TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 927
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....ore the due date of filing the return of income u/s. 139(1) for the relevant year/s and, in fact, along with interest for the delayed deposit, i.e., under the relevant statute. The Hon'ble Karnatka High Court has in EssaeTeraoka P. Ltd. vs. Dy. CIT [2014] 366 ITR 408 (Kar) clarified that the word 'contribution', as defined u/s. 2(c) of the Employee's Provident Fund Act, 1952, includes both the employees' and the employers' contribution. The amount, even as noted by the Hon'ble Court, is in fact deposited in the first instance by the employer and, further, vide the same challan. How could the same be therefore, it was posited, treated differently? The Revenue invokes Explanation-5 to sec. 43B to make the adjustment to the returned income/s for the relevant years, which though came on the statute book only w.e.f. 1.4.2021. How could the same thus have an application for the years under reference, being AYs. 2018-19 and 2019-20. 2.2 The Revenue's case, relying on the impugned order/s, is that the disallowance/s has been effected u/s. 36(1)(va) - which defines the 'due date', by which date the sum specified thereunder is to be paid to qualify for deduction thereunder, as the d....
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....effect, despite the legislative declaration specifying a prospective date as the date from which the amendment is to come into force, it was explained therein, is as to whether without the aid of the subsequent amendment the unamended provision is capable of being so construed as to take within its ambit the subsequent amendment. There is case law galore on the amendments, despite being apparently prospective, having been held as retrospective in nature, with some under the Act being as follows: CIT v. Calcutta Export Co. Ltd. [2012] 404 ITR 654 (SC); CIT v. Vatika Township (P.) Ltd.[2014] 367 ITR 466 (SC); CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC); Allied Motors (P.)Ltd. v. CIT [1997] 224 ITR 677 (SC); and Bagri Impex (P.)Ltd. v. Asst. CIT [2013] 214 Taxman 305 (Cal), with the latter two by the Apex Court being in the context of s. 43B itself. The Explanations 4.2 The Explanations under reference read as under: Explanation 2.- For the removal of doubts, it is hereby clarified that the provisions of section 43B shall not apply and shall be deemed never to have been applied for the purposes of determining the "due date" under this clause; (to section 36(1)(va), renum....
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....lause, "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; Certain deductions to be only on actual payment. 43B.Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or (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, (c) to (f) .... shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which sum is actually paid by him: The following provisos were inserted w.e.f. 01/4/1988: ....
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....mployee's contribution is a part of his salary, qua which deduction, on gross basis, i.e., without any deduction, is exigible in arriving at the business profit (of the employer) on becoming due for payment, and irrespective of its actual payment to the employee (which would only be at net of any deduction/s therefrom), i.e., where the accounts of such business are kept on mercantile basis. The employee welfare legislations, however, provide that a part of it be deducted by the employer and credited to the employee's account, required to be statutorily maintained, with the relevant fund. It is this deduction, statutorily mandated, as a contribution by the employee, which thus represents money held under trust by the assessee-employer (for and on behalf of the employee) for being so deposited, which is regarded, i.e., by the legal fiction of s.2(24)(x), as the employer's income. How could the same, being thus received, actually or constructively, by the employer from the employee and, therefore, regarded as his income u/s. 2(24)(x), be regarded as the employer's contribution to the employee welfare fund? The same could, by definition, only be that contributed by him, as an employer,....
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....the business income of the assessee-employer u/s. 28. Further, the deposit of the two contributions to the account of the employee in the relevant fund together is clearly a procedural aspect of the matter and, consequently, of little moment. Discussion 5.1 A timing difference, with a view to enforce financial discipline in discharge of their statutory dues by businesses, stands thus introduced by s. 43B, coopted on the statute by Finance Act, 1983, w.e.f. 01/4/1984. Where the date of actual payment falls in a subsequent year, the deduction gets postponed to the said year. By Finance Act, 1987, a relaxation was introduced w.e.f. 01/4/1988, so that a payment by the due date of filing the return of income u/s.139(1) for the relevant year would not attract postponement and, thus, disallowance. The same was held retrospective by the Apex Court in Allied Motors(P.) Ltd. (supra). Vide the second proviso to sec.43B, the sums specified in clause (b) were treated differently from others specified in s.43B (vide other clauses thereof) inasmuch as these would be entitled to deduction only on the credit to the employee's account with the relevant fund by the due date defined under the releva....
