TMI Blog2016 (12) TMI 1479X X X X Extracts X X X X X X X X Extracts X X X X ..... utions 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 retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f. 01.04.1988. Irrespective of the fact that deduction in respect of sum payable by employer contribution was involved, but Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of Section 43B applied it to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore over ride even if, anything otherwise is contained in Section 36 or any provision of Act 1961. Therefore, we are clearly of the view that Section 43B is rightly applied in respect to both contributions i.e. employer and employee - Decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary for understanding the dispute are, that Assessee, a private limited company incorporated under Companies Act, 1956, is engaged in manufacture and sale of cast iron and also in job work, having its registered office at Kanpur. It deposited contribution of employer and employees towards Provident Fund and Employees State Insurance (hereinafter referred to as ''ESI'), beyond due date, prescribed under relevant labour welfare statutes. It is however admitted to both the parties that deposits were made in the same Financial Year and balance contribution were deposited well before due date of filing Income Tax Return under Section 139 (1) of Act 1961, for previous year. The details of deposits are given as under:- P.F. Contributions (including interest) Employees Contributions Rs. Employers' Contribution Rs. Amount deposited within the financial year 1,87,317 1,19,501 Amount deposited after FY but before the due date of filing the I.T. Return 90,231 57,249 Sub Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived 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 (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust. Explanation.-For the purposes of this sub-clause, trust includes any other legal obligation ; (iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17; (iiia) any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; (iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 television or electronic mode, in which people compete to win prizes or any other similar game; (x) 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 provisions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees. 10. 'Income' is computed under Section 28 and it reads as under:- 28. Profits and gains of business or profession.- The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,-- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year ; (ii) any compensation or other payment due to or received by,-- (a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 the extent of the amount not so allowed to be deducted ; (va) any sum, whether received or receivable, in cash or kind, under an agreement for-- (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply to-- (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head Capital gains ; (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit 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. 12. Section 43B however permits deductions otherwise allowable under Act 1961 in case paid actually before the date of filing of Return under Section 139 and carves out an exception in this regard. Section 43B as it was available at the time of relevant A.Y. Is reproduced as under:- Section 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, or (c) any sum referred to in clause (ii) of sub-section (1) of section 36, or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 28. 14. So far as Section 43B is concerned, we find that it was inserted w.e.f. 01.04.1984 to allow deductions provided payments are actually made before filing of return as per due date under Section 139(1) of Act 1961. 'Income' defined under Section 2(24) of Act, 1961, includes 'profits and gains'. Under Section 2(24)(x), any sum received by Assessee from his employees as contribution to any provident fund/superannuation fund or any fund set up under Employees State Insurance Act, 1948, or any other fund for welfare of such employees, constitute 'income'. In respect to such contributions deduction was allowed under Section 36(1)(va) when contributions received by employer is deposited within time prescribed, under relevant labour welfare statute. Prior to 01.04.1984, every Assessee (employer) was entitled to deduction on mercantile system of accounting as a business expenditure by making provision in his books of account in that regard and this situation continued upto 01.04.1984. An Assessee (employer), if maintaining books on accrual system of accounting, even after collecting contribution from his employee, and even without remitting the amount t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els appearing for rival parties admitted that even after the aforesaid judgment, various High Courts have taken divergent views on the question, whether Section 43B can be read alongwith Section 36(1)(va) or both have independent, distinct and separate field of operation. In this back drop, we find it appropriate, first, to examine judgments of various High Courts which have been rendered after considering Supreme Court judgment in Commissioner of Income-Tax Vs Alom Extrusions Ltd. (supra) and thereafter would examine the entire aspect in totality. 