ACIT, CIRCLE-4(1), KOLKATA, KOLKATA vs. M/S. GILLAPUKRI TEA CO. LTD,, KOLKATA

This appeal filed by the revenue is against the order of CIT(A)-17, Kolkata, dated 17.11.2016 for AY 2012-13.

1. That on the facts and in circumstances of the case and in law Ld. CIT(A) erred in allowing the ground taken against disallowance made to the tune of Rs.3,16,929/- under nursery expenses.”

M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 3. Briefly stated facts as observed by the Assessing Officer are that the assessee is engaged in growing, manufacturing and sale of tea. During the course of hearing, the Assessing Officer found that the assessee has claimed nursery expenses of Rs.3,16,929/- and debited this in the P&L Account. The Assessing Officer disallowed the said expenditure by observing that the expenses cannot come under the head revenue expenditure as the nursery expenses gives advantage to the assessee for a number of years. On appeal, the CIT(A) following the decision of Hon’ble Calcutta High Court in the case of Tasati Tea Ltd. reported in 262 ITR 388 deleted the disallowance of Rs.3,16,929 on account of nursery expenses. Aggrieved, revenue is before us.

4. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the ld DR could not controvert the factual finding of CIT (A) that the nursery expenses claimed by the assessee as deduction is actually the wages for workers employed to upkeep of immature plants which are used for replanting or in filling areas where the tea plants are either dead or become permanently useless; and also that it is not the case of Revenue that this expenditure claimed was for any expansion or cultivation in any new area. Therefore, the Assessing Officer erred in disallowing the expenditure terming it to be of a capital nature and not on revenue account, which has been rightly deleted by the CIT (A), which requires no interference from our part so, this ground of revenue’s appeal is dismissed.

M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 aforesaid payment was interest which was levied for infraction of law, since the assessee failed to deposit P.F contributions collected from its employees. Therefore, the entire amount of Rs.1,29,14,825/- was disallowed by Assessing Officer and added back to income returned by assessee. Aggrieved, the assessee preferred an appeal before the CIT(A), who was pleased to delete the same holding that interest charged by the P.F. authorities as compensatory in nature for the delay caused in depositing the P.F contribution and, therefore, according to him is an allowable business expenditure and not penalty as treated by Assessing Officer. Aggrieved by the decision of CIT(A), the revenue is before us.

8. We note that P.F. Commissioner instructed the assessee company to deposit the 15% statutory interest of (Rs. 96,30,304.22 + Rs.27,12,868.60 + damage of 0.3% computed at Rs.5,71,652.52) total of Rs.1,29,14,825.35 in instalments given in the Memo No. PF/L/2011/E-64/7496-49 dated Ghy the 16.12.2011. The assessee company claimed it is an expenditure which was disallowed by the Assessing Officer. According to Assessing Officer, the amount levied was because of infraction of law since the assessee was required by law to deposit P.F contribution collected from its employees and not withholds it for its own business as working capital. On appeal, the CIT(A) deleted the same holding the interest paid by the assessee as compensatory in nature and not penal and so the revenue is in appeal. In order to adjudicate this issue, we have to look into the relevant provision of Assam Provident Fund Act, which governs the 3

