2024 (5) TMI 1367 - HC - Income Tax

HC confirms Section 43B doesn't cover delayed employee PF ESI contributions held in trust

The HC upheld ITAT's disallowance of ESI and PF payments made after due date but before filing return. Following SC precedent in Checkmate Services, the ... Delayed payment of PF & ESI before filing return of income as prescribed in law - Whether the Ld. ITAT is justified in law and fact and circumstances of the case in making disallowance of payment of ESI & PF before filing Return which was duly covered u/s 43B of the Income Tax Act? HELD THAT:- Dealing with the impact of a delayed deposit and the ambit of Section 43B Supreme Court in Checkmate Services [2022 (10) TMI 617 - SUPREME COURT] held that non obstante clause has to be understood in the context of the entire provision of Section 43-B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions— which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory payout. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non obstante clause under Section 43-B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction. Thus we find no justification to interfere with the view as expressed. Decided against assessee. Issues:1. Delay in filing the appeal2. Justification of ITAT's order by the assessee3. Interpretation of Section 43B of the Income Tax Act4. Compliance with principles of natural justice5. Application of mind by ITAT6. Double taxation issue7. Interpretation of employer's contribution and employee's contribution8. Deposit of amounts before the due date for deduction9. Equality in tax treatment across India10. Compensation for late depositDelay in filing the appeal:The High Court condoned a delay of 205 days in filing the appeal after considering the reasons provided by the appellant. The delay was deemed acceptable, and the application was disposed of accordingly.Justification of ITAT's order by the assessee:The appellant raised various questions challenging the ITAT's order, including issues related to the justification of the order, disallowance of payments, change in law, non-compliance of natural justice, and application of mind by ITAT. The High Court examined these questions in detail.Interpretation of Section 43B of the Income Tax Act:The High Court referred to the Supreme Court judgment in Checkmate Services (P) Ltd. v. CIT and highlighted the distinction between an employer's contribution and amounts held in trust, such as employee contributions. It emphasized the importance of depositing such amounts before the due date for deduction, as mandated by the law.Compliance with principles of natural justice and application of mind by ITAT:The High Court reviewed the ITAT's judgment and found that the view expressed by ITAT was in line with the Supreme Court's decision in Checkmate Services case. It concluded that there was no justification to interfere with ITAT's view and dismissed the appeal.Double taxation issue and interpretation of employer's contribution and employee's contribution:The appellant argued that disallowance of payments, even after depositing them into relevant funds, could lead to double taxation. The High Court examined this argument along with other contentions raised by the appellant regarding the nature of income and deemed income under the Income Tax Act.Deposit of amounts before the due date for deduction:The High Court reiterated the importance of depositing amounts held in trust, like employee contributions, before the due date to qualify for deduction. It emphasized that failure to deposit such amounts on time could impact the deduction eligibility for the assessee.Equality in tax treatment across India and compensation for late deposit:The appellant also contended that tax treatment should be uniform across India to avoid any violation of Article 14 of the Constitution. Additionally, the appellant argued that late deposits were duly compensated by interest and penalties under the respective Acts, thus questioning the need for disallowances.In conclusion, the High Court upheld the ITAT's order, finding no grounds to interfere with the decision. The appeal was dismissed, and the issues raised by the appellant were thoroughly analyzed and addressed in the judgment.