tax Act, 1961.- Interpretation of section 43B of the Act regarding the timing of contributions to welfare funds.- Applicability of judicial precedents in determining the allowability of deductions for timely contributions.Analysis:1. Disallowance of Contributions: The appellant, engaged in dairy product business, filed its income tax return for the assessment year 2006-07, declaring total income. The Assessing Officer added the delayed payments to provident fund and employees' State insurance fund to the appellant's income under section 36(1)(va) read with section 2(24)(x) of the Act. The Commissioner of Income-tax (Appeals) reversed this decision, noting that deductions are allowable if payments are made before the due date of filing the return. The Income-tax Appellate Tribunal upheld this decision, emphasizing that employees' contribution is allowable if paid before the due date of return.2. Interpretation of Section 43B: The Revenue contended that the Tribunal erred in upholding the Commissioner's decision without considering the legal aspects. Reference was made to section 43B of the Act, highlighting the distinction between employer and employee contributions. The Supreme Court's interpretation in CIT v. Alom Extrusions Ltd. emphasized the non obstante clause in section 43B, allowing deductions only upon actual payment. The deletion of the second proviso aimed at achieving uniformity in deductions for various payments, including welfare fund contributions.3. Applicability of Judicial Precedents: Citing the Supreme Court's decision in CIT v. Vinay Cement Ltd., it was reiterated that contributions made before filing the return are eligible for deduction under section 43B. The Delhi High Court's ruling in CIT v. AIMIL Ltd. further supported this stance, emphasizing the allowance of delayed deposits with interest and penalties under relevant Acts. The Tribunal's decision aligned with these legal principles, dismissing the Revenue's appeal based on settled legal positions.In conclusion, the High Court dismissed the appeal by the Revenue, affirming the Tribunal's decision based on established legal interpretations and precedents. The judgment clarified the allowability of deductions for timely contributions to welfare funds under the Income-tax Act, emphasizing the significance of payment timing in determining tax liabilities.