2008 (11) TMI 3 - HC - Income Tax

Appeal dismissed: employer provident fund contributions not deductible before s.43B amendment; higher court precedent binding

COMMISSIONER OF INCOME TAX-V Versus PM ELECTRONICS LTD.

The DELHI HC dismissed the appeal, holding that employer contributions to provident fund are not allowable as a deduction for the period prior to the ... Allowability of deduction u/s 36(1)(5a) read with Section 2(24)(x) and Section 43(B) - employer/employees contributions towards provident fund payments - HELD THAT:- It is quite evident that the special leave petition was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertain to a period prior to the amendment brought about in Section 43B of the Act. The aforesaid position as regards the state of the law for a period prior to the amendment to Section 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma [2007 (11) TMI 39 - DELHI HIGH COURT]. Applying the ratio of the decision of the Supreme Court in Vinay Cement [2007 (3) TMI 346 - SC ORDER] a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT v. Nexus Computer (P) Ltd [2008 (8) TMI 304 - MADRAS HIGH COURT] by a judgment dated 18.8.08 passed in Tax Case (A) No. 1192/2008 discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd [2006 (6) TMI 71 - GAUHATI HIGH COURT] and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed and Others v. State of Kerala and another[2000 (7) TMI 67 - SUPREME COURT (LB)]. Upon noting the observations of the Supreme Court in Kunhayammed and Others (supra) the Division Bench of the Madras High Court in the case of Nexus Computer Pvt Ltd (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was non declared by the Supreme Court under Article 141 of the Constitution. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer Pvt Ltd (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra). Thus, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in M/s Pamwi Tissues Ltd. [2008 (2) TMI 400 - BOMBAY HIGH COURT]. The appeal is, thus, dismissed. Issues Involved:Allowability of deduction under Section 36(1)(5a) read with Section 2(24)(x) and Section 43(B) for employer/employees contributions towards provident fund payments made after the due date but before the due date for filing income tax return.Analysis:The judgment pertains to an appeal under Section 260A of the Income Tax Act, 1961 concerning the allowability of deduction under Section 36(1)(5a) read with Section 2(24)(x) and Section 43(B) for provident fund payments made post the due date but before the return filing due date. The Revenue contested the Tribunal's decision, arguing that the amendment to Section 43B by the Finance Act, 2003 was not retrospective, thus disallowing the deduction. The key questions raised were the allowability of PF/ESI payments after the due date under Section 43B and the retrospective nature of the amendment to Section 43B by the Finance Act 2003.The facts revealed that the Assessing Officer disallowed a deduction of Rs 17,94,042 towards EPF contribution as payments were late. The CIT(A) partially allowed the deduction, reducing the disallowed amount to Rs 13,10,791. The Tribunal, following judicial precedents, allowed the appeal of the assessee, leading to the Revenue's challenge before the High Court.The High Court, after considering various judgments including those of the Supreme Court and other High Courts, upheld the Tribunal's decision. It noted the dismissal of the Special Leave Petition by the Supreme Court, emphasizing the applicability of the law prior to the amendment of Section 43B. The Court highlighted the significance of speaking orders by the Supreme Court and the binding nature of its decisions on lower courts. It also referenced the Madras High Court's decision in Nexus Computer Pvt Ltd, affirming the binding effect of the Supreme Court's rulings.In conclusion, the High Court dismissed the appeal, stating that no substantial question of law arose for consideration. It aligned with the views of the Supreme Court in Vinay Cement and the Division Bench of the Court in Dharmendra Sharma, disagreeing with the approach of the Bombay High Court in M/s Pamwi Tissues Ltd. The judgment emphasized the importance of judicial discipline in following established legal principles and binding precedents.This detailed analysis reflects the thorough examination of the issues involved in the judgment, highlighting the legal interpretations, precedents, and reasoning behind the High Court's decision.