TaxTMI 
TaxTMI 
2016 (12) TMI 1479
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....ounsel for appellant stated that he is pressing this appeal only in respect to questions 4, 5 and 6 and only the aforesaid three questions need be adjudicated. 3. Questions 4, 5 and 6 read as under:- "(4) Whether on the facts and in the circumstances of the case, the second proviso to the Section 43-B of the Income Tax Act, 1962 does not override the first proviso to the said section and hence the deduction of Rs. 2,62,418/- in respect of employer's contribution to provident fund and ESI was admissible to the Assessee/appellant under the first proviso of Section 43-B itself? (5) Whether the omission of the second proviso to Section 43-B vide Finance Act, 2003 with effect from 01.04.2004, is curative in nature and has retrospective effect and the Assessee/appellant is eligible to claim deduction of Rs. 2,62,418/- being employer's contribution to provident fund and ESI in the Assessment Year 2001-02 in view of such amendment? (6) Whether the provisions of Section 36 and Section 43-B are mutually exclusive and the Assessee/appellant is legally entitled to claim deduction of employees' contribution to provident fund and ESI amounting to Rs. 2,8....
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....) (va) and latter disallowance was made under Section 43B of Act 1961. 7. Against Assessment Order dated 30.01.2004, passed under Section 143(3) of Act 1961, appellant preferred appeal before Commissioner of Income Tax (Appeals) (hereinafter referred to as ''CIT (A)') who dismissed appeal vide order dated 21.02.2005. On these two aspects, appellants further appeal, preferred before Tribunal, has also been rejected. 8. Now in order to answer the aforesaid questions, we need to examine relevant statutory provisions and law of precedence wherein similar issues have been considered and decided. 9. Section 2(24) defines "Income" and clause (x) is in respect to the "employees contribution". The relevant provision is quoted herein:- " 2(24) "income" includes-- (i) profits and gains; (ii) dividend; (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause ....
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....nefit or perquisite taxable under clause (iv) of section 28; (ve) any sum chargeable to income-tax under clause (v) of section 28; (vi) any capital gains chargeable under section 45; (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule; (viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members; (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. Explanation.--For the purposes of this sub-clause,-- (i) "lottery" includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called; (ii) "card game and other game of any sort" includes any game show, an entertainment programme on....
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....as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 ; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); (iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to t....
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....stroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD. Explanation 2.--Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business." 11. Section 36(1)(va), permit deductions in respect to relevant fund of employees. " 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28............... (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (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 of 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 an....
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....(b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise that in cash, the sum has been realised within fifteen days from the due date." 13. Explanation 36(1)(va) provides that deduction shall be allowed in respect to the sum paid by Assessee to employees' account, in the relevant fund, on or before 'due date', i.e. such date by which Assessee (employer) is required to credit employees contribution in the relevant fund, under any Act, rule, order or notification issued therein. In the present case, 'due date' therefore, shall be the date mentioned in Act 1952 or Act 1948 or Rules framed thereunder etc. by which contributions were to be made. Admittedly, as per 'due date' under the relevant Acts, contributions were not paid by Assessee appellant. Section 36(1)(va) talks of only employee's contribution and allow deduction in respect thereto in computing 'income' under Section 28. 14. So far as Section 43B is concerned, we find ....
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.... admissible for the accounting year. This proviso, however, was not made applicable to contributions made by Assessee (Employer) to labour welfare funds. By Finance Act, 1988, w.e.f. 01.04.1988, Second Proviso came to be inserted. Second Proviso was further amended by Finance Act, 1989 w.e.f. 01.04.1989. 15. From the above provisions, now Assessee (employer) become entitled to deduction only if contribution stand credited on or before due date, given in Labour Welfare Statutes. However, Second Proviso again created certain difficulties. In many of the Companies, Financial Year ended on 31st March, did not coincide with accounting period of Labour Welfare Statutes. In many cases, time to make contribution of funds ended after due date of filing of Returns. On the representation of Industries, again Parliament, vide Finance Act, 2003, w.e.f. 01.04.2004, made amendment by deleting Second Proviso and amending First Proviso. 16. Learned counsel for Assessee argued that the issue in question is covered by Supreme Court judgment in Commissioner of Income-Tax Vs Alom Extrusions Ltd., (2009) 319 ITR 306, but both learned counsels appearing for rival parties admitted that even after th....
