M/S CENTRAL OFF.MEWAR PALACE vs. THE A.C.I.T.CIRCLE-2,UDAIPUR

The facts relevant are: The appellant assessee filed the return of income for the Assessment Year 2001-02 claiming deduction of Rs.23,03,071/- on account of payment of contribution to Provident Fund (PF) and Rs.3,30,828/- on account of payment to Employees State Insurance (ESI) Fund. Admittedly, the employee’s contribution and employer’s contribution both were not deposited by the appellant assessee before the due date by which the assessee is required as an employer to credit contribution to the employee’s account in the relevant fund under the relevant statute, however, the amount was actually paid by the assessee before the due date applicable in its case for furnishing the return of income under sub-section (1) of Section 139 of the Income Tax Act, 1961 ( for short “the Act”) in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment was furnished alongwith the return.

The Assessing Officer vide assessment order dated 23.3.04 disallowed the deduction claimed by the assessee

Aggrieved by the assessment order, the assessee preferred an appeal before Commissioner of Income Tax (Appeals) [CIT(A)], Udaipur. The CIT(A) dismissed the appeal vide order dated 4.1.05. 5. Aggrieved by the order passed by the CIT (A), the assessee preferred second appeal before the ITAT. After due consideration, the ITAT allowed the appeal vide order dated 23.6.06, holding that the amendment in proviso to Section 43B of the Act made vide Finance Act, 2003 is retrospective and therefore, the payment having been made before the closure of financial year, the deduction as claimed could not have been disallowed. However, the Assistant Commissioner of Income Tax Circle-I, Udaipur preferred an application, relying upon a Bench and a decision of Madras High Court in the case of ‘Additional Commissioner of Income Tax Madras-II vs. Madras Radiators and Pressing Limited, (2003) 183 CTR 322. Relying upon the said decisions, the ITAT recalled the order dated 23.6.06 and restored the appeal to its original number.

After re-hearing, vide order dated 19.12.07, the ITAT sustained disallowance in respect of employee’s contribution but allowed the deduction towards employer’s contribution observing that assessee was entitled to claim benefit under Section 43B of the Act, keeping in view the fact that it has contributed to PF before filing of the return.

Similar is the view taken by the ITAT regarding the deduction claimed by the assessee for the Assessment Year 2002-03. Hence, these appeals.

The appeals were admitted by a Bench of this court vide order dated 17.7.09 on following substantial question of law arising out of the order impugned passed by the ITAT: “Whether the contribution of the employee as received by the employer in accordance with the provisions of Provident Fund Act, or other allied laws, which is covered by Section 2 (24) (x), can also be said to fall within the expression mentioned in Section 43B(b) as “sum payable by the assessee as an employer”.

Learned counsel Mr.N.M.Ranka, Senior Advocate appearing on behalf of the appellants contended that in view of amendment made in Section 43B, vide Finance Act, 2003, by (5 of 20 )

Replying the contentions raised on behalf of the Revenue, learned counsel for the appellant submitted that the question with regard to applicability of the provisions of Section 43B (b) as it stands after deletion of second proviso has been specifically dealt with by the various High Courts and therefore, the contention of the Revenue that the question arising in the present appeals is not dealt with by various High Courts specifically is absolutely devoid of any merit. Learned counsel reiterated that a bare perusal of the decision of this court in State Bank of Bikaner & Jaipur’s case (supra) reveals that the question of law arising in the instant appeals already stand decided after due consideration. Learned counsel submitted that the decision of the Gauhati High Court dealing with an identical issue having been upheld by the Hon’ble Supreme Court while rejecting the Special Leave Petition by a speaking order, the said decision is a binding precedent which has to be followed by this court.

We have considered the rival submissions and perused the material on record.

