PRINCIPAL COMMISSIONER OF INCOME TAX 4 vs. SUZLON ENERGY LIMITED

Facts

The Revenue has filed these Tax Appeals under Section 260A of the Income Tax Act, 1961, challenging the order dated June 27, 2018, passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad. The appeals pertain to assessment years 2013-14 and 2014-15 and are against the ITAT's decision allowing the assessee's appeal. The core issue revolves around the due date for depositing employee's contribution towards Provident Fund (PF) and Employees' State Insurance (ESI). The Revenue's grievance is that the ITAT erred in holding that this due date is not determined by the month to which the salary and wages relate.

Held

The High Court allowed the Tax Appeals filed by the Revenue, quashing and setting aside the impugned order of the ITAT. The Court answered the substantial question of law in favor of the Revenue. The reasoning was based on the interpretation of Section 36(1)(va) of the Income Tax Act, 1961, and Section 38 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The Court held that the employer is required to deduct the employee's contribution before paying wages and must deposit it within fifteen days of the close of every month. The phrase 'within fifteen days of the close of every month' was interpreted to mean in relation to the month for which wages are to be paid and the corresponding liability to deduct and deposit arises. Therefore, the contention that the due date gets deferred to the following month if wages are paid in the subsequent month was rejected. The ratio decidendi is that the due date for depositing employee's contribution to PF/ESI is linked to the month to which the salary pertains, not the date of salary disbursement.

Key Issues

1. Whether the Appellate Tribunal has erred in law and on facts while allowing the appeal of the assessee for statistical purpose by holding that the due date for payment of employee's contribution in respect of P.F. and ESIC shall not be determined on the basis of the month to which such salary and wages of employees are related? (Question of law) Assessee's Contention: The assessee, through its counsel, conceded that the substantial question of law raised by the Revenue was no longer res integra and had been decided by a Coordinate Bench of the High Court in favor of the Revenue. The assessee referred to the case of M/s Checkmate Facility and Electronic Solutions Pvt Ltd vs. Deputy Commissioner of Income Tax. The assessee's specific argument, as presented in the cited case, was that the due date for depositing employee's contribution should be considered based on the date the salary is paid, not the month to which it pertains, referencing Clause 38 of the Employees' Provident Fund Scheme, 1952. The assessee argued that if salary for June is paid on July 5th, the deposit is due by August 15th, implying no delay. Revenue's Contention: The Revenue contended that the due date for depositing employee's contribution to PF and ESI is determined by the month to which the salary relates, not the date of actual payment. This led to a disallowance under Section 36(1)(va) read with Section 2(24)(x) of the Act for delayed deposits.