TMI Blog2023 (1) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... erment 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. Some judicial pronouncements are to the effect that employees contribution paid belatedly but within due date prescribed u/s.139(1) of the Act should be allowed as deduction on payment basis u/s 43B at par with employers' contribution to PF/ESI. 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 controversy as the aforesaid amendments were not retrospective Amendments. The said issue (period prior to 1.4.2021) was subject matter of appeal before Hon ble Supreme Court in the case of CHECKMATE SERVICES PVT LTD [ 2022 (10) TMI 617 - SUPRE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as sickness, maternity, temporary or permanent disablement, Occupational disease or death due to employment injury, resulting in loss of wages or earning capacity-total or partial. Social security provision made in the Act to counterbalance or negate the resulting physical or financial distress in such contingencies, are thus, aimed at upholding human dignity in times of crises through protection from deprivation, destitution and social degradation while enabling the society the retention and continuity of a socially useful and productive manpower. E.S.I. Scheme being contributory in nature, all the employees in the factories or establishments to which the Act applies shall be insured in a manner provided by the Act. The contribution payable to the Corporation in respect of an employee shall comprise of employer's contribution and employee's contribution at a specified rate. 4. The employer is under statutory obligation to deduct the employee's contribution from the salary/wages etc. payable/paid to an employee every month and deposit the same on or before 15th of the succeeding month in the specified fund, irrespective of whether the salary, wages etc. have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of Section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation.- For the purpose of this clause, due date means the date by which the assessee is required as an employer to credit 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: 7. Thus, the provisions regarding deduction towards employees' contribution of PF/ESI in the hands of the employer u/s. 36 of the Act are very clear. When it is specifically covered under section 36 (1)(va), it cannot be considered under any other provisions of the Act including section 37 or section 43B, as it may be appreciated from the discussion to follow. Thus, while tax, duty, cess, fee etc., coming under clause (a) of section 43B were allowed in the same accounting year if paid on or before the due date for filing of return u/s 139(1) as per First Proviso, Employers' con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(1)(va) and its inclusion as income in the hands of the employer under section 2(24)(x) remains unchanged since the beginning and it never came up for consideration of the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. 11. The distinction between the two contributions i.e. employer's contribution and employee contribution was further elucidated by the CBDT's Circular No. 22/2015 dated 17th December, 2015, wherein it was clarified that no disallowance shall be made for employer's share of contribution referred to in clause (b) section 43B which is deposited before 'due date' of filing of return of Income u/s 139(1) of the Income Tax Act, 1961. It was also categorically clarified therein that the said Circular does not apply to claim of deduction relation to employee's contribution to welfare funds which are governed by section 36(1) (va) of the IT Act. 12. Thus, from the above elaborate discussion it is quite clear that 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 of 2015, dated 24.7.2015 Gauhati High Court in the case of CIT vs. George Williamson (Assam) Ltd. [2006] 284 ITR 619 (Gauhati). 14. In so far as the disallowance of employee share of PF is concerned, the CIT(A) referred to the amendment made to section 36(1)(va) and 43B of the Act by the Finance Act, 2021. The Finance Act, 2021 has amended section 36, sub-section (1), in clause (va), by inserting Explanation-2 which reads thus: Explanation 2.-For the removal of doubts, it is hereby clarified that 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 this clause;'. 15. In view of the conflicting views, the finance Act, 2021 amended section 43B by inserting Explantion-5 thereto which reads thus: Explanation 5.-For the removal of doubts, it is hereby clarified that the provisions of this 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 sub-clause (x) of clause (24) of section 2 applies. By virtue of newly inserted Explanation 2 to clause (va) of sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions especially second proviso to Section 43B was introduced to ensure timely payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 to deposit the amounts retained by it or deducted by it from the employee s income, unless the condition that it is deposited on or before the due date, is correct and justified. The nonobstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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