TMI Blog2023 (2) TMI 907X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter as no more res-integra, but the same as per Article 141 of the Constitution of India is to be construed as a declaration of law by the Court and has to be given a retrospective application. On construing the judgment of the Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra) as a declaration of law as it always have been, the view taken by the A.O disallowing the assessee s claim for deduction of delayed deposit of employees share of contribution towards ESI and EPF being in conformity with the aforesaid judgment of the Hon ble Apex Court, thus, by no means could be held to be debatable. We, thus, in terms of our aforesaid deliberations are of the considered view that the claim of the assessee that the issue in hand was a debatable one, and thus, could not have been brought within the realm of Section 143(1) of the Act cannot be accepted. Appeal of the assessee is dismissed. - ITA No. 98/RPR/2021 - - - Dated:- 20-2-2023 - Shri Ravish Sood, Judicial Member And Dr. Dipak P. Ripote, Accountant Member For the Assessee : None (Written submission) For the Revenue : Shri Gitesh Kumar, Sr. DR ORDER PER RAVISH SOOD, JM: The pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the assessee to drive home his contentions. 8. Controversy involved in the present appeal hinges around the disallowance of the assessee s claim for deduction of the delayed deposit of the employee s share of contributions towards labour welfare funds, viz. ESI of Rs.1,75,044/- and PF of Rs.29,36,892/- u/s.36(1)(va) of the Act which had been confirmed by the CIT(Appeals). 9. As stated by the Ld. Departmental Representative (for short DR ), and, rightly so, the issue in hand i.e. allowability of the assessee s claim for deduction of the delayed deposit of the employee s share of contribution towards labour welfare funds, i.e. EPF ESI is no more res-integra pursuant to the judgment of the Hon ble Supreme Court in the case of Checkmate Services P. Ltd. Vs. Commissioner of Income Tax-I, Civil Appeal No.2833 of 2016 dated 12.10.2022. The Hon ble Apex Court had observed that the employee s share of contributions towards ESI EPF deposited by the assessee beyond the due date prescribed under the respective Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary to bear in mind that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) which defines various kinds of income inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill, 1987, presented to the Parliament, is extracted below: Measures of penalising employers mis-utilising contributions to the provident fund or any funds set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees - 12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B). The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. Due date means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) 12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 43B was inserted. 39. Original Section 43B(b) enabled the assessee/employer to claim deduction towards contribution as an employer, by way of contribution to any provident fund . The second proviso was substituted by Finance Act, 1989 with effect from 01.04.1989 and read as under: Provided further that no deduction shall in respect of any sum referred to in clause (b) be allowed unless such sum has actually been paid in cash or to by issue of a cheque or draft or by any other mode on or before the due date as defined in the explanation below Clause (va) of sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the same has been realised within 15 days from the due date. 40. The position in law remained unchanged for 14 years. The Central Government then constituted the Kelkar Committee, to suggest tax reforms. The report suggested amendments inter alia, to Section 43B. The relevant extract of the report is as follows: In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments relating to labour, taxes and State and public financial institutions are allowed as deductions, if they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to amend the first proviso to the said section so as to omit the references of clause (a), clause (c), clause (d), clause (e) and clause (f) which is consequential in nature. It is also proposed to omit the second proviso to the said section. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years. 42. The rationale for introduction of Section 43B was explained by this court in M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi:16 19. The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non- obstante Clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only actual payment , as contrasted with incurri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if an assessee(s) pays such tax, duty, cess or fee even after the closing of the accounting year but before the date of filing of the return of income under Section 139(1) of the Act, the assessee(s) would be entitled to deduction under Section 43-B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, did not apply to the contribution made by the assessee(s) to the labour welfare funds. To this effect, the first proviso stood introduced with effect from 1-4-1988. *** 15. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to the Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1-4-2004. Therefore, the argument of the assessee(s) is that the Finance Act, 2003, was curative in nature, it was not amendatory and, therefore, it applied retrospectively from 1-4-1988, whereas the argument of the Department was that the Finance Act, 2003, was amendatory and it applied prosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example, in the present case, the respondents have deposited the contributions with RPFC after 31st March (end of accounting year) but before filing of the returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1-4-2004, and who pays the contribution after 1-4-2004, would get the benefit of deduction under Section 43-B of the Act. 44. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003 . 46. A discussion on the Principles of interpretation of tax statutes is warranted. In Ajmera Housing Corporation Ors. vs. Commissioner of Income17 this court held as follows: 27. It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce and Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC 550. In inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er heads. But that is a matter for the legislature and its wisdom in doing so. 22. The existence of Section 43B traces back to 1983 when the legislature conceptualised the idea of such a provision in the 1961 Act. Initially, the provision included deductions in respect of sum payable by Assessee by way of tax or duty or any sum payable by the employer by way of contribution to any provident fund or superannuation fund. It is noteworthy that the legislature explained the inclusion of these deductions by citing certain practices of evasion of statutory liabilities and other liabilities for the welfare of employees... *** 23. With the passage of time, the legislature inserted more deductions to Section 43B including cess, bonus or commission payable by employer, interest on loans payable to financial institutions, scheduled banks etc., payment in lieu of leave encashment by the employer and repayment of dues to the railways. Thus understood, there is no oneness or uniformity in the nature of deductions included in Section 43B. It holds no merit to urge that this Section only provides for deductions concerning statutory liabilities. Section 43B is a mix bag and new and dissim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicy and the exemption notifications. 25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein. See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004 Supp (4) SCR 35. State of Jharkhand v Ambay Cements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing Commissioner of Income Tax v. Ace Multi Axes Systems Ltd., 2018 (2) SCC 158 Commissioner. of Customs v. Dilip Kumar Co, 2018 (9) SCC 1. unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly. 51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd.24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd.26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd.27 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (Section 36(1)(iv)) and employees contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer s contribution which is its primary liability under law in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers income, and the later retains its character as an income (al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee s contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed. As the issue involved in the present appeal is no more res-integra pursuant to the aforesaid judgment of the Hon ble Apex Court, we, therefore, respectfully following the same find no merit in the claim raised by the assessee as regards setting-aside of the order of the CIT(Appeals) to the extent he had sustained the disallowance of Rs.31,11,936/- made by the A.O u/s.36(1)(va) r.w. Sec.2(24)(x) of the Act. 10. On a perusal of the written submissions of the assessee appellant, we find that he had, inter-alia, stated that as the allowability or not of his claim for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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