Delhi Tribunal pronounced recently where the parity of treatment of employees contribution with that of the employers has been ruled
April, 03rd 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH :G: NEW DELHI)
BEFORE SHRI I. P. BANSAL AND SHRI R. C. SHARMA
Assessment Yr: 2001 02
M/s Kuber Hinges Pvt. Ltd.Vs.Income Tax Officer
Jain HouseWard 5(3)
H-3/5, ModelTown, New DelhiNew Delhi
Appellant by: Shri K. Sampath, Adv.
Respondent by: Shri RL Meena, Sr. DR
PER R. C. SHARMA, ACCOUNTANT MEMBER
This is an appeal filed by the assessee against the order of CIT (Appeals)-VIII, New Delhi dated 28.02.2007 for the
Assessment year 2001 02, in the matter of order passed under
Section 143(3) of the Income Tax Act, 1961, wherein following
Grounds of appeals have been taken:
1. That the learned CIT(Appeals) has erred both on facts as well as in law in upholding the disallowance of
Rs.575,263/- as deemed income u/s 2(24)(x) read with sec.
36(1)(va) of the Income Tax Act, 1961 being the
Employers / employees contributions made towards
Provident fund and ESI for alleged belated payments. While doing so, the learned CIT(Appeals) has failed to appreciate the decision of the second proviso sec. 43B of the Act,thereby placing the misconceived interpretation on the provisions of said section of the Act.
2.That the submissions, as made, alongwith the individual view during the appellate proceedings and the amendment to Sec. 43B of the Act stood arbitrarily disregarded by the learned CIT (Appeals), while confirming the disallowance.
3.That the learned CIT(Appeals) has further erred in
viewing the delay in making such contributions without
reference to the provisions of sec. 43B of the Act read
with the provisions of the particular statutes governing the admissibility of the expenditure under those statutes.
It is thus accordingly prayed that the disallowance as made of the expenditure of Rs.575, 263/- be held without any basis or justification and be ordered to be cancelled.
2.Rival contentions have been heard and record perused.In this appeal, the assessee is aggrieved for disallowance of PF and ESI contribution by treating the same as deemed income under sec. 2(24)(x) read with sec.36(1)(va) of the Income Tax Act, 1961.Contention of the learned AR was that after deletion of second provision to sec. 43-B by the Finance Act, 2003, no disallowance can be made if such contribution is paid even before the last date of filing the return.He placed reliance on the order of Honble Supreme Court in case of Viney Cement Ltd. 213 CTR 268 wherein SLP filed by the revenue against the order of Gauhati High Court was dismissed by the Honble Supreme Court vide order dated 17.3.2007 and it was held that even under the lawasstoodpriortotheamendment of sec. 43-B, the assesseewas entitled to
claim the benefit of sec. 43-B if the amount of contributionpaidpriortothe lastdateof filingof thereturn
under sec.139(1) of the Act.The learned AR further submitted that the Gauhati High Court in ITA No.83/03 vide order dated
26.6.2006 has allowed the claim of the assessee with regard to employerandemployeescontribution both, accordingly thelearned AR contended that no distinction can be made now, even if the disallowance has beenmadewithrespect tothe employees contribution under sec.2(24)(x)read with Sec.36(1) (va)of the Act. Learned AR also placed on record the decision of Karnataka High Court in case of Sabari Enterprises 213 CTR 269, wherein question before the High Court was with regardto allowing the deduction under sec. 36(1)(va) read with sec. 2(24)(x) and sec.43B of the Act.Attention was drawn to the pages 8 to 12 of the order of the High Court wherein question referred to the Honble High Court and elaborate discussion was made with regard to the employer and employees contribution towards PF, superannuation funds, gratuity funds etc.Finally the issue was decided in favour of the assessee and against the revenue, on the plea that actual payment was made priortolast of filingreturnundersec.139(1)
3. On the other hand, learned DR relied on the order passed by lower authorities wherein payment made after the statutory time limit prescribed under PF and ESI Act, were declined the deduction.
4. We have considered rival contentions.From the record we found that in the instant case the Assessing Officer has disallowed the employers contribution and employees contributions, which were deposited beyond the due date as provided under sec. 36(1)(via) of the Act, by observing that employees contributions could not be allowed under sec. 43-B and employees contribution was to be treated as income of the assessee within the meaning of sec.2(24)(x) of the Act. By the impugned order, CIT(Appeals) confirmed the disallowance made by the Assessing Officer.We have carefully gone through the decision of Honble Supreme Court and Honble High Court as referred above and found that issue before the Kernataka High Court was with respect to claim of deduction u/s 36(1)(va),r/w
sec.2(24) which pertains to employees contribution which was not paid by the assessee before the statutory dates provided under the PF Act, but before the due date for furnishing return of income under sec.139(1) of the Act. The disallowance made by invoking provisions of sec.43B pertains to deduction claimed with reference to employers contribution. After discussing in detail the history of provisions of sec.2(24)(x) and sec.36(1)(va) and 43B of the Act, and the amendment brought therein by various Finance Acts, the High Court observed as under:
After hearing the learned counsel for the parties, we have carefully examined the above statutory provisions of the Act including definition of Sec.2(24)(x) and sec. 36(1)(va) and 43B(b), which reads thus:
2(24)(x) income includes-
Any sum received by the assessee from his employees
superannuation fund or any fund set up under the
Provisions of the EmployeesState Insurance Act, 1948 employees.
