TMI Blog2023 (4) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... eding paragraphs, the impugned disallowances stand confirmed. Appeal of the assessee is dismissed. - ITA No. 384/JP/2022 - - - Dated:- 16-2-2023 - DR. S. SEETHALAKSHMI, JM And SHRI RATHOD KAMLESH JAYANTBHAI, AM For the Assessee : Shri Rohit Badaya (C.A.) For the Revenue : Shri R.S. Meel (JCIT) ORDER Per Dr. S. Seethalakshmi, JM This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as NFAC ], ld. CIT(A) dated 25.08.2022 for the assessment years 2019-20. 2. The assessee has raised the following grounds:- 1. On the facts and in the circumstances of the case and in law, ld. CIT(A) erred both in fact and law by confirming the order passed by Ld. AO for disallowance of employee contribution of PF and ESI of Rs. 254004/-. 3. The brief facts of the case are that assessee is a company and filed its return of income for the A.Y. 2019-20 on 30.10.2019 declaring total income of Rs. 2,81,35,200/-. The assessee received rectification order u/s. 154 considering total income of Rs. 2,83,89,200/- wherein ADIT CPC, Bangalore has made addition of Rs. 2,54,004/- on account of late deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee's account in the relevant fund as per the Employee Provident Fund Scheme/ESI Act, is liable to be added to the income of appellant. 6.24 Accordingly, disallowance of Rs. 2,54,004/- made by the AO is confirmed. This ground of appeal is dismissed. 6. Being aggrieved by the CIT(A) order the assessee preferred an appeal before us. The ld. AR for assessee submitted a detailed written submissions which are as under:- That Appellant has filed e-return on 30.10.2019 declaring taxable income of Rs. 2,81,35,200/- for the assessment year 2019-20. The Appellant has deposited, employee contribution of PF and ESI of Rs. 2,54,004/- before the due date of filing of Income Tax return. CPC cell has passed order u/s. 154 and made addition of Rs. 2,54,004/- by disallowing employee contribution of PF and employee contribution of ESI of Rs. 2,54,004/-, deposited after the due date prescribed under respective Acts and not considered the due date of filing of Income Tax return for payment of said amount. Assessee aggrieved with the disputed demand raised by the assessing officer, therefore he has filed an appeal before CIT(Appeals), CIT Appeals has uphold the demand. Now th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 310 20-03-2019 8 Provident Fund 13,784 70,539 15-03-2019 84,323 20-03-2019 9 Provident Fund 17,256 70,214 15-04-2018 87,470 15-04-2019 10 ES! 11,402 3,817 15-05-2018 15,219 16-05-2018 11 ESI 19,229 6,445 15-05-2018 25,674 20-06-2018 12 ES! 35,106 11.777 15-06-2018 46.883 18-06-2018 13 ESI 41,031 13,767 15-08-2018 54,798 16-08-2018 14 ES! 1,759 649 15-01-2019 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees' contribution towards provident fund and ESI cannot be disallowed under section 43B. if paid before the due date of filling the return. Relevant case laws in favour of appellant are:- M/s. Essae Teraoka Pvt. Ltd. Vs DCIT (366 ITR 408) [2014] (Karnataka); CIT Vs Sabari Enterprises (298 ITR 141) [2008] (Karnataka), CIT Vs Jaipur Vidyut Vitran Nigam Ltd. and Rajasthan Rajya Vidut Utpadan Nigam Ltd. (363 ITR 307) [2014] (Rajasthan): CIT VS Rajasthan State Beverages Corporation Ltd. 84 taxmann.com 173 [2017] (Rajasthan) CIT Vs Vijay Shree Ltd. (43 taxmann.com 396) [2014] (Calcutta). CIT VS Ghatge Patil Transports Ltd. (368 ITR 749) [2014] (Bombay), CIT Vs Almil Ltd.; Nirmala Swami; Spearhead Digital Studio; M/S NET 4 INDIA Ltd: Modipon Ltd.; and M/s. Ekta Agro Industries Ltd. (321 ITR 508)[2010](Delhi). CIT VS George Williamson (Assam) Ltd. 284 ITR 619[2006] (Gauhati). Sagun Foundry Pvt. Ltd. Vs CIT 78 Taxmann 47[2017] (Allahabad). M/s. Bihar State Warehousing Corporation Ltd. Vs CIT (393 ITR 386) [2017](Patna); CIT VS Alken Laboratories Ltd. (Patna), CIT VS M/s. Lakhani Rubber Udyog Pvt. Ltd. (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne goes by the legislative history of these provisions, what is discernible is that Parliament's endeavour in introducing Section 43B [which opens with its non-obstante clause] was to primarily ensure that deductions otherwise permissible and hitherto claimed on mercantile basis, were expressly conditioned, in certain cases upon payment. In other words, a mere claim of expenditure in the books was insufficient to entitle deduction. The assessee had to, before the prescribed date, actually pay the amounts - be it towards tax liability, interest or other similar liability spelt out by the provision. 31. Section 43B falls in Part-V of the IT Act. What is apparent is that the scheme of the Act is such that Sections 28 to 38 deal with different kinds of deductions, whereas Sections 40 to 43B spell out special provisions, laying out the mechanism for assessments and expressly prescribing conditions for disallowances. In terms of this scheme, Section 40 (which too starts with a non obstante clause overriding Sections 30-38), deals with what cannot be deducted in computing income under the head Profits and Gains of Business and Profession . Likewise, Section 40A(2) opens with a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer's contribution (i.e., Section 36(1)(iv)). 33. The significance of this is that Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter (hereinafter, employers' contribution ) is described as sum paid by the assessee as an employer by way of contribution towards a recognized provident fund . However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that any sum 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. The essential character of an employees' contribution, i.e., that it is part of the employees' income, held in trust by the employer is underlined by the condition that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be assessed under the head income from other sources. 