Delayed payment of employee contributions treated as deemed income; employer deduction disallowed following Supreme Court precedent.

Delayed payment of employee contributions to welfare funds was admitted and, applying the Supreme Court precedent, the retained employee share is to be treated as deemed income; consequence: the employer is not entitled to deduction and the amount must be added to taxable income. The obligation to remit the employee's share within the statutory due date was emphasized, and reliance on a conflicting high court decision was rejected as factually distinguishable, resulting in dismissal of the employer's grounds of appeal.

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Issues: Whether amounts representing employees' share of contribution deposited by the employer to welfare funds (ESI, PF etc.) after the statutory due date are to be disallowed and treated as deemed income of the employer under Section 36(1)(va) read with Section 43B of the Income-tax Act, 1961.

Analysis: The legal framework comprises Section 36(1)(va) and Section 43B of the Income-tax Act, 1961 and the principles laid down by the Hon'ble Supreme Court in Checkmate Services Private Limited (reported). The decision holds that employees' contributions are monies held in trust by the employer for employees and that deposit to relevant welfare funds on or before the statutory due date is a condition precedent to entitlement to deduction; if deposited beyond the statutory due date specified in the respective labour enactments, such amounts are to be treated as deemed income of the employer. The Supreme Court's ruling is binding on subordinate forums under Article 141 and is applicable retrospectively where no prospective limitation is specified. The admitted facts record delayed deposits of employees' contributions beyond the statutory due dates; therefore, the statutory condition for deduction is not satisfied and the amounts must be added back as income.

Conclusion: The addition treating delayed payment of employees' contributions as deemed income is upheld; the assessee is not entitled to deduction under Section 36(1)(va) read with Section 43B.

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