2017 (1) TMI 677 - HC - Income Tax

Court Allows Deductions for PF and ESI Contributions Before Filing Return

The court ruled in favor of the assessee, allowing deductions for both employee's and employer's contributions to PF and ESI if paid before the due date ... Applicability of the provisions of Section 43B (b) - whether the provisions of Section 43B as it stands after deletion second proviso thereto by Finance Act, 2003, permitting certain deductions on actual payment, can be applied for allowing the deductions in respect of the employee’s contribution towards the relevant fund or funds received by the assessee not credited to the employee’s account on or before the due date as contemplated under explanation attached to Section 36 (1) (va) but is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of Section 139 in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee alongwith such return? Held that:- Adverting to the provisions of Section 43B of the Act, it is pertinent to note that the clause (b) thereof refers to ‘sum payable by the assessee as an employer by way of contribution’ to any provident fund, superannuation fund or gratuity fund or any other fund for the welfare of the employees. As discussed hereinabove, under the relevant statutes, both the employer’s contribution and employee’s contribution is required to be paid by the employer before the due date and therefore, the expression ‘sum payable by the assessee as an employer by way of contribution’ as used in Section 43B (b) cannot be given restricted meaning as suggested by the Revenue so as to include within its ambit, only the employer’s contribution and not the both the employer’s contribution and the employee’s contribution. Thus, we are of the considered opinion that the provisions as incorporated in Section 43B (b) allowing deduction in respect of any sum payable by the assessee as an employer by way of contribution to provident fund etc. include both the employer’s contribution and the employee’s contribution, if the same is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of the income under sub-section (1) of Section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee alongwith such return. The contention sought to be raised by the Revenue that the question with regard to entitlement of the assessee for deduction in respect of the employee’s contribution under Section 43B has not been dealt with in the decisions rendered by the various High Courts is not correct. In some of the decisions, the question with regard to applicability of the provisions of Section 43B vis-a-vis the provisions of Section 36 (1) (va) of the Act dealing with employee’s contribution has been specifically dealt with. Decided in favor of assessee. Issues Involved:1. Deduction of employee’s and employer’s contributions to Provident Fund (PF) and Employees State Insurance (ESI) Fund.2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961.3. Interpretation of the term “contribution” in Section 43B(b).4. Retrospective application of the amendment to Section 43B by the Finance Act, 2003.Issue-wise Detailed Analysis:1. Deduction of Employee’s and Employer’s Contributions to PF and ESI Fund:The appellant filed returns for the Assessment Years 2001-02 and 2002-03, claiming deductions for contributions to PF and ESI. Both employee’s and employer’s contributions were not deposited by the statutory due date but were paid before the due date for filing the income tax return under Section 139(1) of the Income Tax Act, 1961. The Assessing Officer disallowed the deductions for employee’s contributions, citing Section 36(1)(va) and Section 2(24)(x) of the Act.2. Applicability of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961:The CIT(A) upheld the disallowance, but the ITAT initially allowed the deductions, interpreting the amendment to Section 43B as retrospective. However, upon re-hearing, the ITAT sustained the disallowance for employee’s contributions but allowed deductions for employer’s contributions. The core issue was whether employee’s contributions could be deducted under Section 43B if paid before the return filing due date under Section 139(1).3. Interpretation of the Term “Contribution” in Section 43B(b):The court examined whether the term “contribution” in Section 43B(b) includes both employee’s and employer’s contributions. It concluded that under the relevant statutes (PF Act and ESI Act), the employer is responsible for paying both contributions by the due date. Therefore, the term “contribution” in Section 43B(b) encompasses both employee’s and employer’s contributions if paid before the return filing due date.4. Retrospective Application of the Amendment to Section 43B by the Finance Act, 2003:The court noted that the amendment to Section 43B by the Finance Act, 2003, which deleted the second proviso, is curative and retrospective. This aligns with the Supreme Court’s decisions in 'CIT vs. Alom Extrusions Ltd.' and 'CIT vs. Vinay Cement Ltd.' The court held that contributions paid before the return filing due date under Section 139(1) are deductible, irrespective of the due date under Section 36(1)(va).Conclusion:The court ruled in favor of the assessee, allowing the deductions for both employee’s and employer’s contributions to PF and ESI if paid before the due date for filing the return under Section 139(1). The ITAT’s order was set aside, and the appeals were allowed. The substantial question of law was answered in favor of the assessee, affirming that the term “contribution” in Section 43B(b) includes both employee’s and employer’s contributions.