17. We find that with respect to employees contribution to Provident Fund, as to whether disallowable or not with reference to Section 36(1)(va) read with Section 43B, a similar question came up for consideration before Gujrat High Court in Commissioner of Income-Tax Vs Gujrat State Road Transport Corporation, (2014) 366 ITR 170. Therein Assessee collected ₹ 51,06,02,712/- from its employees towards provident fund contribution but deposited ₹ 21,16,61,582/- with provident fund trust. Thus there was a short fall of ₹ 24,89,41,130/-. This amount of short fall was treated by Assessing Officer as income of Assessee vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed in the relevant statute applicable to the concerned fund. Court also noticed that Section 43B is in respect to certain deductions and applies only on actual payment. It held that amendment was made by deletion of Second Proviso of Section 43B only, but no corresponding amendment was made under Section 36(1)(va). It said: It is required to be noted that as such there is no amendment in Section 36(1)(va) and even the Explanation to Section 36(1)(va) is not deleted and is still on the statute and is required to be complied with. Merely because with respect to the employer's contribution the second proviso to Section 43B which provided that even with respect to the employer's contribution (Section 43B(b)), the Assessee was required to credit the 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) has been deleted and/or amended. 19. That is how Gujrat High Court held that Section 43B would not be attracted in a case where dispute relates to employees contribution only. Section 43B would be confined only to employers c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of deduction of employees contribution to PF/ESI alleging that the payment was not made by appellant in accordance with the provisions of Section 36(1)(va) of Act 1961. The Assessee's counsel relied on earlier judgment of Karnataka High Court in Commissioner of Income-Tax Vs Spectrum Consultants P. Ltd., (2014) 2 ITR-OL 622 while counsel for Revenue attempted to pursue to take a different view following decision of Gujrat High Court. The Division Bench judgment delivered by Hon'ble Dilip B. Bhosale, (as his lordship then was) held, if the contribution of employees fund is deposited within due date the Assessee is straightaway entitled for deduction under Section 36(1)(va). However Section 43B provides for certain deductions allowable only on actual payment. It gives an extension to the employer to make payment of contribution to provident fund or any other fund, till due date applicable for furnishing of Return under Section 139(1) of Act 1961, in respect of previous year in which liability to pay such sum was incurred, and evidence of such payment is furnished by Assessee along with such Return. Court then said: In short, this provision states, notwithstanding anyt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2003, is retrospective or not, came to be considered in Commissioner of Income-Tax Vs Alom Extrusions Ltd. (supra). Court considered the intent, purpose and object in the historical back drop of insertion of Section 43B and its progress by way of various amendments. Referring Section 2(24)(x) it said, income is defined under Section 2(24) which includes profits and gains. Further in clause (x) of Section 2(24) any sum received by Assessee from employees as 'contributions' to any provident fund/superannuation fund or any fund set up under Act 1948, or any other fund for welfare of such employees constitute 'income'. This is the reason why every Assessee/Employer was entitled to deduction even prior to April, 1, 1984, keeping books on mercantile system of accounting, as a business expenditure, by making provision in his books of account in that regard. Assessee was capable of keeping money with him and just by mentioning in accounts, was able to claim deduction as business expenses. Section 43B was inserted to check this practice and it resulted in discontinuing mercantile system of accounting with regard to tax, contributions etc. With induction of Section 43B an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003. Hence, amendment made by Finance Act 2003 in Section 43B is retrospective, being curative in nature and apply from 01.04.1988. In the result when contribution had been paid, prior to filing of return under Section 139(1), Assessee/employer would be entitled for deduction and since deletion of Second Proviso and amendment of First Proviso is curative and apply retrospectively w.e.f. 01.04.1988. 28. From the aforesaid judgment, we find that irrespective of the fact that deduction in respect of sum payable by employer contribution was involved, but Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of Section 43B applied it to both the contributions. It also observed clearly that Section 43B is with a non-obstante clause and therefore over ride even if, anything otherwise is contained in Section 36 or any provision of Act 1961. 29. Therefore, we are clearly of the view that law laid down by High Courts of Karnataka, Rajasthan, Punjab Haryana, Delhi, Bombay and Himachal Pradesh have rightly applied Section 43B in respect to both contributions i.e. employer and employee. Otherwise view t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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