2011 (1) TMI 117 - AT - Income Tax

Contribution to provident fund whether contribution to provident fund would be eligible for deduction if paid before due date prescribed u/s 139(1) for filing the return of income - whether deduction which is not otherwise allowable under the Income Tax Act could at all be allowed on payment basis u/s 43B - assessee is not entitled to deduction u/s 36(1)(va) of the employees contribution to provident fund which was paid after the due date as specified in Explanation to section 36(1)(va) of the Act as section 43B cannot be pressed into service because section 43B comes into play only when a deduction is otherwise allowable under the Income Tax Act - Revenue s appeal allowed

Summary

Issues Involved:
1. Deletion of employees' contribution to P.F. and E.S.I under section 43B, treating it as employer's contribution.

Issue-wise Detailed Analysis:

Issue 1: Deletion of employees' contribution to P.F. and E.S.I under section 43B, treating it as employer's contribution.

2. In this appeal, the only issue raised by the Revenue is relating to deletion of employees' contribution to P.F. and E.S.I under section 43B taking it to be employer's contribution.

3. The Ld. D.R. relied on the orders of the ITAT, Kolkata "B" Bench in ITA No. 1255/Kol/2010. This Tribunal concluded that the assessee is not entitled to deduction under section 36(1)(va) of the employees' contribution to provident fund paid after the due date specified in Explanation to section 36(1)(va) of the Act. Section 43B cannot be pressed into service because section 43B comes into play only when a deduction is otherwise allowable under the Income Tax Act.

4. The Ld. Counsel for the Assessee submitted that the Hon'ble Supreme Court in CIT v. Alom Extrusions Ltd. affirmed the decision in CIT v. Sabari Enterprise and valued the ratio laid down in Allied Motors Pvt. Ltd. Therefore, he requested to uphold the action of the Ld. CIT(A).

5. After hearing the rival submissions and on careful perusal of the materials available on record, the Tribunal concluded that the order of the Hon'ble Supreme Court in Alom Extrusions is not on the issue of employees' contribution but on the employer's contribution and relating to the second proviso to section 43B and the amendment of the first proviso to section 43B of the Act by the Finance Act, 2003. The additions made by the AO are under the provisions of section 36(1)(va). Since this issue has been decided by this Tribunal in ITA No. 1255/Kol/2010 exhaustively, there is no reason to deviate from the view taken in ITA No. 1255/Kol/10 on 19.11.2010.

6. The Tribunal reiterated that section 36(1)(va) read with section 2(24)(x) of the Act provides that the due date of payment of employees' contribution to provident fund is crucial. If it is not paid within the due date, the same cannot be allowed as a deduction if it is paid belatedly. The Special Bench, ITAT in ITC Ltd. held that section 43B does not apply to the payment of employees' contribution to provident fund. The decision of the Hon'ble Apex Court in Vinay Cement Ltd. deals with section 43B and does not apply to employees' contribution to provident fund. The Delhi High Court in AIMIL Ltd. followed the decision of Vinay Cement Ltd. It has not been decided whether belated payment of employees' contribution to provident fund is allowable if paid after the due date but before the due date of filing of return.

7. The Tribunal observed that the assessee had paid employees' contribution to provident fund after the due date. The term "due date" in section 36(1)(va) read with the Explanation specifies the due date as the date by which the employer is required to credit an employee's contribution to the relevant fund. The term "due date" does not refer to the due date for filing the return of income under section 139(1). The "due date" for crediting contributions must be the one specified in the Explanation to section 36(1)(va) and not the due date for filing the return of income under section 139(1). The assessee company did not credit the contribution received from its employees to the employees' account in the relevant fund on or before the due date specified in the Explanation to section 36(1)(va), and hence the claim for deduction cannot succeed. Section 43B does not apply to the employees' contribution for the following reasons:

(i) Section 43B opens with a non obstante clause, meaning it controls the operation of other provisions of the Income-tax Act and has an overriding effect.

(ii) The opening words of section 43B make it clear that the section applies only when a deduction is otherwise allowable under the Income-tax Act. Thus, section 43B cannot be used to allow a deduction not otherwise allowable under the Act, including section 36(1)(va).

(iii) Section 43B bars deduction, which is otherwise allowable under the Act, of any sum referred to in clauses (a) to (f) unless it is actually paid. The fact of actual payment is relevant only when the deduction is otherwise allowable under the Act. The provisions setting conditions for the allowability of deductions would be rendered otiose if deductions were allowed as and when actually paid, irrespective of their allowability under the Act.

(iv) The proviso to section 43B allows deduction for sums actually paid on or before the due date for furnishing the return of income under section 139(1). However, this proviso applies only to matters specifically referred to in section 43B.

9. The Tribunal held that a claim/deduction not allowable under section 36(1)(va) or any other provision of the Income Tax Act cannot be allowed under section 43B. Section 43B comes into play only when a deduction is otherwise allowable under the Act. The purpose of section 43B is to bar the deduction of sums unless actually paid and not to allow deductions not otherwise allowable under the Act. Therefore, section 43B cannot be used to allow deductions not allowable under section 36(1)(va). Section 36(1)(va) specifically deals with deductions for employees' contribution to the Provident Fund and prevails over the general provisions of section 43B.

10. The Tribunal noted that the cited decisions held that employees' contribution to provident fund is eligible for deduction if paid before the due date for filing the return of income under section 139(1). However, these decisions did not address whether a deduction not otherwise allowable under the Act could be allowed under section 43B. A judgment must be read as a whole, and the observations must be construed in light of the question raised before the Court.

11. The Tribunal concluded that the assessee is not entitled to deduction under section 36(1)(va) for employees' contribution to provident fund paid after the due date specified in the Explanation to section 36(1)(va) as section 43B cannot be used to allow a deduction not otherwise allowable under the Act. The Tribunal confirmed the AO's action by reversing the order of the learned C.I.T(A) and accordingly allowed the department's ground.

5.1 Respectfully following the same, the Tribunal set aside the orders of the Ld. CIT(A) and restored that of the AO.

6. In the result, the Revenue's appeal is allowed.

This order pronounced in the open court on 7th January, 2011.