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Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS. ASTHA CHANDRA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
These two appeals by the assessee are preferred against two separate orders dated 29.05.2021 & 28.04.2021 framed u/s 250 of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] by the CIT(A), National Faceless Appeal Centre, New Delhi.
Since common grievances are involved in both the appeals, they were heard together and are disposed of by this common order for the sake convenience and brevity.
3. The grievances of the assessee in Assessment Year 2018-19 read as under:
“1. On the facts and in the circumstances of the case, the CIT(A)/NFAC erred in confirming disallowance of Employees’ contribution to Provident Fund and ESI amounting to Rs.26,25,461, as made by CPC, Bengaluru.
2. On the facts andin the circumstances of the case, the CIT(A)/NFAC erred in construing amendments to sections 36(1)(va) and 43(B) of the Act as made in Finance Act 2021, as operations retrospectively.
3. Without prejudice to the Grounds above, the C1T(A)/NFAC erred in disallowing the contributions in entirety, when the periods of delay were short, and the Assessee has paid interest with regard to the said delay.”
4. The grievances of the assessee in Assessment Year 2019-20 read as under:
“1. On the facts and in the circumstances of the case, the CIT(A)/NFAC erred in confirming disallowance of Employees’ contribution to Provident Fund and ESI amounting to Rs. 3,68,588/-, as made by CPC, Bengaluru.
2. On the facts andin the circumstances of the case, the CIT(A)/NFAC erred in construing amendments to sections 36(1)(va) and 43(B) of the Act as made in Finance Act 2021, as operations retrospectively.
3. Without prejudice to the Grounds above, the C1T(A)/NFAC erred in disallowing the contributions in entirety, when the periods of delay were short, and the Assessee has paid interest with regard to the said delay.”
A perusal of the afore-stated substantive grounds of the appeals in both the Assessment Years shows that the quarrel is in respect of deposit of employee’s contribution of provident fund and ESI after the due date under the respective Act but before the due date of filing of return of income under the Income tax Act being 28.09.2018 in Assessment Year 2018-19 and 25.09.2019 in Assessment Year 2019-20, which is clear from the following charts of both the Assessment Years:
2018-19
SI. Particular Month of Amount Actual date Due date Due date s Deposit of Deposit of 1TR No (Rs.) under the . relevant Act May 2017 617192 15.05.2017 17.05.2017 31.10.2018 Provident 1 Fund Provident July 2017 544202 15.07.2017 18.07.2017 31.10.2018 2 Fund 3 Provident Aug 2017 611997 15.08.2017 17.08.2017 31.10.2018 Fund 4 Provident April 2018 765006 15.04.2018 17.04.2018 31.10.2018 Fund 5 ESI July 2017 24514 15.07.2017 17.07.2017 31.10.2018 December 6 ESI 2017 30176 15.12.2017 21.12.2017 31.10.2018 7 ESI April 2018 32374 15.04.2018 17.04.2018 31.10.2018 2019-20
SI. Particul Month of Amount Due date Actual date Due date ars Deposit under the of Deposit of 1TR No (Rs.) relevant . Act Providen May 2017 617192 15.05.2017 17.05.2017 31.10.2018 1 t Providen July 2017 544202 15.07.2017 18.07.2017 31.10.2018 2 t 3 Providen August 2017 611997 15.08.2017 17.08.2017 31.10.2018 t 4 Providen April 2018 765006 15.04.2018 17.04.2018 31.10.2018 t 5 ESI July 2017 24514 15.07.2017 17.07.2017 31.10.2018 December 6 ESI 30176 , 15.12.2017 21.12.2017 31.10.2018 2017 7 ESI April 2018 32374 15.04.2018 17.04.2018 31.10.2018
The quarrel is now well settled in favour of the assessee and against the Revenue by the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. AIMIL Limited 321 ITR 508 vide order dated 23.12.2009. The Hon'ble High Court held as under:
“If the employees‟ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed.”
The ld. DR placed heavy reliance on the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Bharat Hotels 410 ITR 417 followed by this Tribunal in the case of Vedvan Consultants Pvt Ltd.
