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of <h1>Employee contributions must be deposited by statutory due date to qualify for tax deduction under Section 36(1)(va)</h1> <h3>CHECKMATE SERVICES P. LTD. Versus COMMISSIONER OF INCOME TAX-1</h3> CHECKMATE SERVICES P. LTD. Versus COMMISSIONER OF INCOME TAX-1 - [2022] 448 ITR 518 (SC) Issues Involved:1. Interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961.2. Whether amounts deposited by the appellant assessees towards contribution in terms of the EPF Act, EPF Scheme, ESI Act, ESI Regulations, or any other provident or superannuation fund are deductible if deposited belatedly.Detailed Analysis:Interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961:The primary issue in these appeals revolves around the interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961. Section 36(1)(va) pertains to the deduction of sums received by the assessee from employees as contributions to any provident fund or superannuation fund, provided such sums are credited to the employee's account in the relevant fund on or before the due date. Section 43B, on the other hand, allows certain deductions only on actual payment, overriding other provisions of the Act.The appellants contended that the deletion of the second proviso to Section 43B by the Finance Act, 2003, should be applied retrospectively, allowing deductions for contributions paid before the filing of the return of income. They argued that the non-obstante clause in Section 43B should override the specific condition in Section 36(1)(va) regarding the due date for depositing employees' contributions.The Revenue, however, argued that Section 36(1)(va) specifically deals with employees' contributions and mandates that such contributions must be deposited on or before the due date specified under the relevant acts. The Revenue contended that Section 43B applies to employers' contributions and other statutory liabilities, and cannot override the specific provisions of Section 36(1)(va).Whether amounts deposited by the appellant assessees towards contribution in terms of the EPF Act, EPF Scheme, ESI Act, ESI Regulations, or any other provident or superannuation fund are deductible if deposited belatedly:The court analyzed the legislative intent behind the introduction of Section 36(1)(va) and Section 43B. It noted that Section 36(1)(va) was specifically introduced to ensure that amounts received from employees as contributions are deposited timely, reflecting the trust nature of such amounts. The court emphasized that Parliament intended to treat employees' and employers' contributions differently, with employees' contributions being deemed income unless deposited on or before the due date.The court further observed that the non-obstante clause in Section 43B aims to ensure timely payment of certain liabilities, allowing deductions only upon actual payment. However, this does not apply to employees' contributions, which must be deposited within the due date specified under the relevant welfare enactments. The court concluded that the non-obstante clause in Section 43B does not override the specific condition in Section 36(1)(va) regarding the due date for depositing employees' contributions.Analysis and Conclusions:The court upheld the interpretation that employees' contributions must be deposited on or before the due date specified under the relevant acts to qualify for deduction under Section 36(1)(va). The deletion of the second proviso to Section 43B does not override this requirement. The court emphasized the distinction between employers' contributions, which are part of the employer's income, and employees' contributions, which are deemed income held in trust by the employer.The court dismissed the appeals, affirming that the non-obstante clause in Section 43B does not absolve the assessee from the liability to deposit employees' contributions on or before the due date as a condition for deduction. The decisions of other High Courts holding to the contrary were not considered to lay down the correct law.Conclusion:The Supreme Court concluded that the appellants are not entitled to deductions for employees' contributions deposited belatedly, upholding the interpretation that such contributions must be deposited on or before the due date specified under the relevant acts to qualify for deduction under Section 36(1)(va). The appeals were dismissed, affirming the judgments of the Gujarat and Kerala High Courts.
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