2015 (7) TMI 9 - HC - Income Tax

Taxpayer cannot claim deduction for belated Provident Fund payments under Income Tax Act

Commissioner of Income-tax, Cochin Versus South India Corporation Ltd.

The High Court of Kerala held that a taxpayer is not entitled to claim a deduction for belated payments to the Provident Fund under the Income Tax Act. ... Entitlement to claim deduction of the belated payment to Provident Fund - Held that:- In terms of the Explanation to clause (va) of Section 36(1) of the Income Tax Act, such sums paid after the due date cannot be claimed as other deductions in terms of Section 36 of the Income Tax Act. This is pointedly so because in terms of Section 43B of the Income Tax Act, deductions are to be only on actual payment. These two provisions were considered in Hitech (India) Pvt. Ltd., vs. Union of India and others (1996 (12) TMI 23 - ANDHRA PRADESH High Court) in which it was held that a combined reading of clause (va) of Section 36(1) and Section 43B of the Income Tax Act makes it clear that if the assessee (employer) credited any sum received by him from any of his employees on or before the due date, that is, the date by which the assessee (employer) is required to credit the employees' contribution to the employees' account in the relevant fund (including the Provident Fund), he will be entitled to deduct the said amount in computing his business income. But, Section 43B controls the allowability of deduction of payment specified in clauses (a) to (d) thereof and provides certain conditions subject to which alone the deductions may be permissible. Enunciating the point, it was held that deduction would be available only if the remittance to the fund is made within the due date fixed for making such remittance into the fund; in the case in hand, the Provident Fund. So much so, the question referred is to be answered in favour of the Revenue. Hence we answer the reference by holding that on the facts and in the circumstances of the case, the assessee is not entitled to claim deduction of the belated payment to the Provident Fund in view of the provisions of the Explanation to clause (va) of Sections 36(1) and 43B of the Income Tax Act, in the light of the law laid in Hitech (India) Pvt. Ltd., vs. Union of India and others (supra). Issues:- Whether belated payment to Provident Fund is deductible under the Income Tax ActRs.Analysis:The High Court of Kerala addressed the issue of whether a taxpayer is entitled to claim a deduction for belated payment to the Provident Fund under the Income Tax Act. The case involved two appeals concerning the disallowance of belated payments of Provident Fund amount for the assessment years 1992-93 and 1993-94. The Department contended that the taxpayer is not eligible for the deduction as the payments were made after the due date specified in the Explanation to clause (va) of Section 36(1) of the Income Tax Act. The CIT Appeals had followed a Tribunal decision, leaving the Department's contention unanswered, allowing them to make a reference application. The Court considered the provisions of Section 36(1) and Section 43B of the Income Tax Act, along with the decision in Hitech (India) Pvt. Ltd. vs. Union of India and others (1997 Volume 227 ITR 446).The Court emphasized that deductions under Section 36 of the Income Tax Act are to be based on actual payments, as per the provisions of Section 43B. Referring to the decision in Hitech (India) Pvt. Ltd. case, it was clarified that deductions are permissible only if the remittance to the fund is made within the due date fixed for such remittance. In this case, the payments to the Provident Fund were made after the required date for crediting an employee's contribution, rendering them ineligible for deduction. Therefore, the Court concluded that the taxpayer is not entitled to claim a deduction for belated payments to the Provident Fund in accordance with the provisions of the Income Tax Act and the legal precedent established in the Hitech (India) Pvt. Ltd. case.In light of the above analysis, the Court answered the reference by holding that the taxpayer is not entitled to claim a deduction for belated payment to the Provident Fund. The decision was based on the provisions of the Explanation to clause (va) of Section 36(1) and Section 43B of the Income Tax Act, as interpreted in the Hitech (India) Pvt. Ltd. case. The judgment serves as a significant clarification on the eligibility of deductions related to Provident Fund payments under the Income Tax Act.