M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 subject and issue before us. For that we need to extract relevant provisions of the said Act (Assam Act X of 1955): “Definition : In this Act, unless there is anything repugnant in the subject or context:- (1) …………… (a) “Contributions” means the deduction from the wages of an employee for deposit to the Provident Fund or Insurance Fund and the amount payable by the employer in respect of each employee to the Provident Fund or insurance fund under the scheme. (b) “Employer” means any person who is the proprietor of a plantation and including a Managing Agent. Manager, Superintendent, Managing Director, Director or any other person who is in-charge of any plantation. (c) "Fund" means the Provident Fund or the Pension Fund, 945(or Insurance Fund),as the case may be established under the Scheme. (d) 'Employee" means any person who is employed (including apprentice) to do any skilled or unskilled, manual or clerical work in or in connection with a plantation including its local head office, office, factory, workshop, school or hospital and who gets his wages directly or indirectly from the employee but does not include a person whose total wages exceed (Rs.6500/- (Rupees six thousand five hundred per mensem inclusive of dearness allowance and value of food concession, or a person working under a contractor in work not directly with connected with cultivation and manufacture of tea. 19 ………….. (e) “Member” means of Provident Fund) or the Pension Fund, (or Insurance Fund), as the case may be, (f) "Plantation " means any tea plantation or (16) tea factory : (g) "Scheme" means the Assam Tea plantation Provident Fund (l)(and Pension Fund (or the Insurance Fund) Scheme framed under Section 3 (1). (h) "Wages" means any amount capable of being expressed in terms of money for the time being payable to an employee by the employer for works in or in connection with a plantation and includes dearness allowance, value of food concession, amount payable for plucking whether calculated on time or piece rates or otherwise, and leave with wages and maternity allowances or benefits, but does not include- (a) bonus or (b) Commission. (8) "Interest" means the amount payable at the rate of 15 per cent per annum by the Employer over the combined dues of Employees and Employer's share of contribution following default in depositing within 30 (thirty) days of its collection. 3(1) Compulsory Provident Fund, (l)Pension and Insurance) Scheme: (1) The State Government may by notification in the official Gazette, frame a Scheme to be called the Assam Tea Plantations Provident Fund and Pension Fund and Insurance Fund) Scheme for the establishment of Provident Fund and Pension Fund and Insurance Fund for Providing Life Assurance coverage for the employees employed in plantation and specify the plantations to ·which the same shall apply. (2) A Scheme framed under the provision of subsection (1) may provide for all or any of the matters specified in the Schedule. (3) The Contribution which shall be paid by the employer to the Provident Fund shall be twelve per cent of the total wages including all such allowances as are included within wages as defined in clause (h) of Section 2 for the time being payable to each of the employees and the employers contribution shall be equal to the contributions payable by the employer in respect of him. Provided that where there exists any provident fund in any plantation at the commencement of this Act and the rate of contribution payable by either the employee or employer is higher than what has been prescribed above, the employee shall have the option 4 M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 within such period as may be fixed by the Board in its meeting to elect either to continue to subscribe to the existing Provident Fund or join the Provident Fund established by this Act Act but the election once made shall not changed except with the permission of the Board. Provided further that in respect of the employees opting to subscribe to the existing Provident Fund as above the obligation of the employer and the employee to contribute to the existing Provident Fund shall continue and shall not be affected by the provisions of this Act. (13) Provided that if the employer fails to deposit the contribution which he is required to make under clause (a) within 15 (fifteen) days of the close of every month, the employer shall be liable to pay interest at the rate of 15% per annum on the arrear till it is deposited. (14) Provided further that the employer shall be liable to pay the interest along with the required contribution to make under clause (a). (b) The Central Government may contribute to the Insurance Fund in relation to each employee covered by the Scheme, an amount representing one-half of the contribution which an employer is required by clause (a) to make. (c) The employer shall pay into the Insurance Fund such further sum of money, not exceeding one-forth of the contribution which he is required to make under clause (a) as the Board may, with due approval of the Government from time to time, determine to meet all the expenses in connection with the administration of Insurance Scheme. (d) The Central Government may pay into the Insurance Fund such further sum of money representing one-half of the sum payable by the employer under clause (c) to meet all the expenses in connection with the administration of Insurance Scheme. (e) The Insurance Fund shall vest in the Board of Trustees and shall be administered it in such manner as may be specified in the Scheme. (f) The Insurance Scheme may provide that any of its provisions shall take effect either prospectively or retrospectively on such date as may be specified in this behalf in that scheme.

7. Penalties: (1) Whoever, for the purpose of avoiding any payment to be made by himself under this Act or under any Scheme or of enabling any other person to avoid such payment, knowingly makes or causes to be made any false statement or false representation shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to five thousand rupees, or with both. (2)(1A) An employer who contravenes, or make default in complying with the provisions of Section 3 of the Act in so far as it relates to the payment of administrative charges, shall be punishable with imprisonment for a term which may extend to three year, but (a) which shall not be less than one year and a fine of rupees ten thousand in case of default in payment of the employee's contribution which has been deducted by the employer from the employee's wages (b) which shall not be less than six month in any other case and shall also be liable to fine which may extend to five thousand rupees . 7A. Whoever, having been convicted by a Court of an offence punishable under this sccheme or the Pension Scheme commits the same offence shall be subject for every such subsequent offence to imprisonment for as term which may extend to five years but which shall not be less than two years and shall also be liable to a fine may extend to twenty five thousand rupees. 7AA. (1) Notwithstanding anything contained in the code of Criminal Procedure, offence relating to default in payment of contribution by the employer punishable under this Act shall be cognisable. (2) No Court inferior to that of a Magistrate of the First Class shall try any offence this Act or the Scheme or the Pension Scheme. 7(2) A scheme framed under this Act may provide that any person who contravenes, or makes default in complying with any of the M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 provisions thereof shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to four thousand rupees, or with both, 3. No court shall take cognizance of any offence punishable under any such Scheme except on a report in writing of the facts constituting the offence made by an Inspector with the previous sanction of such authority as may be specified in this behalf by the State Government.