36(1) The deduction provided for in the following clauses shall be allowed respect of the matters dealt with therein in computing the income referred to in sec.28.
(va)any sum received by the assessee from any of his employees to which the provisions sub-clause (x) of clause (24) of sec.2 apply,if such sum is credited by the assessee to the employees account in the relevant fund or funds on or before the due date.
Explanation: For the purposes of this clause, due date means the date by which the assessee is required as an employer to credit an employees contribution to the employees account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise.
This clause is inserted by Finance Act with effect from 1.4.1988. Explanation to this clause is read very
carefully due date has been explained stating that means the date by which the assessee is required as an employer to credit contribution to the employees account in the relevant fund under any Act, rule or order or notificationissued thereunder or under any standing order, awardcontract or service or otherwise.Prior to the above clause was inserted to sec.36 giving statutory deductions of payment of tax under the provisions of the Act, sec.43B(b) was inserted by Finance Act, 1983 which came into force with effect from 1.4.1984.Therefore, again the provision of sec. 43B(b) clearly provides that notwithstanding anything contained in other provisions of the Act including sec. 36(1)of clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the revenue.If that provision is read alongwith the first proviso of the said section which was inserted by Finance Act 1987 which came into effect from 1.4.1988, the letters numbered as clause (a),or clause (c) or clause (d) or clause (e)or clause (f) are omitted from the above proviso and therefore deduction towards the employers contribution paid can be claimed by the assessee.
The explanationclause (va) ofsec. 36 of the
IT Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicablein this case at the time of submitting returns of income u/s 139 of the Act to the revenue in respect of the previous year can be claimed by the assessee for deduction out of their gross income.The above said statutory provisions of the I.T.Act abundantly makes it clear that, the contention urged on behalf of the revenue that deduction from out of gross income for payment of tax at the time of submission of returns under sec. 139 is permissible only if statutory liability of payment of PF or other contribution funds referred to in clause (b) are paid within the due date under the respective statutory enactments by the assessee as contended by the learned counsel for the revenue is not tenable in law and therefore the same cannot be accepted by us.
The learned counsel Sri Parthasarathy and DR Kishna appearing for respondents, also drew our attention to the deletion of second proviso to sec.43B of the IT Act by Finance Act,2003 which provision has come into force with effect from 1.4.2004.The reliance placed upon the decision
of the Apex Court in the Allied Motors Pvt.Ltd.vs.CIT and also on the decision in General Finance Co. Vs. CIT, in respect of applicability of sec.43-B(b) and also omission of clauses (a) or (c) or (d) or (f) referred to above occurredin the first proviso to sec. 43B, supports the case of the assessee and also relevant paragraphs extracted from Allied Motors case and para 59 referred to supra in this judgment from the Finance Bill with all fours supports the case of the assessee/respondents.Therefore, we have no answer the substantial question of law No.1 framed by this court in these appeals at the instance of the revenue against them viz. in the negative.Accordingly, we answer the substantial question No.1 framed in these appeals in the negative.
5.It is crystal clear from the detailed discussion made by the Honble Kernataka High Court that both the employer and employees contribution was considered for allowing as a deduction if paid before last date of filing the return u/s 139(1).Undisputedly,in the instant case also,both the employer
and employee contribution was not paid before statutory dates defined under PF Act, but the actual payment was before the last date of filing the return u/s 139(1) of IT Act.The verdict of Honble Kernataka High Court is squarely applicable to the facts and circumstances of the instant case.Recently Honble Delhi High Court in case of Dharmendra Sharma 213 CTR 609, vide order dated 28th January 2008 held that Tribunal was right in deleting the disallowance of payments towards PF and ESI as the same was paid before the due date of filing of return.While so holding Honble Delhi High Court relied on the verdict of HonbleSupreme Court in the case of Vinay Cement Ltd. 213 CTR 268, wherein SLP filed by the department was dismissed by observingthat even prior to amendment of sec. 43B by the Finance Act 2003, no disallowance can be made if such payment is made before last date of filing
the return of income.However, no contrary decision of
any High Court was brought to our notice by the ld. DR.
We, therefore, respectfully follow the decision of Honble
Kernataka High Court, and reverse the order of the lower authorities declining the deduction of payments actually made before lastdate of filing the return u/s 139(1) of IT Act.Accordingly, we allow the appeal in favour of the assessee.
6.In the result, the appeal of the assessee is allowed.
Decision pronounced in the open court on 27.03.2008.