TaxTMI 
TaxTMI 
2023 (4) TMI 364
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....lore has made addition of Rs. 2,54,004/- on account of late deposit of employees contribution towards Provident Fund and ESI. Being aggrieved by the order, the assessee is in appeal against the said order u/s. 154 of the Act. 4. Being aggrieved by the order issued U/s 154 of the IT Act, the assessee preferred an appeal before the ld. CIT(A). The assessee filed complete details of the entire payments i.e. employee's PF & ESI contribution paid before the due date of filing of return of income which are produced in CIT(A) order at pages 3. 5. In first appeal the assessee carried the matter before the CIT(A) who confirmed the disallowance made by AO by observing as under:- "6.22 From above observations of the Apex Court, it is clear that if a statute is curative in nature or merely declaratory of the previous law, retrospective operation is generally intended. If the objective of the amendment is to clear the meaning of the principal act, which was already implicit, such amendment will necessarily have retrospective effect because it would be without object unless construed retrospectively. If the amendments in Sec. 36(1)(va) are viewed from this perspective, there w....
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....re he has filed an appeal before CIT(Appeals), CIT Appeals has uphold the demand. Now the assessee is before this Hon'ble Bench, SUBMISSIONS:- Ground No. 1: On the facts and in the circumstances of the case and in law. Ld. Cit (a) erred both in facts and law by confirming the order passed by Ld. AO for disallowance of employee contribution of PF and ESI of Rs. 254004/- In this regard, our submission is as under: It is submitted that Learned AO, CPC cell has passed order u/s. 154 by disallowing Employee's contribution to PF and ESI to the tune of Rs. 2,54,004/- u/s. 36(1)(va), on account of delay payment of PF and ESI, paid after due date in respective act. In this connection, the appellant would like to submit that he has made payment of Employee's contribution to PF and ESI before due date of filing of return. The appellant has given below the details of employee's contribution of PF and ESI for your reference. SN Nature of fund Employer's Share Contribution received from employees Due date for payment The actual amount paid....
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.... Court, which is jurisdictional High Court of the appellant. Further the Appellant has relied on following Judgments:- 1. Hon'ble Rajasthan High Court in the case of CIT Jaipur vs M/S State Bank of Bikaner And.....[ 2014 (5) TMI 222] Held that: Thus, we are of the view that where the PF and/or EPF, CPF. GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act. 2. The Hon'ble jurisdiction High Court in the case of CIT vs. AIMIL Ltd., (321 ITR 508 (Del), Held that: We may only add that if the employee's 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 m....
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....llowing the payment PF & ESI Contribution of Rs. 2,54,004/- and based on circumstances of the case, Ld. CIT(A) has erred in law and on facts, in confirming the action of Ld. AO in making addition by disallowing the contribution received from employees towards PF & ESI Contribution to Rs. 2,54,004/- Both Assessing officer and CIT(Appeals) have ignored the judicial pronouncement of Jurisdictional High Court, therefore the order passed by assessing officer is bad in law. It is therefore prayed to allow the appeal." 7. Per contra, the ld. DR relied on the order of the lower authorities. 8. We find that now this issue has been decided by Hon'ble Supreme Court in favor of revenue in its recent decision in bunch of appeals titled as Checkmate Services P. Ltd. vs. CIT (Civil Appeal No. 2833 of 2016 dated 12.10.2022). In this decision, it was noted by Hon'ble Court that there was divergent of opinion amongst various Hon'ble High Courts viz. High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favoring the interpretation beneficial to the assessee on one hand whereas High Courts of Kerala and Gujarat favoring interpretation in favour of th....
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....y to bear in mind that specific enumeration of deductions, dependent upon fulfillment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) - which defines various kinds of "income" - inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee's income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Se....
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....g these provisions, in the Finance Bill, 1987, presented to the Parliament, is extracted below: "Measures of penalising employers misutilising contributions to the provident fund or any funds set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees- 12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B). The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. "Due date" means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) 12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the sal....
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....urred by them in the relevant previous year. It was to stop this mischief that Section 43B was inserted." 39. Original Section 43B(b) enabled the assessee/employer to claim deduction towards contribution as an employer, "by way of contribution to any provident fund". The second proviso was substituted by Finance Act, 1989 with effect from 01.04.1989 and read as under: "...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 in cash or to 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 than in cash, the same has been realised within 15 days from the due date." 40. The position in law remained unchanged for 14 years. The Central Government then constituted the Kelkar Committee, to suggest tax reforms. The report suggested amendments inter alia, to Section 43B. The relevant extract of the report is as follows: "In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments re....
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....2004-05 and subsequent years." 41. The Notes on Clauses inter alia, reads as follows: "It is also proposed to amend the first proviso to the said section so as to omit the references of clause (a), clause (c), clause (d), clause (e) and clause (f) which is consequential in nature. It is also proposed to omit the second proviso to the said section. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years." 42. The rationale for introduction of Section 43B was explained by this court in M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi: "19. The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non obstante Clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed unde....
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....e 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 43-B 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. To this effect, the first proviso stood introduced with effect from 1-4-1988. *** 15. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to the Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1-4-2004. Therefore, the argument of the assessee(s) is that the Finance Act, 2003, was curative in nature, it was not amendatory and, therefore, it applied retrospectively from 1-4-1988, whereas the argument of the Departm....
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....trospectively with effect from 1-4-1988 (when the first proviso stood inserted). 23. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example, in the present case, the respondents have deposited the contributions with RPFC after 31st March (end of accounting year) but before filing of the returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1-4-2004, and who pays the contribution after 1-4-2004, would get the benefit of deduction under Section 43-B of the Act." ....
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....nds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003". 46. A discussion on the Principles of interpretation of tax statutes is warranted. In Ajmera Housing Corporation & Ors. vs. Commissioner of Income this court held as follows: "27. It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndica....
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....act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein." 20 See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004 Supp (4) SCR 35. 21 State of Jharkhand v Ambay Cements, (2005) 1 SCC 368. 30 This was also reaffirmed in a number of judgments, such as Commissioner Income Tax v. Ace Multi Axes Systems Ltd. 50. The Constitution Bench, in Commissioner. of Customs v. Dilip Kumar & Co. endorsed as following: "24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of ....
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....s judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.; Commissioner of Income-Tax and another v. Sabari Enterprises; Commissioner of Income Tax v. Pamwi Tissues Ltd.; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrusions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as rece....
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....lowing the expenditure. 53. The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation ....