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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri S.S. Viswanethra Ravi, & Shri Dr. Arjun Lal Saini
ORDER Shri S.S.Viswanethra Ravi, JM:
This appeal by the Revenue is arising out of order dated 21-12- 2015 of Commissioner of Income Tax (Appeals), for short CIT(A) herein, 1, Kolkata for the assessment year 2011-12.
The only issue is to be decided as to whether the CIT-A is correct in allowing the assessee’s claim regarding deduction on deposit of employees’ contribution to P.F (Rs. 3,48,38,217/-) beyond the due date u/s. 2(24)(x) r.w.s 36(1)(va) of the Act in the facts and circumstances of the case.
The assessee is engaged in ship construction, repairs , general engineering and diesel engines. On perusal of return filed by the assessee, the AO found that during the year under consideration the assessee debited an amount of Rs.13,26,10,231/- towards Employees’ contribution to Provident Fund (PF). On perusal of Schedule-5 of TAR (Tax Audit Report), the AO found that the assessee has failed to deposit an amount of Rs.3,48,38,217/- towards Page | 1 PF before the due date of payment as per provision of section 36(1)(va) of the Act. The AO proposed to disallow the said amount of Rs.3,48,38,217/- towards employees’ contribution to PF for nonpayment of the same within stipulated time prescribed under section 2(24)(x) r.w.s 36(1)(va) of the Act and asked the assessee that why an amount of Rs.3,48,38,217/- would not be disallowed under the provision of section 36 of the Act and according to AO the assessee also could not explain the same. The AO by invoking the provisions of section 2(24)(x) r.w.s 36(1)(va) of the Act and added the amount of Rs.3,48,38,217/- to the total income of the assessee.
Before the CIT-A the assessee in support of its contention relied on various following case laws:-
• CIT Vs. AIMIL Ltd 321 ITR 508(Del) • CIT Vs.ANZ Information Technology P.Ltd 318 ITR 123(Kar) • CIT Vs. Sabari Enterprises 298 ITR 141 (Kar) • CIT Vs. George Williamson (Assam) Ltd 284 ITR 619(Gau) • ITAT, Delhi’s order dt. 06-09-2012 and various decisions of Courts, held that the case of assessee in depositing the Employee’s Provident Fund before the due date of filing of return u/s.139(1) is admissible.
The CIT-A after considering the submissions and case laws mentioned hereinabove deleted the addition to Rs.3,48,38,217/-made u/s. 36(1)(va) of the Act on account of employees’ contribution to PF by stating as under:-
“I have carefully considered the observations made by the AO in the assessment order and submission filed by the A/R of the Appellant and cited case laws. It is observed that during the assessment proceedings, the A.O found from the tax audit report that the assessee had failed to deposit an amount of Rs.3,48,38,217/- towards Provident Fund before the due date of payment as per provision of section 36(1)(va). Hence, the amount was treated as income of the assessee u/s. 2(24)(x) of the I.T Act, 1961. The appellant’s A.R has through the written submission has stated that the appellant had in respect to show cause by the AO informed of depositing the employees the A.O. informed of depositing the employees contributions to Provident Fund in respect of 3 months i.e. May 2010, November, 2010 and January, 2011 before the due date of filing of return of income u/s 139( 1) of the IT Act. It was also stated that the appellant had also fulfilled the provision of section 36(1)(va) for credit the amount of the employees with their own contributions. Further, the appellant has also relied upon judgements of various High Courts and Tribunals that is employees contribution to Provident Fund are deposited before due date of filing of return of income, than there, should 110t be any disallowance u/s 36(1)(va) of IT Act, 1961.
From perusal of the details furnished in the auditor's report, in respect of "Employees' Contribution to provident Fund received and paid during the Previous year 2010-11" and stated that for the month of May, 2010 employees 'contribution to PF RS.13309814 and actual date of payment on 25.06.2010, for I the month of November, 2010 employees contribution RS.10670319 and Page | 2 actual payment on 22.12.2010 and for the month of January, 2011 contribution Rs. 10858084 and actual date of payment on 23.02.2011.
I have duly considered the judgment of Karnataka High Court 213 CTR 269, wherein it was held that contributions made by assessee to PF and ESI are allowable even though made beyond stipulated section 36(1)(va), read with section 2(24 )(x), provided such contributions are paid' by assessee on or before due date. In view of the above, the appellant's contentions are found to be correct as! the disputed contribution to the PF were paid before due date of filing the return and facts of the appellant's case are covered by the judgement in 213 CTR 269 (KAR). Hence I delete the addition made by the A.O, of Rs. 3,48,38,217/- u/s 36(1))(va) of the IT Act, these grounds are allowed.”
Before us the ld.DR relied on the order of the AO in making the impugned additions on account of employees’ contribution to P.F (Rs.3,48,38,217/-) beyond the due date prescribed u/s. 2(24)(x) r.w.s 36(1)(va) of the Act. He also submits that the CIT-A has erred in allowing the same, especially in the light of CBDT’s said clarification para 5 of Circular No. 21/2015 and prayed to allow this ground of appeal raised by the revenue.
On the other hand, the ld.AR relied on the impugned order of the CIT-A in doing so. He reiterated his same submissions made before the CIT-A in support of claim of the assessee. He also relied on the following case laws:-
• CIT Vs. State Bank of Bikaner & Jaipur (2014) 363 ITR 70 (Raj.)- decision in favour of assessee • Pr. CIT Vs. Rajasthan State Beverage Corprn. Ltd (2017) 84 taxmann. Com 185(SC)- decision in favour of assessee • CIT Vs. Sabari Enterprise (2008) 298 ITR 141(Kar) 213 CTR 263(Kar) 8. In view of above, he prayed to dismiss the ground of appeal filed by the revenue on this issue.
9. Heard rival submissions and perused the material available on record. We find that the AO disallowed an amount of Rs.3,48,38,217/- being employees’ contribution towards provident fund by invoking the provision of section 2(24)(x) r/w sec 36(1)(ii) of the Act for not depositing the same within specified date. But, the CIT-A deleted such amount in view of judgment of Hon’ble High Court of Karnataka reported in 213 CTR 269, wherein it was held that contributions made by assessee to PF and ESI are allowable even though made beyond stipulated U/Sec.36(1)(va), r/w.s 2(24)(x),
ITA No. 355/Kol/2016 Page | 3 provided such contributions are paid by assessee on or before due date of filing of return of income. We find that the Hon’ble High Court of Calcutta in the case of Vijay Shree Ltd supra has upheld the finding of the Tribunal basing on same identical facts on the ratio of decision as laid down by the Hon’ble Supreme Court in the case of Alom Extrusion Ltd reported in 309 ITR 306(SC), wherein the Hon’ble Supreme Court had an occasion to determine the effect of deletion of 2nd proviso and effect of amendment to 1st proviso to Section 43B by Finance Act 2003 from 01-04-2004 or retrospectively i.e from 01-04- 1988.
The Hon’ble Supreme Court found that the amendment to 1st proviso to Section 43B extended the benefit of deduction of tax to contributions to Employee’s Provident Fund, superannuation fund and other welfare funds on par with duty, cess and fee and, whereby, the Hon’ble Supreme Court held that bringing the uniformity to the contributions of Employee’s Provident Fund, superannuation fund and other welfare funds on par with duty, cess and fee came into force with effect from 01-04-2004 by Finance Act, 2003, was curative in nature and should be read as retrospective and shall operate from 01-04-1988 when the 1st proviso was actually inserted. The relevant portion of which is reproduced herein below:
We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Section 43-B [main section], which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non- obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Mercantile System of Accounting. At the same time, Section 43-B [main section] made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act [octroi] and other Tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under the Income Tax Act [due date], the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under Social Welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively
ITA No. 355/Kol/2016 Page | 4 with effect from 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Limited vs. Commissioner of Income Tax, reported in [1997] 224 I.T.R.677, the Scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984- 1985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, as stated above, was inserted with effect from 1st April, 1984. It is also relevant to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited (supra). However, the assessee contended that even though the first proviso came to be inserted with effect from 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when Section 43-B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Limited (supra). This Court, in Allied Motors (P) Limited (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Limited (supra), held that the first proviso was curative in nature, hence, retrospective in operation with effect from 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P) Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively with effect from 1st April, 1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43-B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003.
Applying the principle as laid down by the Hon’ble Supreme Court in the aforementioned case as followed by the Hon’ble High Court of Calcutta to the present case, We may usefully read the 1st proviso as amended by Finance Act 2003 as under:
"Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub- section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return."
A plain reading of the aforementioned proviso explains that the deduction is available that if the employer deposits the contributions collected from its employees to any fund created for the welfare of ITA No. 355/Kol/2016 Page | 5 the employees beyond due date of payment in terms of the amendment to 1st proviso to Section 43B of the Act and within the due date of filing return of income.
In the present case, the CIT-A found satisfied with the submissions of the assessee that the impugned amounts were paid before filing return of income. Therefore, respectfully following the decision of the Hon’ble High Court of Calcutta in the case of Vijay Shree Ltd supra, we hold that the Assessee is entitled to claim deduction as per 1st proviso to Section 43B of the Act and the order of the CIT-A is justified and needs no interference. Therefore, the employees’ contribution to PF can be paid before the due date of filing of return of income. We find no infirmity in the impugned order of the CIT-A and it was justified. Thus, the ground raised by the revenue in this regard is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 06.12.2017.