2022 (2) TMI 271 - AT - Income Tax

Appeal granted for Private Company on prospective vs. retrospective amendments under Finance Act, 2021

M/s. Empower Guarding Services Private Limited Versus ACIT, Central Processing Centre, Bengaluru.

The Tribunal allowed the appeal of the Private Limited Company, holding that the amendments made by the Finance Act, 2021, were prospective and not ... Delayed employees’ share of contribution to ESI - amount not paid on or before the due date as mentioned in Sec 36(1)(va) - scope of amendment to the provisions to section 43B and 36(1)(va) - HELD THAT:- The Hon’ble Karnataka High Court in the case of Essae Teraoka Pvt. Ltd.[2018 (2) TMI 115 - SUPREME COURT] has taken the view that employee’s contribution under section 36(1)(va) of the Act would also be covered under section 43B of the Act and therefore if the share of the employee’s share of contribution is made on or before due date for furnishing the return of income under section 139(1) of the Act, then the assessee would be entitled to claim deduction. In this case there is no dispute that the assessee made payment of the Employees share of PF/ESI on or before the due date for filing returnof income for AY 2017-18 u/s.139(1) of the Act. The next aspect to be considered is whether the amendment to the provisions to section 43B and 36(1)(va) of the Act by the Finance Act, 2021, has to be construed as retrospective and applicable for the period prior to 01.04.2021 also. On this aspect, we find that the explanatory memorandum to the Finance Act, 2021 proposing amendment in section 36(1)(va) as well as section 43B is applicable only from 01.04.2021. These provisions impose a liability on an assessee and therefore cannot be construed as applicable with retrospective effect unless the legislature specifically says so. In the decisions referred to by us in the earlier paragraph of this order on identical issue the tribunal has taken a view that the aforesaid amendment is applicable only prospectively i.e., from 1.4.2021. We are therefore of the view that the impugned additions made under section 36(1)(va) of the Act, deserves to be deleted. - Decided in favour of assessee. Issues:1. Interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act.2. Applicability of amendments made by the Finance Act, 2021 to Section 36(1)(va) and Section 43B.3. Distinction between employees' contribution and employer's contribution under the Act.4. Judicial interpretation and precedents related to the issue.5. Retrospective or prospective application of the amendments.Issue 1: Interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act:The case involved an appeal by a Private Limited Company against the addition of employees' share of contribution to ESI by the Centralized Processing Centre. The assessee contended that the payment was made before the due date for filing the return, citing relevant judicial decisions to support their claim.Issue 2: Applicability of amendments made by the Finance Act, 2021 to Section 36(1)(va) and Section 43B:The CIT(A) referred to the amendments made by the Finance Act, 2021, including the insertion of Explanation 2 to Section 36(1)(va) and Explanation 5 to Section 43B. The CIT(A) held that these amendments were declaratory in nature and applied retrospectively, upholding the addition made by the Assessing Officer.Issue 3: Distinction between employees' contribution and employer's contribution under the Act:The CIT(A) highlighted the legal distinction between employees' and employer's contributions under the Act, emphasizing that failure to pay employees' contribution by the due date would permanently negate the employer's claim for deduction. This distinction was recognized by various judicial pronouncements cited by the CIT(A).Issue 4: Judicial interpretation and precedents related to the issue:The CIT(A) referenced judicial decisions such as CIT v. Gujarat State Road Transport Corpn., Popular Vehicles & Services Pvt Ltd v. CIT, and others to support the legal distinction between employees' and employer's contributions. The Hon'ble Karnataka High Court's decision in Essae Teraoka Pvt. Ltd. was also cited to establish that employees' contribution under Section 36(1)(va) would be covered under Section 43B.Issue 5: Retrospective or prospective application of the amendments:The Tribunal analyzed whether the amendments by the Finance Act, 2021, should be construed as retrospective or prospective. While the Revenue argued for a prospective application, the Tribunal, considering the explanatory memorandum to the Finance Act, 2021, held that the amendments were applicable only from 01.04.2021, and therefore, the impugned additions under Section 36(1)(va) deserved to be deleted.The Tribunal allowed the appeal of the assessee, emphasizing that the amendments were not retrospective and the impugned additions should be deleted. The decision was based on the distinction between employees' and employer's contributions, judicial interpretations, and the prospective application of the amendments.