11. Responsibility of collection of contribution: Every employer shall be responsible for collection of the contributions, their remittances in accordance with the provisions of the Scheme and maintenance of necessary records in respect of members of his tea plantation or tea factory and shall bear the cost thereof. 11A. If the employer fails to deposit employer’s contribution together with the employee’s share of contribution within 30 (thirty) days of its collection, the employer shall be liable to pay interest at the rate of 15 per cent per annum on the arrear till it is deposited.

15. Mode of recovery of money due from employer : Any amount due from the employer in relation to a plantation to which the Act or any Scheme framed thereunder applies in respect of any contribution payable to the Provident Fund or the Pension Fund as the case may be, damages recoverable under Section 16 of the Act, Accumulation required to be transferred under Section 14 or any charges payable by Him under any provisions of this Act or any provisions of the Scheme framed thereunder, may if the amount is in arrear, be recovered by the Government or a person authorised by it in the same manner as an arrear of land revenue.

16. Power to recover damages: Where an employer makes a default in the payment of contribution to the Provident Fund or in the transfer of accumulations required to be transferred by him under Section 14 or in the payment of any charges payable under any other provisions of this Act or the Scheme framed thereunder, the Government or any other person authorised by it may recover from the employer such damages, not exceeding the amount of arrear, as it may thing fit to impose. 16A.(1) Where an employer is convicted of an offence of making default in the payment of any contribution to the Provident Fund, Pension Fund or Insurance Fund or in the transfer of accumulations required to be transferred by him under section 14, the Court may, in addition to awarding any punishment, by an order in writing, require him within a period specified in the order (which the Court may, it if thinks fit and an application in that behalf, from time to time, extend), to pay the amount of contributions or transfer the accumulations, as the case may be in respect of which the offence was committed. (2) Where an order is made under Sub-Section (1) the employer shall not be liable under this Act in respect of the contribution of the offence during the period of extended period, if any, allowed by the Court, but if on the expiry of such period of extended period, as the case may be the order of the Court has been fully complied the employer shall be deemed to have committed a further offence and shall be punished with imprisonment in respect thereof of under Section 7 and shall also be liable to pay fine which may extend to one hundred rupees for everyday after such expiry on which order has not been complied with. 16B. Where an employer, in relation to an establishment, transfers that establishment in whole or in part by sale, gift, lease or licence or in any other manner whatsoever, the employer and 6

M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act or the Scheme, as the case may be, in respect of the period upto the date of such transfer.”

9. From a perusal of the Assam Act X of 1955 (hereinafter “the Act X of 1955”), the scheme envisaged by the legislature is to provide compulsory Provident Fund for employees employed in Tea Plantation in Assam. Therefore, the Act X of 1955 Section. 2(a) defines “contribution” which means Provident Fund for a class of Employees defined in sec. 2(d) (supra) by the Employers (in this case the assessee ) as defined in sec. 2(b) (supra). As per sec. 3(1) and the Scheme of the Act, the State Govt. by notification in the Gazette frames a scheme called “the Assam Tea Plantation Provident Fund” and pension fund for the establishment of provident Fund and Pension funds for the employees employed in plantation. As per sub sec. 3 of sec. 3 of the said Act, the contribution which shall be paid by the employer to the PF shall be 12% of the total wages including all such allowances as are included with its wages as defined in clause (h) of sec. 2 and the employer’s contribution shall be equal to the contributions payable by the employer to the employee. As per 3rd proviso to sec. 3, if the employer fails to deposit the contributions which he is required to make under clause (a) of sec. 2 within 15 days of the close of every month or the employer in case he fails to deposit the employer’s contribution together with the employee’s share of contributions within 30 days of its collection, then in that case he shall be liable to pay interest at the rate of 15 % per annum on the arrear till it is deposited. So when the legislature inserted the definition clause of “interest” and “sec. 11A” simultaneously vide Assam Act 1 of 1989, the definition of “interest” means the amount payable at the rate of 15% by the employer over the combined dues of Employees and Employer’s share of contribution following default in depositing within 30 days of its collection. The expression default has been interpreted “...... The expression ‘default’ is synonymous with failure to pay. The employer’s liability for damages is attracted the moment he makes default’’ by the Hon’ble Supreme Court in Organic Chemical Industries Vs. Union of India AIR 1979 SC 1803. Taking note of this interpretation, the Hon’ble Calcutta High Court held as under: 7 M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 “...... The expression ‘default’ is synonymous with failure to pay. The employer’s liability for damages is attracted the moment he makes default. The Supreme Court in Organic Chemicals (1979) 55 FJR 283; AIR 1979 SC 1803, has considered this question. Therefore, the Supreme Court held as follows (at page 304 of 55 FJR): The expression, 'damages' occurring in Section 14B is, in substance. a penalty imposed on the employer for the breach of the statutory obligation. The object of imposition of penalty under Section 14B is not merely 'to provide compensation for the employees'. We are clearly of the opinion that the imposition of damages under Section 14B serves both the purposes. It is meant to penalise defaulting employers as also to provide preparation for the amount of loss suffered by the employees. It is not only a warning to employers in general not to commit a breach of the statutory requirements of Section 6, but at the same time it is meant to provide compensation or redress to the beneficiaries, i.e., to recompense the employees for the loss sustained by them. There is nothing in the section to show that the damages must bear relationship to the loss which is caused to the beneficiaries under the Scheme. The word 'damages' in Section 14B is related to the word 'default'. The words used in Section 14B are 'default in the payment of contribution' and, therefore, the word 'default' must be construed in the light of para 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month and, therefore, the word 'default' in Section 14B must mean 'failure in performance' or 'failure to act'. At the same time, the imposition of damages under Section 14B is to provide reparation for the amount of loss suffered by the "employees."

