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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SMT. BEENA PILLAI & SHRI LAXMI PRASAD SAHU
ORDER PER BENCH Present appeals by the assessee has been filed by assessee against separate orders both dated 03/08/2022 u/s. 250 passed by the National Faceless Appeal Centre (NFAC), Delhi relating to Assessment Years 2018-19 and 2019-20.
The brief facts of the case are as follows: Assessment Year : 2018-19: 2.1 The assessee has filed a return of income on 15/10/2018 declaring income of Rs.92,48,598/- and the same was processed Page 2 of 8 & 771/Bang/2022 u/s. 143(1) by CPC authorities on 26/02/2020 determining the total income at Rs.94,58,035/- by making an addition of Rs.2,09,437/- which represents the alleged belatedly payment of PF and ESI. Assessment Year : 2019-20: 2.2 The assessee has filed a return of income on 26/10/2019 declaring income of Rs.92,43,991/- and the same was processed u/s. 143(1) by CPC authorities on 01/05/2020 determining the total income at Rs.95,81,992/- by making an addition of Rs.3,38,001/- which represents the alleged belated payment of PF and ESI. 2.3 The reason for making the disallowance was that the assessee did not remit the employees' contribution to PF and ESI within the due date specified under the respective Acts.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), it was submitted that the assessee remitted the employees contribution to PF and ESI before the due date of filing of the return u/s 139(1) of the I.T.Act and in view of the judgment of the Hon'ble jurisdictional High Court Pr.CIT vs. Hind Filter Ltd. in ITA No. 662 of 2015. The assessee is entitled to deduction of the same. The Ld.CIT(A), however, dismissed the appeal of the assessee by relying on decision of Hon’ble Gujarat High Court in case of Gujarat Road Transport Corporation reported in (2014) 41 taxmann.com 100. The CIT(A) noticed the difference between the employees' contribution and the employer's contribution and held insofar as the employees' contribution to ESI and PF, the same need to be remitted within the due date as mentioned in the respective Acts. The CIT(A) also relied on the Page 3 of 8 & 771/Bang/2022 amendment brought about to section 36(1)(va) and 43B of the I.T.Act.
Aggrieved, the assessee has filed this appeal before the Tribunal. 4.1 The Ld.AR submitted that an identical issue is decided in favour of the assessee by the Hon’ble Karnataka High Court and the Coordinate Bench of this Tribunal in following cases: Essae Teraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) M/s. The Continental Restaurant & Café Co. v. ITO in ITA No.388/Bang/2021 (order dated 11.10.2021) M/s. Nirmal Enviro Solutions Pvt. Ltd. vs. DCIT in ITA No. 315/Bang/2021 (order dated 12.10.2021) Shri Gopalkrishna Aswini Kumar vs. ACIT in ITA No. 359/Bang/2021 (order dated 13.10.2021) 5. The learned Departmental Representative supported the orders of the Income Tax Authorities. 5.1 The Ld.DR relying on the order passed by the Ld.CIT(A) submitted that Hon’ble Delhi Tribunal in case of Vedvan Consultants P. Ltd. vs. DCIT in ITA No. 1312/Del/2020 by order dated 26/08/2021 has considered similar issue and has held as under: “12. The language of newly proposed explanation 2 to section 36(1)(va) and explanation 5 to section 43B makes it clear that the amendment is retrospective.” 5.2 He submitted that the amendment brought in by Finance Act, 2021 is mere clarification as the explanation 2 itself reads as under: “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;” He submitted that the disallowance made by the Ld.CIT(A) should be upheld.
We have heard rival submissions and perused the material on record.
