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of <h1>Employer and employees' provident and ESI contributions: whether deduction depends on fund due date or return filing deadline, notice issued</h1> The text addresses whether employee contributions recovered by an employer to provident or ESI funds are treated as the employer's income unless credited ... Employer's contributions u/s 36(1)(iv) and employees’ contributions covered u/s 36(1)(va) r/w Section 2(24)(x) - Distinction between employer's contribution and employees' contribution - Applicability of non-obstante clause of Section 43B - 'due date' for crediting employees' contribution - two School of thoughts as regards the interpretation of the words “due date” - Whether non-obstante clause in Section 43B cannot be applied to employees' contributions governed by Section 36(1)(va)? HELD THAT:- As per Section 2(24)(x), any amount recovered by the employer from the employees towards their contribution to any provident or superannuation fund or any other fund set up under the provisions of the ESI Act, 1948 or any other fund for the welfare of the employees is income. Section 36(1)(va) of the Act says that any sum so received by the assessee - employer from his employees to which provisions of Section 2(24)(x) applies, the assessee - employer shall be entitled to deduction while computing income under Section 28, if such sum is credited by the assessee - employer to the employees account before the due date. The Explanation to Section 36(1)(va) says that the 'due date' means the date by which the assessee-cemployer is required to credit the employees contribution in the relevant fund under any Act, Rule, Order or Notification issued thereunder. There are two School of thoughts as regards the interpretation of the words “due date”. A combined reading of the Section 2(24)(x) and that Section 36(1) (va) of the Act, prima facie is indicative that any sum received by the assessee - employer from any of his employees as contribution towards PF & ESI is the income of the assessee under Section 2(24)(x) and it continues to be so, unless it is credited by the assessee - employer to the employee's account in the relevant fund on or before the due date specified under the relevant PF, ESI Act. The employee's contribution towards PF, ESI received by the assessee - employer is his income under Section 2(24)(x) and if he wants to have it deducted from his income under Section 36(1)(va), he must credit the same to the employee's account in the relevant fund on or before the due date specified under the relevant PF,ESI Act. The other view is that there is no difference between employees and employer contribution to PF, ESI and both would be guided by the provisions of Section 43B of the Act so as to allow deduction in the hands of the assessee - employer if the contributions are deposited on or before the due date of filling of return under Section 139(1) of the Income Tax Act, 1961. In view of the conflicting opinion, as referred to above, we would like to look into this issue. Issue notice, returnable in four weeks. Issues: (i) Whether sums recovered by an employer from employees as contribution to provident/ESI funds are income under Section 2(24)(x) and whether deduction under Section 36(1)(va) is available only if such sums are credited to the relevant fund on or before the statutory due date; (ii) Whether the non-obstante clause in Section 43B applies to employees' contributions for the purpose of allowing deduction on deposit by the due date of filing of return under Section 139(1).Analysis: The Court recorded that High Courts are divided: one line treats employees' contributions as employer's income under Section 2(24)(x) and permits deduction under Section 36(1)(va) only if credited by the statutory due date specified under the relevant fund enactments; another line treats employees' and employer contributions as governed by Section 43B, allowing deduction if deposited by the due date for filing returns under Section 139(1). The Court referred to the conflicting authorities and observed that Explanation 5 to Section 43B and distinctions drawn in previous cases warrant consideration.Conclusion: The Court did not decide the issues on merits but issued notice and listed the matter for further hearing returnable in four weeks; Dasti permitted.Final Conclusion: The dispute concerning (i) the treatment of employees' contributions as income and the temporal condition for deduction under Section 36(1)(va) and (ii) the applicability of Section 43B is referred for adjudication by the Court; no final decision on the merits has been rendered in this order.
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