S. 43B not applicable on delay in depositing employees’ contribution to PF – Guj HC


CIT v Gujarat State Road Transport Corporation TAX APPEAL NOS. 1711 & 2577 OF 2009, 925, 949, 965, 1655, 2365, 2378 & 2644 OF 2010 & 814 OF 2011 AND 637 OF 2013  (dated DECEMBER  26, 2013)

Background:

Assessee is a Corporation run by State of Gujarat, engaged in the business of public transportation. During the course of assessment proceedings, it was found that there was shortfall in remittance of provident fund collected from the employees which was required to be treated as income of the assessee as per the provisions contained in section 2(24)(x) read with section 36(1) (va) of the IT Act. There was also shortfall in the fund of remittance of assessee Corporation, which according to the Assessing Officer was required to be disallowed under section 43B of the IT Act. The AO made an addition of the shortfall in employees’ contribution as well as employers’s contribution to PF. 

CIT(A) partly allowed the said appeal and directed to delete disallowance of shortfall in employees’ contribution to PF Account and shortfall in employers’ contribution to PF Account by observing that employees’ contribution / employer’s contribution was deposited before the filing of the return under section 139(1) of the IT Act for the relevant period.

Ahmedabad ITAT relying upon the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-Tax v. Alom Extrusions Ltd., reported in [2009] 319 ITR 306 (SC) dismissed the said appeal confirming the order passed by the CIT(A) deleting disallowance of short fall in employees’ contribution and employers’ contribution to PF Account.

Assessee’s Contentions:

  • The controversy raised in the present appeals is squarely covered by the decision of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd.
  • It is held by various High Courts that the deletion with effect from April 1, 2004 by the Finance Act, 2003 of the second proviso to section 43B of the Income Tax Act, which stipulated that contributions to the provident fund and Employees State Insurance fund should be made within the time mentioned in section 36(1)(va), that is the time allowed under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, as well as the Employees’ State Insurance Act, 1948, is treated as retrospective in nature
  • If the provident fund and ESI contribution is made before due date of filing of the return under section 139 of the I.T. Act, there shall not be disallowance in view of provisions of section 43B as amended by Finance Act, 2003
  • In all these cases, provident fund / ESI funds have been deposited by the respective assessee on or before the due date of filing of the return and therefore, they shall be entitled to the deduction in the same year, as rightly allowed by the learned appellate tribunal.

Tax Authority’s arguments:

  • Before the Hon’ble Supreme Court in the case of Alom Extrusions (supra) the issue involved was with respect to employer’s contribution to PF Account whereas in the present cases, the issue involved is with respect to employees’ contribution to PF Account.
  • The provision applicable with respect to section 43B cannot be made applicable with respect to section 36(1) (va) of the IT Act. 
  • As per the definition of “Income” provided under section 2(24)(x), 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 Employees State Insurance Act or any other fund for the welfare of such employees is required to be included in the income of the assessee.
  • Explanation to Section 36(1)(va) makes it very much clear that for the purpose of Clause (va) of sub-section (1) of section 36 “due date” means the date by which the assessee is required as an employer to credit the employees’ contribution to the employees account 

HELD:

  • Under section 2(24)(x), income is defined to include “any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the Employees’ State Insurance Act, 1948, or any other fund for welfare of such employees, constitute income.”
  • As per explanation to section 36(1)(va) for the purpose of the said clause, “Due Date” means the date by which the assessee is required as an employer to credit the employees’ contribution to the employees account in the relevant fund under the Act, Rule, Order or Notification.
  • Second Proviso to section 43B which provided that even with respect to employers’ contribution [(section 43(B)b], assessee was required to credit amount in the relevant fund under the PF Act or any other fund for the welfare of the employees on or before the due date under the relevant Act, is deleted, it cannot be said that section 36(1)(va) is also amended and/or explanation to section 36(1)(va) has been deleted and/or amended.
  • So far as the reliance placed upon the decision of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd.(supra), by the learned ITAT as well as learned advocates, considering the controversy before the Hon’ble Supreme Court in the case of Alom Extrusions Ltd. (supra), the said decision would not be applicable to the facts of the present case.
  • In the case before the Hon’ble Supreme Court, the controversy was with respect to employers’ contribution as per section 43(B)(b) of the Act and not with respect to employees’ contribution under section 36(1)(va). 
  • The decision of the Bombay High Court in the case of Pamwi Tissues Ltd.also would not be applicable to the facts of the case on hand. In the case before the Hon’ble Bombay High Court, the dispute was whether deletion of Second Proviso to section 43B would be applicable retrospectively or not and in that case the dispute was also with respect to employer’s contribution.
  • So far as the reliance placed upon the decision of the Himachal Pradesh High Court in the case of Nipso Polyfabriks Ltd. (supra); decision of the Karnataka High Court in the case of Spectrum Consultants India (P) Ltd. (supra); decision of the Rajasthan High Court in the case of Udaipur Dugdh Utpadak Sahakari Sandh Ltd. (supra) and decision of the Punjab and Haryana High Court in the case of Hemla Embroidery Mills (P) Ltd. (supra) taking view that where the assessee deposited employees’ contribution to ESI and Provident Fund before the due date of filing the return under section 139(1) of the Act, the same would be allowable as deduction, are concerned, we are not in agreement with the view taken by the aforementioned High courts.
  • Considering section 36(1)(va) read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees’ account in the relevant fund or funds on or before the “due date” mentioned in explanation to section 36(1)(va)
  • Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees’ contribution to PF Account / ESI Account made by the AO. 

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