2008 (8) TMI 304 - HC - Income Tax

Deletion of second proviso to s.43B allows deduction for PF/ESI paid by return due date; no retrospective effect

The HC held that deletion of the second proviso to s.43B permits deduction for provident fund/ESI contributions paid by the assessee on or before the ... Nature and effect of amendment to Section 43B - payment of contribution to provident fund and ESI contribution - Retrospective effect of the omission of the second proviso to section 43B - HELD THAT:- With the omission of the proviso the assessee is entitled to the deduction of payment made towards provident fund, etc., when such payment is actually made by the assessee on or before the due date applicable for filing the return, irrespective of whether such payment is made on or before the due date by which the assessee is required to credit the contribution to the employee's account in the relevant fund under the relevant Act. It is not permissible in law to take a liberal view or lenient approach to give retrospective effect to the deletion of the second proviso to section 43B of the Act so as to apply it to earlier assessment years, particularly when there is no indication in the Finance Act, 2003, from the language used and from the object indicated that the Legislature intended expressly or by implication that the second proviso to section 43B was deleted to cure an acknowledged evil for the benefit of the community as a whole or to remove any such hardship, or any express provision in the statute that such deletion of the second proviso to section 43B of the Act would have any retrospective effect. On that basis the Division Bench in the case of CIT v. Synergy Financial Exchange Ltd.[2006 (7) TMI 106 - MADRAS HIGH COURT] held that any payment made subsequent to the due date or the extended date would not entitle to the exemption under section 43B of the Act. Admittedly, in this case, the contribution has been paid prior to the filing of the return. The Supreme Court decision in Vinay Cement Ltd.'s case [2007 (3) TMI 346 - SC ORDER] squarely covers the issue and the assessee is entitled to the benefit under section 43B of the Income-tax Act. Hence, the appeal under consideration has to be dismissed and the same is dismissed. No costs. Issues:1. Disallowance of provident fund and ESI contribution under section 43B for assessment year 2000-01.2. Retrospective effect of the omission of the second proviso to section 43B.3. Allowability of deductions for payments made belatedly under section 43B.Analysis:Issue 1: Disallowance of provident fund and ESI contribution under section 43B for assessment year 2000-01:The assessee-company, engaged in the business of manufacturing and trading computer systems, filed its return for the assessment year 2000-01. The Assessing Officer disallowed the payment of provident fund and ESI contribution under section 43B as they were made belatedly. The Commissioner of Income-tax (Appeals) partly allowed the appeal, restricting the disallowance to a specific amount. The Tribunal, following the decision in Kwality Milk Foods Ltd. v. Asst. CIT, emphasized the importance of actual payment of statutory liabilities related to labor during the financial year. As the exact dates of payment were not available, the Tribunal remitted the case back to the Assessing Officer to determine the payment dates and allow the claim.Issue 2: Retrospective effect of the omission of the second proviso to section 43B:The key question raised was whether the omission of the second proviso to section 43B should be deemed to have retrospective effect. The Division Bench of the High Court, in the case of CIT v. Synergy Financial Exchange Ltd., held that statutes are prima facie prospective unless expressly or implicitly made retrospective. The Division Bench emphasized that the deletion of the second proviso allows deductions for payments made towards provident fund when made by the due date for filing the return. The Gauhati High Court and the Supreme Court in CIT v. Vinay Cement Ltd. affirmed this view, allowing deductions for contributions made before filing the return.Issue 3: Allowability of deductions for payments made belatedly under section 43B:The Gauhati High Court's decision in CIT v. George Williamson (Assam) Ltd. held that contributions made before the due date for filing the return are entitled to deduction under section 43B(b). The Supreme Court's decision in CIT v. Vinay Cement Ltd. further supported this by allowing the benefit under section 43B for contributions made before filing the return. The Apex Court's decision binds the lower courts, establishing the entitlement of the assessee to the benefit under section 43B. Therefore, the appeal was dismissed, affirming the assessee's right to the deductions.This detailed analysis of the judgment provides insights into the legal issues surrounding the disallowance of provident fund and ESI contribution, the retrospective effect of statutory provisions, and the allowability of deductions for belated payments under section 43B of the Income-tax Act, 1961 for the assessment year 2000-01.