TMI Blog2022 (12) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... y forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. Thus we hold Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). Decided in favour of the Revenue. - ITA No.796/Bang/2022 - - - Dated:- 23-11-2022 - Shri N. V. Vasudevan, Vice President For the Assessee : Smt. Sheethal Borkar, Advocate For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same on or before 15th of the succeeding month in the specified fund, irrespective of whether the salary, wages etc. have been actually paid or not. Therefore, the amount deducted from the employees is held in a fiduciary capacity by the employer and has to be deposited within the prescribed due date under the respective specified fund. Therefore, it is the first treated as income in the hands of the employer in computing its profits gains of business and profession under the Income Tax Act and thereafter it is allowed as business deduction only if it has been paid within prescribed due date. 5. The employer's contribution, on the other hand, is a statutory obligation on the part of the employer to contribute from their own funds to the retirement corpus of the employees and is therefore, in the nature of direct business expenditure. Thus, considering nature of expenditure, the employees' contribution and employer's contribution stand on totally different footings and hence cannot be treated at par under the provisions of the income Tax Act, 1961. 6. Under the Income Tax Act, 1961, any sum received by the assessee from his employees as contribution to any provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me accounting year if paid on or before the due date for filing of return u/s 139(1) as per First Proviso, Employers' contribution to the employee welfare funds like PF/ESI etc coming under clause (b) were allowed only if paid within the prescribed due date under respective welfare fund schemes as per Second Proviso of Section 43B till 2003. 8. This difference between tax, duty, cess and fee under clause (a) of section 43B and Employer's contributions to various Employee's Welfare Funds under Clause (b) has been taken away through the amendments in Finance Act, 2003.The due date for payment of employer's contribution was also now connected with due date for filing of return of income u/s 139(1) of Income Tax Act, at par with other payments mentioned in clause (a) of section 43B. Thus, in Finance Act, 2003, two changes were made in section 43B as under: (i) Deletion of the second proviso to section 43B (ii) Further amendment in the first proviso with effect from 1st April, 2004 as under:- Provided that nothing contained in this section shall apply in relation to any sum which actually paid by the assessee on or before the due date applicable in his case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. This legal distinction between employees' contribution and employer's contribution under the Act was duly recognised by the Courts also. In the following judicial pronouncement wherein the aforesaid distinction has been accepted viz., CIT v. Gujarat State Road Transport Corpn. [2014] 41 taxmann.com 100/ 366 ITR 170 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (x) of clause (24) of section 2 applies. By virtue of newly inserted Explanation 2 to clause (va) of sub-section (1) of the said section, 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 the said clause. By virtue of insertion of Explanation 5 to Sec.43B, the provisions of the said section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any of his employees to which the provisions of subclause (x) of clause (24) of section 2 applies. The position after 1.4.2021is therefore clear by virtue of the aforesaid statutory amedments. 16. In so far as the question whether the employees contribution to Provident Fund and Employees State Insurance which the employer deducts and pays over to the concerned authorities beyond the date prescribed for payment of such contribution but nevertheless the contribution has been paid within the due date prescribed for filing return of income u/s.139(1) of the Income Tax Act, 1961, can be allowed as deduction by applying the second proviso to Sec.43B of the Act, prior to 1.4.2021 was a controv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bill clearly stated that the provisions especially second proviso to Section 43B was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of income amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time by way of contribution of the employees share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees contributions-which are deducted from their income. They are not part of the assessee employer s income, nor are they heads of deduction per se in the form of statutory pay out. They are others income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If ..... X X X X Extracts X X X X X X X X Extracts X X X X
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