2019 (6) TMI 813 - HC - Income Tax

High Court upholds disallowance of late employee fund deposits, stresses timely compliance with wage month

PRINCIPAL COMMISSIONER OF INCOME TAX 4 Versus SUZLON ENERGY LIMITED

PRINCIPAL COMMISSIONER OF INCOME TAX 4 Versus SUZLON ENERGY LIMITED - TMI Issues:- Interpretation of due date for payment of employee's contribution to PF and ESI.- Disallowance of late deposited employees' contributions towards provident fund and ESI.Interpretation of Due Date for Payment of Employee's Contribution to PF and ESI:The High Court heard two Tax Appeals with identical issues and substantial questions of law. The lead matter, Tax Appeal No.1329 of 2018, involved a challenge by the Revenue against the Income Tax Appellate Tribunal's order related to the assessment years 2013-14 and 2014-15. The key question raised was whether the due date for payment of employee's contribution to PF and ESI should be determined based on the month to which such salary and wages of employees are related. The appellant's counsel argued that a previous judgment favored the Revenue on this issue. The Coordinate Bench decision cited by the appellant highlighted the importance of depositing the contributions within fifteen days of the close of the month for which wages are paid, emphasizing that the liability to deposit the employee's contribution arises in the same month as the payment of wages.Disallowance of Late Deposited Employees' Contributions towards Provident Fund and ESI:The case involved a private limited company facing a disallowance of employees' contributions towards provident fund and ESI amounting to a significant sum due to late deposits. The Assessing Officer applied the disallowance under section 36(1)(va) of the Income Tax Act, 1961, as the deposits were made beyond the specified due date. The appellant's counsel referred to a Division Bench judgment that covered a similar issue but presented a different argument based on section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952. The counsel contended that the time limit for depositing contributions should be based on the month in which salary payments are made, not the date of payment. However, the High Court disagreed, emphasizing that the due date for depositing the employee's contribution should align with the close of the month for which wages are paid, irrespective of the actual payment date. Consequently, the Tax Appeal was dismissed, upholding the disallowance of late deposits.In conclusion, the High Court allowed the Tax Appeal, quashing the Tribunal's order and dismissing the appeal by the Revenue. The judgment clarified the interpretation of the due date for employee contributions to PF and ESI, emphasizing the importance of timely deposits aligned with the month for which wages are paid.