Provident fund delay interest is not deductible when employees' contribution is remitted after the statutory due date.

Interest paid on delayed remittance of employees' provident fund contribution is not deductible under section 37(1) because employees' share is treated as income under section 2(24)(x) and must be deposited within the prescribed due date under section 36(1)(va). Applying the distinction between employer's and employees' contributions recognised in Checkmate Services Pvt. Ltd., the article states that if the principal amount is statutorily non-deductible beyond the due date, interest arising from that delay takes the same character and cannot be claimed under the residuary expenditure provision. The disallowance was therefore sustained.

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Issues: Whether interest paid on delayed deposit of employees' contribution to provident fund is allowable as a deduction under section 37(1) of the Income-tax Act, 1961.

Analysis: The issue was examined in the light of the statutory scheme governing employees' contributions, including section 2(24)(x), section 36(1)(va) and Explanation 1 to section 37(1) of the Income-tax Act, 1961. The relevant legal position was taken from the distinction between employer's contribution and employees' contribution, as settled by the Supreme Court in Checkmate Services Pvt. Ltd. The employees' share is treated as income in the hands of the employer and is required to be deposited within the prescribed due date. If the principal amount itself is not deductible because of statutory prohibition, interest arising from delayed payment partakes the same character as the principal. Since section 37(1) is a residual provision and cannot be used to claim expenditure prohibited by law, deduction of such interest was held to be impermissible.

Conclusion: The interest on delayed deposit of employees' contribution to provident fund is not deductible under section 37(1) and the disallowance was sustained.

Ratio Decidendi: Where the underlying employees' contribution is statutorily required to be deposited within the due date and is otherwise not deductible beyond that limit, interest attributable to the delayed remittance is of the same character and cannot be claimed as a deduction under the residuary business expenditure provision.

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