36. Significantly, the same Finance Act, 1987 also introduced provisos to Section 43B, through amendment (clause 10 of the Finance Bill). The memorandum explaining the Bill, pertinently states, in relation to second proviso to Section 43B that: ... The second proviso seeks to provide that no deduction shall be allowed in regard to the sum referred to in clause (b) unless such sum has actually been paid during the previous year on or before the due date. The due date for the purposes of this proviso shall be the due date as under Explanation to clause (va) of sub-section (1) of Section 36. 37. It is evident that the intent of the lawmakers was clear that sums referred to in clause (b) of Section 43B, i.e., sum payable as an employer, by way of contribution refers to the contribution by the employer. The reference to due date in the second proviso to Section 43B was to have the same meaning as provided in the explanation to Section 36(1)(va). Parliament therefore, through this amendment, sought to provide for identity in treatment of the two kinds of payments: those made as contributions, by the employers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the due date of filing of return, the payment is allowed as a deduction in the subsequent year. In the case of statutory payment relating to labour, the deduction for the payment is disallowed if such payment is made any time after the last date of payment of the about related liability. Trade and industry across the country represented that the delayed payment of statutory liability related to labour should be accorded the same treatment as delayed payment of taxes and interest, i.e. they should be allowed in the year of account. Since the objective of the provision is to ensure that a tax-payer does not avail of any statutory liability without actually making a payment for the same, we are of the view that these objectives would be served if the deduction for the statutory liability relating to labour are allowed in the year of payment. The complete disallowance of such payments is too harsh a punishment for delayed payments. Therefore, we recommend that the deduction for delayed payment of statutory liability relating to labour should be allowed in the year of payment like delayed taxes and interest. Based on the report, the Union introduced amendments to the IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in Alom Extrusions. The court considered the effect of omission of the second proviso, and observed as follows: 10. Income has been defined under Section 2(24) of the Act to include profits and gains. Under Section 2(24)(x), any sum received by the assessee from his employees as contributions to any provident fund/superannuation fund or any fund set up under the Employees' State Insurance Act, 1948, or any other fund for the welfare of such employees constituted income. This is the reason why every assessee(s) was entitled to deduction even prior to 1-4-1984, on mercantile system of accounting as a business expenditure by making provision in his books of accounts in that regard. In other words, if an assessee(s) [employer(s)] is maintaining his books on accrual system of accounting, even after collecting the contribution from his employee(s) and even without remitting the amount to the Regional Provident Fund Commissioner (RPFC), the assessee(s) would be entitled to deduction as business expense by merely making a provision to that effect in his books of accounts. The same situation arose prior to 1-4-1984, in the context of assessees collecting sales tax and other in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only with effect from 1-4-2004, would become curative in nature, hence, it would apply retrospectively with effect from 1-4-1988. 19. Secondly, it may be noted that, in Allied Motors (P) Ltd. v. CIT [ (1997) 3 SCC 472 : (1997) 224 ITR 677], the scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on 30-6-1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va). Furthermore, the separate provisions in Section 36(1) for employers' contribution and employees' contribution, too went unnoticed. The court observed inter alia, that: 15. ...It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis- -vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P) Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003 will operate retrospectively with effect from 1st April, 1988 [when the first proviso stood inserted]. Lastly, we may point out 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 Finance Act, 2003, 2003, to the above ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule, regarding interpretation of taxing statutes, in Commissioner of Income Tax-III v Calcutta Knitwears, Ludhiana. Recently, in Union of India Ors. vs. Exide Industries Limited Ors, this court examined, and repelled a challenge to the constitutionality of Section 43B, especially the provision requiring actual payment, in respect of leave encashment benefit of employees. The court observations in this regard are relevant: *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** 48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. 20 This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations. 49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v Ambay Cements 21 as follows: 23.... In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature. *** 34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi Sons Ltd. [CIT v. Kasturi Sons Ltd., (1999) 3 SCC 346] and State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] , for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: '(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament 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 between the employers' contribution (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 permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 such 34 interpretation were 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 contri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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