LIOYD HEALTHCARE PVT LTD,MUMBAI vs. DCIT (CPC) BANGALORE, MUMBAI

To delete interest u/s 234ABC.”

Assessee carried the matter before the Ld.CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld.CIT(A), the assessee has come up before the Tribunal by way of filing the present appeal.

We have heard the Ld.AR for the assessee and the Ld.DR of the Revenue, gone through the documents available on record, order passed by the lower Revenue Authorities in the light of facts and circumstances of the case and the case law applicable thereto.

Undisputedly, assessee has claimed deduction on account of expenditure on employee’s contribution to provident fund to the tune of Rs.72,86,327/- which was disallowed under section 36(1)(va). It is also not in dispute that assessee has deposited the employees contribution towards provident fund after due date prescribed under the Act, but well before filing the return of income. 6. The Ld. A.R. for the assessee contended that the payment made by the assessee company qua the employees contribution on account of PF well 4 ITA 2342/Mum/2022 before due date of filing the return of income cannot be disallowed and relied upon the decision rendered by Hon’ble Bombay High Court in case of CIT V. Ghatge Patil Transporters Ltd. 368 ITR 749 and various other judgments mentioned in the written submissions running from page 1 to 47 of the paper book.

We have perused the order passed by the Ld.CIT(A), who has thrashed the facts in the light of the provisions contained under section 36(1)(va) and section 43B(b) and the decision rendered by the Hon’ble Supreme Court in case of Alom Extrusions (2009) 319 ITR 306 (SC), decision rendered by Hon’ble High Court of Andhra Pradesh in case of Hitech (India) (P) Ltd vs UOI (1997) 227 ITR 446 (AP); decision rendered by Hon’ble Gujarat High Court in case of CIT VS Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100/366 ITR 170 / 223; and decision rendered by Hon’Kerala High Court in case of CIT vs Merchem Ltd (2015) 61 taxmann.com 119 and reached the conclusion that Assessee is not entitled for deduction on account of delayed payment of employees’ contribution of provident fund under section 36(1)(va) of the Act.

Now, the issue in question “as to whether the assessee is entitled for deduction claimed towards contribution of sum to provident fund on behalf of the employees deposited after due date prescribed under the Act but before the date of filing the return;” has been set at rest by the Hon’ble

When Parliament introduced Section 43 B, 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(l)(va) and simultaneously inserting the second proviso of Section 43 B, 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 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 between the employers' contribution (Section 36(1) (iv)) and employees' contribution required to be deposited by the employer (Section 36(l)(va)) was maintained - and continues to be maintained. On the other hand, Section 43 B 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.

The distinction between an employer's contribution which is its primary liability under law - in terms of Section 36(l)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(l)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(l)(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 43 B.

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 non-obstante 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 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 such 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 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.” 10. By following the decision rendered by Hon’ble Supreme Court in case of Checkmate Services P. Ltd. vs. CIT (supra), we are of the considered view that Ld. CIT(A) has rightly decided the issue against the assessee as the employees contribution on account of PF lying deposited with the employers has to be deposited before the due date prescribed under the Act. Since the 7 ITA 2342/Mum/2022 assessee has failed to comply with the condition precedent for depositing the employees contribution on account of PF & ESI before the due date prescribed under the Act he is not entitled for any deduction. So finding no illegality or perversity in the impugned order passed by the Ld. CIT(A) appeal filed by the assessee is hereby dismissed.