Page 4 of 8 & 771/Bang/2022 An identical issue was considered by the Coordinate Bench of this Tribunal in the case of The Continental Restaurant & Café Co. v. ITO (supra). The relevant finding of the Tribunal reads as follows:- "7. I have heard rival submissions and perused the material on record. Admittedly, the assessee has not remitted the employees' contribution of PF of Rs.1,06,190 and ESI of Rs.16,055 totaling to Rs.1,22,245 before the due date specified under the respective Act. However, the assessee had paid the same before the due date of filing of the return u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). In holding so, the Hon'ble High Court was considering following substantial question of law:- "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36(1)(va) of the I.T.Act?" 7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:- "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub- section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction.
The submission of Mr.Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected.
With respect, we find it difficult to endorse the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013.
Page 5 of 8 & 771/Bang/2022 23. In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs." 7.2 The further question is whether the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution of PF and ESI if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is only prospective in nature and not retrospective. (i) Dhabriya Polywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib. ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal. (iii) Indian Geotechnical Services v. ACIT in ITA No.622/Del/2018 (order dated 27.08.2021). (iv) M/s.Jana Urban Services for Transformation Private Limited v. DCIT in ITA No.307/Bang/2021 (order dated 11th October, 2021) 7.3 In view of the aforesaid reasoning and the judicial pronouncements cited supra, the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 will not have application for the relevant assessment year, namely A.Y. 2019-2020. Accordingly, I direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) of the I.T.Act, It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed." We also note that Hon’ble jurisdictional High Court in case of Essae Taroka (P.) Ltd. reported in (2014) 266 CTR 246 and Spectrum Consultants India (P.) Ltd. reported in (2013) 266 CTR 94 has affirmed the above view.
Page 6 of 8 & 771/Bang/2022 6.1. Before us, the Ld.DR vehemently relied on the decision of Hon’ble Delhi Tribunal in case of Vedvan Consultants Pvt.Ltd vs. DCIT (supra) in support of his argument that Explanation 2 to section 36(1) (v)(a) and Explanation 5 to section 43 B inserted by Finance Act 2021 are retrospective in nature. Section 36(1)(va) reads as under: This section is to regulate the employers who recover provident fund and ESI contribution from employees for timely remittance. Any sum received by the employer (which is actually a recovery out of salary disbursement) shall be treated as income in view of section 2(24)(x). However, it is eligible for deduction only when it is remitted on or before the "due date". Explanation 1 to section 36(1)(va) says that "due date" means the date by which the employer is required 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 of service or otherwise. 6.2. The Finance Act, 2021 inserted Explanation 2 to section 36(1)(va) which reads that; 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. 6.3. As observed in the decision of coordinate bench of this Tribunal in case of the Continantal Restaurant & Case Co. vs. ITO (supra), Hon’ble Supreme Court in case of M.M. Aqua Techologies Ltd. v. CIT reported in (2021) 129 taxmann.com 145 had considered the retrospective applicability of Explanation 3C to section 43B by the Finance Act, 2006 which was similarly worded. The Supreme Court, therein, held that, “a retrospective provision in a tax Act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood”. Hon’ble Page 7 of 8 & 771/Bang/2022 Supreme Court relied on its own decision in case of Sedco Forex International Drill. Inc. v. CIT reported in (2005) 149 Taxman 352, wherein, it was observed as under: 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139]). An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585, 598] . If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts".
There was and is no ambiguity in the main provision of section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word "earned" had been judicially defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income "arising or accruing in India". The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, "income payable for service rendered in India".
When the Explanation seeks to give an artificial meaning to "earned in India" and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively. 6.4 In view of the above judicial pronouncements cited supra and respectfully following the decision of Hon’ble Karnataka High Court cited supra, we hold that the amendment to section 36(1)(va) and 43B of the I.T. Act will not have application for the relevant assessment year, namely assessment years 2018-19 and 2019-20. Accordingly, we direct the Ld.AO to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made Page 8 of 8 ITA Nos. 770 & 771/Bang/2022 the payment before the due date of filing of return u/s 139(1) of the I.T.Act. It is ordered accordingly. In the result, both the appeals filed by the assessee stands allowed. Order pronounced in the open court on 06th October, 2022.