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....oted here is that sec. 36(1)(va), which represents a primary condition for deduction, i.e., for sums covered thereby, itself provides for the condition of payment for deduction, and one that is more stringent than that provided by s. 43B. Even arguing the employees' contribution to be covered by s. 43B would thus be to no consequence. What is lost sight of while opining thus, as have several decisions by the Hon'ble High Courts, i.e., post the amendment to s. 43B by Finance Act, 2003, is that s. 43B, in contradistinction to s. 36(1)(va), is not a deduction, but a disabling, provision, introducing a timing effect. It comes into play, in respect of the sums specified therein, only where the same are otherwise allowable, i.e., under some other provision of the Act. Section 43B introduces an additional condition of actual payment, extending it up to the due date of filing the return u/s. 139(1) for the relevant year, i.e., in which the liability for the same is incurred, for its allowability. The same shall operate to disable absolutely only where there is no payment, as where the same is disputed, and which would be in consonance with the law as explained by the Apex Court in Chowring....
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....ss the sum contributed by the employee is first received by the assessee and, accordingly, regarded as his deemed income u/s. 2(24)(x), necessitating it being deductible u/s. 36(1)(va) before the non obstante clause of s. 43B could be further applied thereto. 5.2 The function of the Courts is to interpret the law as legislated, giving a fair look and reading to the provision, i.e., the literal rule of interpretation, where the language is clear and unambiguous, referred to as the golden rule of interpretation (CIT v. Calcutta Knitwears [2014] 362 ITR 673 (SC)). The law is an edict of the legislature, with the duty of the courts being to discern the legislative intent, which is to be the foundational basis of all interpretative exercise (PadmasundaraRao (Decd) v. State of Tamil Nadu [2002] 255 ITR 147 (SC); CIT v. Baby Marine Exports [2007] 290 ITR 323 (SC);Britannia Industries Ltd. v. CIT [2005] 278 ITR 546 (SC)). If not in the language in which the law is couched, where is the legislative intent to be found, so that where the law is clear, as it indeed is in the instant case, no other rule of interpretation is required (Ajmera Housing Corporation v. CIT [2010] 326 ITR 642 (SC); C....
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....der. Such a view cannot be reconciled with the language of s. 6(1). If the view is accepted it would mean that a case can be covered by not only cls. (i) and/or (ii) of the proviso to s. 6(1), but also by a non-prescribed period. The same can never be the legislative intent. Two principles of construction-one relating to casus omissus and the other in regard to reading the statute as a whole-appear to be well settled. Under the first principle a casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. "An intention to produce an unreasonable resul....
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....rts, and the clear intent of its deductibility being subject to payment by the due date u/s. 36(1)(va) accepted uniformly from 01/4/1988 to 01/4/2003, i.e., the date of insertion and deletion respectively of the second proviso. Here it also be noted that the Apex Court in Allied Motors (supra) and Alom Extrusions (supra) did not read down section 43B per se, much less sec. 36(1)(va), but invoked the interpretative principles (of unintended results and hardship) with regard to restrospectivity in holding the amendments to the former, made prospectively, as curative and, thus, retrospective. Dating back an amendment taking cognizance of a hardship is very different from reading down a provision on account of the said hardship. The Hon'ble Court, as a reading of its decision inAlom Extrusions (supra) shows, was also moved by the fact that payment of labour welfare arrears by an employer during the previous year 2003-04, relevant to AY 2004-05, or later, would qualify for deduction u/s. 37(1) r/w s. 43B(b), while payment prior thereto, though beyond the due date u/s. 36(1)(va), would have lost the deduction forever, so that regarding the amendment as amendatory would result in an unint....
