2007 (7) TMI 169 - HC - Income Tax

PF and ESI contributions paid by income tax return due date deductible under Section 36(1)(va) read with Section 43B(b)

COMMISSIONER OF INCOME-TAX Versus SABARI ENTERPRISES

Karnataka HC held that contributions to PF and ESI paid on or before the due date for filing returns under section 139(1) are deductible under section ... Deduction under section 36(1)(va) read with section 2(24) (x) and section 43B - contributions made to PF and ESI - on or before the due date for furnishing the return of income as per section 139(1) - applicability of section 43B(b) - HELD THAT:- The provision of section 43B(b) clearly provides that notwithstanding anything contained in the other provisions of the Act including section 36(1) clause (va) of the Act, even prior the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted I the Finance Act, 1987, which came into effect from April 1, 1988, the letters numbered as clause (a), or clause (c) or clause (d) or clause (e) or (f) are omitted from the above proviso and therefore deduction the employees contribution paid can be claimed by the assessee. The Explanation to clause (va) of section 36(1) of the Income-tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under section 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income. The above said statutory provisions of the Income-tax Act abundantly makes it clear that, the contention urged on behalf of the Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under section 139 is permissible only if the statutory liability of payment of provident fund or other contribution funds referred to in clause (b) are paid within the due date under the respective statutory enactments by the assessees as contended by learned counsel for the Revenue is not tenable in law and therefore the same cannot be accepted by us. The Revenue is directed to accept the payment of ESI and PF contributions paid by the assessees and give the deductions of that amount in favour of the respondents/assessees as claimed by them in their returns. Appeals are dismissed. Issues Involved:1. Whether contributions made by the assessee to PF and ESI are allowable deductions even if made beyond the stipulated period as per section 36(1)(va) read with section 2(24)(x) and section 43B of the Income-tax Act.2. Whether the amendment to section 43B introduced by the Finance Act, 2003, should be read retrospectively.Issue-wise Detailed Analysis:1. Allowability of PF and ESI Contributions Beyond Stipulated Period:The Revenue questioned the orders of the Income-tax Appellate Tribunal, arguing that contributions to PF and ESI must be made within the specified date to avail deductions, as per section 36(1)(va) read with section 2(24)(x) and section 43B of the Income-tax Act. They relied on the Supreme Court's decision in Allied Motors P. Ltd. v. CIT, which emphasized that deductions for statutory liabilities should be allowed only in the year of actual payment to curb the practice of delayed payments.The Tribunal, however, held that the contributions made before the due date for furnishing the return of income under section 139(1) are allowable deductions. The Tribunal's decision was supported by the proviso to section 43B, which was remedial in nature and aimed at eliminating unintended hardships caused by the original wording of section 43B.The court examined the statutory provisions, including sections 2(24)(x), 36(1)(va), and 43B(b), and concluded that the amount paid by the assessee on or before the due date for filing the return under section 139(1) is deductible. The court found the Revenue's contention-that the deduction is permissible only if the statutory liability is paid within the due date under the respective enactments-untenable in law.2. Retrospective Application of the Amendment to Section 43B:The second question concerned whether the amendment to section 43B by the Finance Act, 2003, should be read retrospectively. The Revenue's counsel conceded that this issue had already been settled against them in the case of CIT v. Bharat Earth Movers Ltd., where the court held that the amendment should be read retrospectively.Conclusion:The court dismissed all appeals, directing the Revenue to accept the payments of ESI and PF contributions made by the assessees and to allow the claimed deductions in their returns. The substantial questions of law were answered in favor of the assessees, confirming that contributions made before the due date for filing the return under section 139(1) are allowable deductions.