M/S CHECKMATE FACILITY AND ELECTRONIC SOLUTIONS PVT LTD vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1

Appellant­assessee   has   challenged   the   judgment of   the   Income   Tax   Appellate   Tribunal   dated 22.03.2018. Following   questions   are   presented   for our consideration:

The issue arises in following background.   The assessee   is   a   private   limited   company.     For   the assessment year 2013­14, the assessee had filed the return   of   income   declaring   total   income   of Rs.65,65,980/­.  The return was taken in scrutiny by the Assessing Officer.   In the order of assessment passed by him under section 143(3) of the Income Tax Act,   1961   ('the   Act'   for   short)   a   disallowance   of employees' contributions towards provident fund and ESI amounting to Rs.1,16,87,091/­ was made.  This was on account of the fact that the assessee though had deducted   such   contributions,   failed   to   deposit   the same with the statutory authorities within the due date.     The   Assessing   Officer   referred   to   all   such deductions and late depositing the contributions in the order of assessment.   All these deposits would indicate that the assessee had made the deposits late beyond  20th  of Month  following  the  month  for  which such deduction was being made.   The date of 20th  of each month was chosen by the Assessing Officer was made   considering   the   normal   period   of   15   days   for making   deposit   and   a  further   grace   period   of   five days specified under the statute.  Since the assessee was delayed in making the deposits even beyond such extended period, he applied the disallowance in terms of section 36(1)(va) of the Act.

Learned   counsel   for   the   appellant   would   not dispute   that   the   issue   of   disallowance   of   late deposited   employees'   contributions   of   PF   and   ESIC stands covered by the Division Bench judgment of this Court   in   case   of  Commissioner   of   Income­Tax   v. Gujarat State Road Transport Corporation reported in [2014]   366   ITR   170   (Guj).    He   however   raised   a slightly different contention which did not arise for consideration before this Court in case of  Gujarat State   Road   Transport   Corporation (supra).   He submitted   that   in   terms   of   section   38   of   the Employees   Provident   Funds   and   Miscellaneous Provisions Act, 1952, reference to the time limit for depositing the contributions within 15 days of close of the month must be to the month in which the salary payment   is   made.     For   example,   therefore   if   the salary payment for the month of June is made on 5th July,   the   employer   would   have   time   upto   15th  of August for depositing the employee's contribution of provident fund.   Looking from this angle, there was no   delay   or   default   on   the   part   of   the   present assessee.

In terms of  section 36(1)(va) of the Act, any sum   received   by   the   assessee   from   any   of   his employees to which the provisions of section 2(24)(x) applies, would be deducted as long as such sum is credited by the assessee to the employee's account in the relevant funds on or before due date. Explanation to the said sub­section provides that for the purpose of the said clause, “due date” means a date by which the assessee is required as an employer to credit an employee's   contribution   to   the   account   in   which relevant   fund   under   any   Act,   rule,   order   or notification issued thereunder or under any standing order,   award,   contract   of   service   or   otherwise. Section   38   of  the   Employees   Provident   Funds   and Miscellaneous Provisions Act, 1952, becomes relevant. Sub­section (1) thereof reads as under: “(1) The  employer   shall,  before  paying  the member his wages in respect of any period or part of period for which contributions are payable, deduct the employee's contribution from his wages which together with his own contribution   as   well   as   an   administrative charge of such percentage [of the pay (basic wages,

This provision thus requires an employer before paying   the   employee   his   wages   to   deduct   the employee's contribution along with the employer's own contribution   as   fixed   by   the   Government.     It   is further required that he shall within fifteen days of the close of every month pay the same to the fund such   contribution   and   administrative   charges.     In terms   of   this   provision   thus,   after   deducting   the employee's contribution towards the funds, the same has   to   be   deposited   with   the   Government   within fifteen days of the close of every month.  Reference to fifteen days of the close of the month must be in relation   to   the   month   during   which   the   payment   of wages is to be made and corresponding liability to deduct   employee's   contribution   to   the   fund   arises. The expression “within fifteen days of the close of every month” therefore must be interpreted as having reference to the close of the month, for which, the wages are required to be paid with corresponding duty to deduct employee's contribution and to deposit the same in the fund.

Learned counsel for the appellant is therefore not correct in contending that if such wages are paid in the following month, the liability to deposit the employee's contribution to the fund gets differed by another month.

Tax Appeal is therefore dismissed.