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....dds to the same. 5.3 The amendments under reference by way of Explanations to ss. 36(1)(va) and 43B, the difference between these two sections, which have no interface since the deletion of second proviso to s. 43B (with simultaneous amendment in first proviso) by Finance Act, 2003, held retrospective since its inception in Alom Extrusions (supra), have been coopted on the statute-book with a view to remove any doubt in the matter. The proposition of the employee part of the contribution, delineated u/s. 2(24)(x), which is, as has always been, the only purview of s. 36(1)(va), being also subject to sec. 43B(b), has been explained as untenable as the occasion to invoke sec. 43B would arise only on the sum under reference being otherwise allowable, so that it shall have to first cross the hurdle of deductibility u/s. 36(1)(va), which incident only adds to the argument of the amendments under reference being only clarificatory and declaratory of the law as it always stood, even as expressed per the clear, plain and unambiguous language of the two provisions, including, now, the Explanations thereto under reference. In fact, the very fact of insertion of the Explanations under referen....
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....t wo views are possible and different High Courts have taken a particular view, this Court may not take a different view, is concerned, we are of the opinion that in the present case, and as discussed hereinabove, only one view is possible as canvassed on behalf of the revenue and as observed by under section hereinabove and we are not in agreement with the view taken by the Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and Punjab and Haryana High Court in the cases refereed to hereinabove, and therefore, the submission made on behalf of the assessee to follow the decisions of the different High Courts refereed to hereinabove and/or not to take a contrary view cannot be accepted.' (pgs. 185-186) The Hon'ble Court, prior to expressing its opinion, also examined the decision by the Apex Court in Alom Extrusions (supra), relied upon by different High Courts in expressing their contrary view, to hold that the said decision by the Apex Court had nothing to do with s. 36(1)(va), but confined to the amendments to s.43B and, therefore, of no assistance, as indeed did the Hon'ble Court in CIT v. Merchem [2015] 378 ITR 443 (Ker), before whom again several decisions....
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....ion 43B can be applied to the contribution payable by the assessee as an employer, which reads thus: 5.4 One may next consider the Notes on Clauses and the Memorandum explaining the provisions of the Finance Bill, 2021 inasmuch as the same operates as contemporaneous exposito. The latter, which subsumes the former, reads as under: Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub- clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head 'Profits and gains of business or profession'. Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of sect....
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....dingly, in order to provide certainty, it is proposed to- (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the "due date" under this clause ; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub- clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years. (emphasis supplied) [Clauses 8 and 9] It clarifies, in no uncertain terms, that the legislative intent, clear from the beginning, was that sec. 43B(b) did not include the employee's contribution to the employee welfare funds. However, as some decisions by the Hon'ble Courts had opined otherwise, the Explanations under reference, though clarificatory of the law as it always was, ....
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....sistent with that sought to be conveyed per the said Explanations for any year prior to AY 2021- 22 inasmuch as the same is binding on all authorities falling, as well as assessee's operating, under its' territorial jurisdiction. Where so, the Revenue can take any remedy permissible under law to enable it to pass an order consistent with the decision by the Hon'ble jurisdictional High Court. Needless to add, the burden shall be on the Revenue, which shall be bound to observe the principles of natural justice, confronting the assessee with any such decision, and deciding per a speaking order. It is also at liberty to move this Tribunal for a restoration of the instant appeals and an order consistent with the decision by the Hon'ble jurisdictional High Court. In sum 6. The adjustment to the returned income in the instant case having been made by the AO u/ss. 143(1) and 154, which do not admit any contentious issue, the question that arises for consideration is if the Explanations to sections 36(1)(va) and 43B by Finance Act, 2021 are declaratory of the law as it always stood, as signified by the words expressly employed therein, inserted to remove any doubt in the matter, again, as....
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....s for its application only to sums specified therein, otherwise allowable, so that even assuming the employee contribution to be covered there-under would be of no consequence. This in fact is the only reading and, besides, in agreement with the object of section 43B seeking to provide an additional condition for deduction to statutory obligations where otherwise allowable under the Act. The un-tenability afore-said in fact stems from the fallacy in regarding the employee contribution as being covered by section 43B(b), which speaks only of sums payable by assessee-employer by way of (his) contribution, which cannot surely be stretched to sums received by him from the employee for being deposited. Implicit in the notion of 'contribution' is that which is provided or parted with by one from his own pocket; depositing what stands received from another could never be attributed or regarded as ones' own contribution. Not so considering is to ignore section 36(1)(va), inserted, along with section 2(24)(x), simultaneously with the two provisos to section 43B, by Finance Act, 1987 w.e.f. 01/04/1988, and to which in fact the sums specified in section 43B(b), as per the law as originally co....