We find that this Tribunal in & Others has duly considered the decision of the Hon'ble Delhi High Court in the case of Bharat Hotels [supra] and has further relied upon the decision of the Hon'ble Jurisdictional High Court in the case of PCIT Vs. Pro Interactive Services (India) Pvt. Ltd. in ITA 983/2018 dated 10.09.2018.
Further, this issue has been examined by the Finance Act, 2021 as under:
“Section 2 (24) (x) o f the Income Tax Act, 1961 reads: “any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions o f the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare o f such employees.”
FINANCE ACT, 2021 [13 OF 2021]
An Act to give effect to the financial proposals o f the Central Government for the financial year 2021-2022.BE it enacted by Parliament in the Seventy-second Year of the Republic o f India as follows:—
CHAPTER I
Short title and commencement .
(1) This Act may be called the Finance Act, 2021. (2) Save as otherwise provided in this Act,—
(a) sections 2 to 88 shall come into force on the 1st day of April, 2021;
(b) sections 108 to 123 shall come into force on such date as the Central Government may, by notification in the Official Gazette , appoint.
Amendment of section 36.
9. In section 36 of the Income-tax Act, in sub-section (1), in clause (va), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:—
'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;' . Amendment of section 43B.
In section 43B of the Income-tax Act, after Explanation4, the following Explanation shall be inserted, namely:—
"Explanation5 .—For the removal o f doubts, it is hereby clarified that the provisions o f this section shall not apply and shall be deemed never to have been applied to a sum received by the assessee from any o f his employees to which the provisions o f sub-clause (x) o f clause (24) o f section 2 applies." .
We have also perused the Memorandum Explaining the Provisions in the Finance Bill, 2021. Under the head “Provision relating to Direct Taxes” with to rationalization of various provisions, the issue of clause (24) of Section 2 sub- clause (x), Section 36(1) clause (va), Section 43B with regard to provisions of sub-Section (1) of Section 139 have been dealt at length. The gist is as under:
“Rationalization of various Provisions
Payment by employer o f employee contribution to a fund on or before due date
Clause (24) of section 2 of the Act provides an inclusive definition o f the income. Sub-clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions o f ESI Act or any other fund for the welfare of such employees.
Section 36 of the Act pertains to the other deductions. Subsection (1) of the said section provides for various deductions allowed while computing the income under the head Profits and gains o f business or profession‘.
Clause (va) o f the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions o f sub-clause (x) o f 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 to the said clause provides that, for the purposes of this clause , "due date to mean 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 there-under or under any standing order , award, contract o f service or otherwise .
Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) o f section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for furnishing the return of the income under sub- section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year . This provision does not cover employee contribution referred to in clause (va) o f sub-section (1) of section 36 o f the Act.
Though section 43B of the Act covers only employer‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer contribution and employee‘s contribution towards welfare fund. It may be noted that employee‘s contribution towards welfare funds is a mechanism to ensure the compliance by the employers o f the labour welfare laws. Hence , it needs to be stressed that the employer‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee‘s contribution towards welfare funds. Employee‘s contribution is employee own money and the employer deposits this contribution on behalf o f the employee in fiduciary capacity. By late deposit o f employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) o f sub-section (1) o f Section 36 o f the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee‘s contributions.
Accordingly, in order to provide certainty, it is proposed to –
(i) amend clause (va) of sub-section (1) o f section 36 of the Act by inserting another explanation to the said clause to clarify that the provision o f section 43B does not apply and deemed to never have been applied for the purposes o f determining the ―due date under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) o f clause (24) o f section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.” [Clauses 8 and 9] 33.
Thus, the matter has been finally decided and the controversy has been put to rest.”
After considering the facts of the case in totality, in light of judicial decisions discussed hereinabove, and considering the decisions relied upon by the ld. DR, we are of the considered opinion that no disallowance is called for belated payment of employee’s contribution to the respective PF and ESI in the case of the assessee who has deposited the same before the due date of filing of Income tax return.
The Assessing Officer is directed to delete the impugned addition.
In the result, the appeals of the assessee in and776/DEL/2021 are allowed.
The order is pronounced in the open court on 23.08.2022.