Indisputably, any sum received by the assessee from its employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of (9 of 20 )

But then, the question which arises for consideration in these appeals is whether the provisions of Section 43B as it (10 of 20 )

It is to be noticed that Section 43B, a non obstante clause, shall be operative irrespective of other provisions of the Act in respect of the deductions specified, which are otherwise allowable under the Act. As per clause (b) of Section 43B read with proviso to Section 43B, any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees shall be an allowable deduction if such sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of the income under sub-section (1) of Section 139 in respect of previous year in which liability to pay such sum was incurred as aforesaid and (11 of 20 )

In the instant cases, it is not disputed that the assessee has deposited the employee’s contribution and employer’s contribution both in respect of the liability incurred in the previous year but the contention of the Revenue is that the employee’s contribution to the relevant funds is not covered by clause (b) of Section 43B and therefore, the ITAT has erred in allowing the deduction in respect thereof invoking the provisions of Section 43B.

It is pertinent to note that as per para 30 of the Employees’ Provident Fund Scheme, 1952 as framed by the Central Government, in exercise of the powers conferred by Section 5 of the Employees’ Provident Fund Act, 1952 (for short “PF Act”), it is the employer’s liability in the first instance, to pay both the contribution payable by himself referred to as employer’s contribution in the Scheme and also the contribution payable on behalf of the member employed by him directly or through a contractor. Of course, the contribution payable by the employee paid by the employer or a contractor is recoverable by means of deductions from the wages of the employee and not otherwise. But in any case, the payment of employee’s contribution by the employer on or before the due date as specified under the relevant statute is not dependent upon the (12 of 20 )

In the backdrop of the provisions of the PF Act and ESI Act discussed hereinabove, adverting to the provisions of Section 43B of the Act, it is pertinent to note that the clause (b) thereof refers to ‘sum payable by the assessee as an employer by way of contribution’ to any provident fund, superannuation fund or gratuity fund or any other fund for the welfare of the employees. As discussed hereinabove, under the relevant statutes, both the employer’s contribution and employee’s contribution is required to be paid by the employer before the due date and therefore, the expression ‘sum payable by the assessee as an employer by way of contribution’ as used in Section 43B (b) cannot be given restricted meaning as suggested by the Revenue so as to include within its ambit, only the employer’s contribution and not the both the employer’s contribution and the employee’s contribution. Thus, we are of the considered opinion that the provisions as incorporated in Section 43B (b) allowing deduction in respect of any sum payable by the assessee as an employer by way of contribution to provident fund etc. include both the employer’s contribution and the employee’s contribution, if the same is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of the income

Having gone through the decisions cited at the bar, we are of the opinion that the contention sought to be raised by the Revenue that the question with regard to entitlement of the assessee for deduction in respect of the employee’s contribution under Section 43B has not been dealt with in the decisions rendered by the various High Courts is not correct. In some of the decisions, the question with regard to applicability of the provisions of Section 43B vis-a-vis the provisions of Section 36 (1) (va) of the Act dealing with employee’s contribution has been specifically dealt with.

In State Bank of Bikaner & Jaipur’s case (supra), while specifically dealing with the question with regard to the entitlement of the assessee for deduction in respect of the employee’s contribution to PF fund paid beyond the due date as mentioned in explanation to Section 36(1)(va) of the Act, a Bench of this court relying upon the decisions of Supreme Court in Alom Extrusions Ltd.’s case (supra) and Vinay Cement’s case (supra), categorically held that contributions to provident fund, contributory provident fund and general provident fund etc. if paid after the due date under the respective Acts but before

In Sabari Enterprises case (supra), the Karnataka High Court while dealing with the question whether the contributions made by the assessee to PF and ESI are allowable deduction even though it is made beyond the stipulated period as contemplated under mandatory provisions of Section 36 (1)(va) read with Section 2(24) (x) and Section 43B of the Act, held that the provisions of Section 43B (b) clearly provides that notwithstanding anything contained in the other provisions of the Act including Section 36(1) clause (va) of the Act, even prior to insertion of that clause the assessee is entitled to get statutory benefit of deduction. The court observed that the explanation to clause (va) of Section 36(1) of the Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable i.e. at the time of submitting returns of income under Section 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessees for deduction out of their gross income.

In Alom Extrusions Ltd.’s case (supra), the Hon’ble Supreme Court held that the Finance Act 2003 deleting the second proviso to Section 43B of the Act is curative in nature and would operate retrospectively i.e. with effect from 1.4.88. (16 of 20 )

In Desh Rakshak Aushdhalaya Ltd’s case (supra), the Uttrakhand High Court while dealing with the question regarding the entitlement of the assessee for deduction of the amount deposited in relation to employee’s contribution towards provident fund with delay, upheld the order of the ITAT deleting the addition made in this regard by the AO, relying upon the decision of the Hon’ble Supreme Court in the matter of “Allied Motors Private Limited vs. CIT” (1997) 224 ITR 677 (SC), holding that the deletion of second proviso to Section 43B of the Act simply removes ambiguity and being curative in nature, impliedly has retrospective effect.

In Kichha Sugar Co. Ltd’s case (supra), the Uttrakhand High Court while dealing with the question of delay in depositing employee’s contribution towards provident fund held that the due date referred to in Section 36(1) (va) of the Act, must be read in conjunction with Section 43B (b) of the Act and reading of the same makes it amply clear that the due date as mentioned in Section 36(1)(va), is the due date as mentioned in Section 43B(b) i.e. payment of contributions made to the provident fund authority any time before filing of the return for the year in which the liability to pay accrued alongwith evidence to establish payment thereof.

In Nexus Computers Pvt. Ltd.’s case (supra), the Madras High Court while relying upon the decision of Hon’ble Supreme

In AIMIL Ltd.’s case (supra), the Delhi High Court while discussing the decisions of various High Courts and the Supreme Court, observed that if the employee’s 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 under the Provident Fund Act as well as ESI Act. The court held that in so far as Income Tax Act, 1961 is concerned, the assessee can get benefit of deduction if the actual payment is made before filing the return as per the principle laid down by the Supreme Court in Vinay Cement’s case (supra).

In Essae Teraoka Pvt. Ltd.’s case (supra), the Karnataka High Court held that ‘contribution’ used in clause (b) of Section 43B of the Act means the contribution of the employer and the employee and thus, if the contribution is made on or before the due date or furnishing the return of income under sub- section (1) of Section 139 of the Act, the employer is entitled for deduction.

In Merchem Ltd.’s case (supra), heavily relied upon by the (18 of 20 )

In George Williamson (Assam) Ltd.’s case (supra), while considering the question of law raised regarding interpretation of clause (b) of Section 43B of the Act, read with second proviso to said section and clause (va) of sub-section (1) of Section 36 of the Act, the Gauhati High Court while relying upon its earlier decisions in the matter of “CIT vs. Bharat Bamboo and Timber Suppliers” (1996) 219 ITR 212 and “CIT

The Hon’ble Supreme Court in Vinay Cement’s case (supra), while rejecting the Special Leave Petition preferred against the judgment of Gauhati High Court in George Williamson (Assam) Ltd. and other connected appeals, observed: “In the present case we are concerned with the law as it stood prior to the amendment of Section 43B. In these circumstances the assessee was entitled to claim benefit in Section 43B for that period particularly in view of the fact that he has contributed to the provident fund before filing the return.”

The decision of the Hon’ble Supreme Court in Vinay Cement’s case (supra), upholding the decision of Gauhati High Court in George Williamson (Assam) Ltd.’s case (supra), as concluded by the Madras High Court in Nexus Computer Private Limited’s case (supra) and the Delhi High Court in AIMIL Ltd.’s case (supra) and “The commissioner of Income Tax-V vs. P.M. Electronics Ltd.”, (ITA No.475/07, decided on 3.11.08), is binding precedent under Article 141 of the Constitution of India, which is required to be followed by this court.

In view of the discussion above, the substantial question of law framed as aforesaid is answered in favour of the assessee and against the Revenue.

In the result, the appeals are allowed. The impugned order dated 19.12.07 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur in Income Tax Appeal No.131/JDPR/2005 and 159/JDPR/2007 for the Assessment Year 2001-02 and 2002-03 respectively are set aside. No order as to costs.