7. It is, therefore, clear that the Supreme Court did not accept the contention that the award of damages under Section 14B must be, in essence, the pecuniary reparation for loss or injury sustained by one person through the fault or negligence of another.

“In our view, the colour and content, nature and character and shades of the meaning of the word " damages " have to be understood in the context of the scheme of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The meaning assigned to the said word by the Supreme Court in Organic's case, AIR 1979 SC 1803, must be taken to be the governing factor in determining the question whether the 8 M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 damages under section 14B are penal or compensatory in nature. The expression " damages " occurring in section 14B is, in substance, a penalty imposed on the employer for the period of infringement of a statutory obligation. The payment made by the assessee in this case, although termed as interest, in fact, represents damages under section 14B of the Act and hence is not allowable as a deduction.”

11. We further note that the Mode of recovery of money due from employer is provided or by sec. 15 of the Act. We note that the definition of ‘interest’ has been inserted by Assam Act I of 1989 and simultaneous insertion of sec. 11(A) was made by Assam Act I of 1989. For the sake of convenience we reproduce both again as under; “Interest” means the amount payable at the rate of 15 per cent per annum by the Employer over the combined dues of Employees and Employer's share of contribution following default in depositing within 30 (thirty) days of its collection. “Sec.

14. We also take note of sec. 16 which prescribes award of damages by the government/ authorised authority. We note that the upper ceiling of 25% prescribed of the amount of arrears has been deleted by Assam Act IX of 1976 and, therefore, there is no fetter for the authorised person to award the damages in case there is violation of sec. 14, or in the payment of any charges payable under any other provisions of this Act or the Scheme framed thereunder. We note that in the instant case, the damages awarded by the authorised authority on 16.12.2011 is to the tune of Rs.5,73,312.62 which is the damages as per Sec. 16 of the Act X of 1955 and that the assessee itself has disallowed an amount of Rs.5,66,711/- which is reflected in Form No. 3CD kept from pages 38 to 45 and this fact is evident from column 17 e(1) at page 40, which the assessee has shown as Amounts debited to P&L Account being expenditure by way of penalty or fine for violations of any laws for the time being in force.

M/s Gillapukri Tea Co. Ltd. A.Yr. 2012-13 16.12.2011 for committing the default in depositing both the contribution is a levy on the employer assessee for default in the payment of contribution and, therefore, taking light from the judicial precedents discussed above, we reverse the order of the CIT(A) and uphold the order of the Assessing Officer. However, we direct the Assessing Officer to look into the contention of assessee that it has suo moto disallowed Rs.5,66,711/- on this account from total amount of Rs.1,29,14,825/- which if found correct, then relief to that extent to be given to the assessee. Before we part, the assessee’s contention that CIT(A)’s impugned order is right in the light of the order of the Hon’ble Apex Court order in Mahalakshmi Sugar Mills Co. Vs. CIT is misplaced because it was in the context of interest payable on the arrears of sugarcane cess as per U.P. Sugarcane Cess Act, 1956 and the said decision and other decisions of Hon’ble High court were in fact taken into consideration and discussed by the Hon’ble Calcutta High Court while deciding Hasimara Industries Ltd. (supra). So, we find no merit in the contention of the Ld. Counsel of assessee to justify the impugned order of Ld. CIT(A). For the reason discussed above, we reverse the order of Ld. CIT(A) and uphold the order of AO. Thus this ground of Revenue is allowed.

Order pronounced in the Court on 11.07.2018