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....t is with respect to the disallowance of the amount being the employees' contribution to the PF account/ESI contribution which admittedly which the concerned assessee did not deposit with the PF Department/ESI Department within due date under the PF Act and/or the ESI Act." 18. Gujrat High Court referred to Section 2(24)(x) and found that any sum received by Assessee (employer) from his employees as contributions to any provident fund or superannuation fund or any fund set up under Act, 1948, or any other fund for welfare of such employees, constitute income. However, Section 36 of Act 1961 provides for deduction in computing income referred to in Section 28. The relevant provision of Section 36 applicable to the case before Gujrat High Court was Section 36(1)(va) with which we are also concerned. It entitles an Assessee for deduction in computing income referred to in Section 28 with respect to any sum received by Assessee (employer) from his employee to which Section 2(24)(x) apply, if such sum is credited by Assessee to employees accounts in the relevant fund before due date i.e. date prescribed in the relevant statute applicable to the concerned fund. Court also noticed ....
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....ses, (2008) 298 ITR 141. 21. Karnataka High Court had an occasion to consider, whether it should dissent with the view taken in the earlier judgments and follow the view taken by Gujrat High Court in Commissioner of Income-Tax Vs Gujrat State Road Transport Corporation (supra) and this occasion came in Essae Teraoka P. Ltd. Vs Deputy Commissioner of Income-Tax, (2014) 366 ITR 408. Dispute relates to A.Y. 2008-09. Assessee filed Return on 26.09.2008. Return was processed under Section 143(1) and thereafter on scrutiny, notice under Section 143(2) was issued. Assessing Officer completed assessment by order dated 24.12.2010 under Section 143(3) disallowing Rs. 12,51,737/- under Section 36(1)(va) and also disallowing Rs. 1,04,621/- under Section 14A read with Rule 8D. In appeal, CIT (A) reversed findings of Assessing Officer but on appeal preferred by Revenue, Tribunal restored Assessing Officer's order and that is how matter came to Karnataka High Court. The question up for consideration was, "whether Tribunal was justified in affirming finding of Assessing Officer and denying Assessee's claim of deduction of employees contribution to PF/ESI alleging that the payment was no....
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....ns' i.e. employers' and employees'. 24. Kerala High Court in recent judgment in Commissioner of Income-Tax Vs Merchem Ltd., (2015) 378 ITR 443, has followed the decision of Gujrat High Court in Commissioner of Income-Tax Vs Gujrat State Road Transport Corporation (supra) and dissented with the otherwise judgments of Rajasthan High Court in Commissioner of Income-Tax Vs State Bank of Bikaner and Jaipur, (2014) 363 ITR 70, Karnataka High Court in Commissioner of Income-Tax Vs Spectrum Consultants India P. Ltd. (supra) and Bombay High Court in Commissioner of Income-Tax Vs Ghatge Patil Transports Ltd., (2014) 368 ITR 749. 25. Before following a particular view when there is divergence in views of different High Courts, we find it appropriate to examine Supreme Court judgment in Commissioner of Income-Tax Vs Alom Extrusions Ltd. (supra) to find out whether it can be confined only in respect to employers' contribution or is applicable to both 'contributions', whether by employer or employee. 26. The question, whether benefit under Section 43B, as a result of amendment of Finance Act, 2003, is retrospective or not, came to be considered in Commissioner of....
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....t mandatory for the Department to grant deduction in computing income under Section 28 in the year in which tax, duty, cess etc. is actually paid. Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under Provident Fund Act, Municipal Corporation Act (Octroi) and other Tax laws. Therefore, by way of First Proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax duty cess or fee is paid before the date of filing of the return under Act 1961, Assessee would than be entitled to deduction. This relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer should not sit on the collected contributions and deprive workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. But when implementation problems were pointed out for different due dates, uniformity was brought about in first proviso by Finance Act, 2003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospect....