M/s Shriram Chits Private Ltd vs. The Deputy Commissioner of Income Tax

IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY ,THE FIRST DAY OF FEBRUARY TWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL NO: 326 OF 2006 Appeal Under Section 260A of the lncome Tax Act, 1961 aggrieved by the order dated 31-o1-2ooz in l.T.A. No. 1918 , Hyd/ 1996 (Assessment Years 199{-9f,to 1994 -95} on the file of the Court of the tncome Tax Appeltate Tribunal, Hyderabad Bench "8" , Hyderabad prcferred against the order of the Commissioner of lncome Tax ( Appeals ) , Hyderabad in ITA No. 1681 324195- 96 and l.T.A. No. 539 DC(A.V) , 90.97 dated 16{8-1996 prefered against the order of the Deputy Commissioner of lncome Tax , (Appeals V), Hyderabad dated 2843-1995 in PAN / GIR No. S-7 Between M/s Shriram Chits Private Ltd, Rep. by its Executive Director Mr. R. Duruvasan 3-5- 909, Himayathnagar, Hyderabad- 500 029 ...APPELLANT AND The Deputy Commissioner of lncome Tax, (Assts), Special Range-S, Hyderabad ...RESPONDENT Counsel for the Appellant: SRl. K. GOVINDA RAO REP. SRI K. MAHESHWAR RAO Counsel for the Respondent SRI J.V. PRASAD, S.C. FOR INCOME TAX DEPT. The Court made the following: JUDGMENT

7 THE HON'BLE THE CHIEF JUSTICE UJJAL BIflIYAN AND THE HON'BLE SRI WSTICE N. TUI(ARAMJI JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan) Heard Mr. K.Govinda Rao, learned counsel for the appellant and Mr. J.V.Prasad, learned Standing Counsel for lncome Tax Department for the respondent 2. This appeal has been preferred by the assessee as the appellant under Section 260A of the Incotne Tax Act, 1961, against the order dated 31.O l.2OO2 passed by the Income Tax Appellate Tribunal, Hyderabad Bench 'B', Hyderabad, 1n I.T.A.No.1918/Hydl 1996 for the assessment year t993-94. 3. Learned counsel for the parties submit that issue raised in this appeal is squarely covered by a recent decision of this Court in I.T.T.A.No.296 of 2006 and batch (M/s. Shriram Chits Private Limited v. Deputy Commissioner of Income Tax) decided on 30. 1 1.2022 against the assessee and in favour o[ the revenue. I.T.T.A.No.326 of 2o,o,6

\,r. 2 4. Relevant portion of the aforesaid order dated 30.1 L.2022 reads as follows: 3. These appeals under Section 260A of the Income Tax Act, 1961 (briefly 'the Act'hereinafter) arise out of the orders dated 3L.O1.2022, 26.07.2OO4 and 3O.O7.2OO4 passed by the Income Ta:< Appellate Tribunal, Hyderabad Bench 'B', Hyderabad (briefly qthe Tribunal' hereinafter) in I.T.A.No. L9l'6/Hydl L996 for the assessment year 199 t'92; l.T.A.Nos.5O6/Hyd/L999, 327 l$ydl2}Or, 47 L & LOag lHyd/2OO2 for the assessment yea-rs 1995-96, L997-98, L998-99 & 1999- 2OOO; and I.T.A.No.1175/Hydl2OO3 for the assessment year 2OO0-01. 4. Though at the time of filing appeal, substantial questions of law were not framed, appellant has proposed the following two questions as substantial questions of law. " 1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in rejecting the appellant's claim for exemption of the chit fund income on the principal of mutuality, on the ground that appellant is a business concern ? 2. Whether on' the facts and in the circumstances of the case, the Income Tax Appellate Tribunal lvas correct in law in ignoring the fact that when the appellant subscribed to a chit, it does so in its character as a subscriber ?

1J 5. The two questions raise only one issue i.e., whether appellant's claim to exemption of the chit fund income on the principle of mutuality was justifred. We may mention that Tribunal had rejected the claim of the appellant for exemption of its income from chit fund business on the principle of mutuality holding that appellant is a business concern. 6. This question has already been decided by this Court in Commissioner of Income-Tax v. Kovur Textiles ((1982) 136 ITR 61 Ap) holding rhat principle of mutuality cannot be extended to income earned by a chit fund company. 7. Appellant has proposed two more questions as substantial questions of law in I.T.T.A.No.3l6 of 20O6, which are as under: 1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in not considering the appellant's submissions that the retrospective amendment to Section 438 of the Income Tax Act, 1961 by Finance Act, 2003 was clarificatory, and hence retrospective ? 2. Whether the Tribunal on the facts and in the circumstances of the case, erred ir.r holding that the payments ro ESI & pF Corporations made after the due dates under the respective statutes but before the due date for filing of the return of income u,as inadmissible as an expenditure ? t t

4 8. Though two questions have been proposed, the issue is basically one and the same. The question is whether payments made on account of employees' contribution to ESI and PF Corporations after the due date under the respective statutes but before the due date of frling of return of income was inadmissible as an expenditure. 9. This issue is also no longer res integra in view of the decision rendered by the Supreme Court in Checkmate Senrices P. Limited v. Commissioner of Income Tax-l (2022 SCC Online SC 1423). In the said decision, Supreme Court has held as follows : 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(1)(va)) is, thus crucial. The former forms part of the employers' income, and the latter retains its character as an income (albeit deemed|, b-v virtue of Section 2(2al$l - 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. [n 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'de{inition, since it is the deduction from the employees'income and held in trust b)' the emplo-ver. This marked distinction has to be borne rvhile interpreting

t 5 the obligation of every assessee under Section 438. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstanle 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 cohstitutes 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 allor.r,ed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of emplo5rees' 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 specilied 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 \ t I

6 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. 10. In view of above, all the questions proposed are answered against the appellant/assessee and in favour of the revenue/respondent. 5. Following the above, the present appeal is also dismissed. Miscellaneous applications pending, if &ri], shall stand closed. However, there shall be no order as to costs. ,/TRUE COPY" Sd/.B.S.CHIRANJEEVI JOINT REGIStrRAR I 0/ SECTION OFFICER To 1. The lncome Tax Appellate Tribunal, Hyderabad Bench "B" , Hyderabad 2. The Commissioner of lncome Tax ( Appeals ) , Hyderabad 3. The Deputy Commissioner of lncome Tax , (Appeals V), Hyderabad 4. One CC to SRl. K. Maheswara Rao, Advocate [OPUCI 5. One CC to Sri J.V. PRASAD, SC FOR lncome Tax. Dept. (OPUC) 6. Two CD Copies f,yr /

HIGH COURT DATED t0110212023 JUDGMENT ITTA.No.326 of 2006 DISMTSSTNG THE ITTz\ WITHOUT COSTS .\ tr.g $IAT'1.. ( * r,) 1 5 illp,R ?t1:1 t * i 9.p ;' .-l t .r