2019 (7) TMI 971 - HC - Income Tax

Court clarifies due date for employee contributions under Income Tax Act

The High Court upheld the disallowances of employee contributions under Section 36(1)(va) of the Income Tax Act, 1961, and clarified the interpretation of ... Disallowance u/s 36(1)(va) read with Section 2(24)(x) - disallowance of late deposited employees’ contributions of PF and ESIC - HELD THAT:- Both the questions proposed by the assessee are no longer res integra. So far as the question no.(i) proposed by the assessee is concerned, the same is squarely covered by a Division Bench decision of this Court in the case of Commissioner of Income Tax vs. Gujarat State Road Transport Corporation [2014 (1) TMI 502 - GUJARAT HIGH COURT] So far as the second question which has been proposed is concerned, is also squarely covered by the decision of this Court in the case of M/s Checkmate Facility And Electronic Solutions Pvt. Ltd. vs. Deputy Commissioner of Income Tax [2018 (10) TMI 994 - GUJARAT HIGH COURT] wherein this Court held Provision thus requires an employer before paying the employee his wages to deduct the employee's contribution along with the employer's own contribution as fixed by the Government. It is further required that he shall within fifteen days of the close of every month pay the same to the fund such contribution and administrative charges. In terms of this provision thus, after deducting the employee's contribution towards the funds, the same has to be deposited with the Government within fifteen days of the close of every month. Reference to fifteen days of the close of the month must be in relation to the month during which the payment of wages is to be made and corresponding liability to deduct employee's contribution to the fund arises. The expression “within fifteen days of the close of every month” therefore must be interpreted as having reference to the close of the month, for which, the wages are required to be paid with corresponding duty to deduct employee's contribution and to deposit the same in the fund. Appellant is therefore not correct in contending that if such wages are paid in the following month, the liability to deposit the employee's contribution to the fund gets differed by another month. - Decided against assessee Issues:1. Disallowance of employee contributions under Section 36(1)(va) of the Income Tax Act, 1961.2. Interpretation of due date for payment of employees' contribution into the Government treasury.Issue 1: Disallowance of Employee ContributionsThe appellant-assessee challenged the disallowances of Rs. 31,09,082 and Rs. 3,08,247 under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961. The High Court noted that the questions proposed by the assessee were not new and were previously addressed by the Court. The Court referred to a Division Bench decision in a similar case, establishing a precedent. The Court held that as per Section 36(1)(va), any sum received by the assessee from employees must be credited to the employee's account in the relevant funds on or before the due date. The due date is defined as the date by which the employer is required to credit the employee's contribution under any relevant Act. The Court referenced Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, which mandates the employer to deduct and deposit the employee's contribution within fifteen days of the close of the month in which the wages are paid. The Court concluded that the Appellate Tribunal's order was correct, and the appeal was dismissed.Issue 2: Interpretation of Due Date for PaymentThe second question raised by the appellant related to the due date for payment of employees' contributions into the Government treasury. The Court cited a previous case where a similar issue was addressed. The appellant argued that the due date should be calculated from the date of actual payment of salary, not its accrual. The Court analyzed Section 38 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, which requires the employer to deduct and pay the employee's contribution within fifteen days of the close of the month in which wages are paid. The Court emphasized that the due date must be linked to the month when wages are paid and the corresponding liability to deduct and deposit the employee's contribution arises. Therefore, the expression 'within fifteen days of the close of every month' should be interpreted in relation to the month for which wages are due. The Court found no error in the Tribunal's order, and the appeal was dismissed.In conclusion, the High Court upheld the disallowances of employee contributions and clarified the interpretation of the due date for payment of employees' contributions into the Government treasury. The Court relied on previous decisions to establish legal precedents and dismissed the appeal, finding no error in the Tribunal's order.