TaxTMI 
TaxTMI 
2012 (11) TMI 592
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.... were allowable deductions under section 36(1)(va) of the Income Tax Act?" 2. To appreciate the rival contentions of the parties, it would be pertinent to mention that for the assessment year 2001-02, the respondent-assessee declared an income of Rs. 3,16,591/. During proceedings under Section 143(1) of the Income Tax Act (hereinafter referred to as the Act), it was noticed that an amount of Rs. 6,23,028/, which had been collected by the assessee from its employees as their contribution towards their contribution, had not been deposited in the ESI and Provident Fund accounts by the due dates prescribed under the Employees State Insurance and Provident Fund Acts. A sum of Rs. 8,15,196/being the employer's contribution towards Provident Fund was also not deposited by the due date under the Provident Fund Act. The Assessing Officer disallowed the said payments in reassessment proceedings holding that the assessee was not entitled to deduction of the said amounts in view of Section 36(1)(va) of the Act read with Section 43(B) of the Act, since the amounts had not been deposited by the dates prescribed under the Employees State Insurance and Provident Fund Acts. Aggrieved by the sa....
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....ceived by the assessee from any of his employees to which the provisions of subclause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation. For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise." 7. Further, it would also be pertinent to refer to Section 43B (b) of the Act: "43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of ................................ (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, ............................... shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee acco....
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....m his employees as contributions to provident funds or ESI were to be treated as income. By the same Act, Section 36(1)(va) was introduced. Resultantly, the contribution of the employees collected by the employer was treated as his income. At the same time, the same was allowed as deductible expense if deposited within a particular time. 12. Section 43B of the Act was also amended in the year 1987 itself and the following two provisos were inserted: "Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under subsection (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid during the previous year on or before the due date as defined in the Explanation below clause (va) of subsection (1) of section 36." 13. It....
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.... stood discontinued and, under section 43B, it became mandatory for the assessee(s) to account for the aforestated items not on mercantile basis but on cash basis. This situation continued between April 1, 1984 and April 1, 1988, when Parliament amended section 43B and inserted the first proviso to section 43B. By this first proviso, it was, inter alia, laid down, in the context of any sum payable by the assessee(s) by way of tax, duty, cess or fee, that if an assessee(s) pays such tax, duty, cess or fee even after the closing of the accounting year but before the date of filing of the return of income under section 139(1) of the Act, the assessee(s) would be entitled to deduction under section 43B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, did not apply to the contribution made by the assessee(s) to the labour welfare funds." 16. Thereafter, the Apex Court made reference to second proviso inserted w.e.f. April 1, 1988 vide Finance Act of 1987 and also to the Explanation below Section 36 (1) (va) of the Act and held as follows: "We find no merit in these civil appeals filed by the Department for the following re....
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.... provided by treating it as income when the assessee receives the employees' contribution and enabling the assessee to claim deduction only on actual payment by due date specified under the provisions." 18. After referring to the judgment of the Apex Court in Commissioner of Income Tax versus Vinay Cement, (2009) 313 ITR 1, the Delhi High Court held as follows: "We may only add that if the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. In so far as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (2009) 313 ITR (St.) 1." 19. We are in respectful agreement with the reasoning given by the Delhi High Court. A number of other judgments have been cited before us, but we need ....