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W.P.No.8834/11 - 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 17TH DAY OF APRIL 2013 BEFORE THE HON’BLE MR.JUSTICE RAM MOHAN REDDY
WRIT PETITION NO. 8834 OF 2011 (T-IT)
BETWEEN:
M/S SPECTRUM CONSULTANTS INDIA PRIVATE LIMITED (FORMERLY SPECTRUM PLACEMENT AND MARKETING SERVICES PRIVATE LIMITED) REP BY SHRI SHARAD DHAWAN, DIRECTOR, 780, 1ST CROSS, 12TH MAIN, HAL 2ND STGE, BANGALORE 560008 ... PETITIONER
(BY SRI. DR.R B KRISHNA, ADV.)
AND
COMMISSIONER OF INCOME TAX BANGALORE-III, CR BUILDINGS, 1ST FLOOR, QUEENS ROAD, BANGALORE 560001 ... RESPONDENT
(BY SRI. SANMATHI INDRAKUMAR, ADV.)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH ORDER NO. LRP 7/CTT B-III/09-10 DATED 10.12.2010, ASSESSMENT YEAR 2006-07 PASSED BY THE RESPONDENT (ANNEX.G) ALLOW THE PETITION UNDER SECTION 264 FILED BEFORE THE RESPONDENT BY THE PETITIONER (ANNEX.D).
THIS WRIT PETITION IS COMING ON FOR DICTATING ORDERS THIS DAY, THE COURT MADE THE FOLLOWING:
W.P.No.8834/11 - 2 - O R D E R
Briefly stated facts are, petitioner – an income tax assessee filed its return of income on 23/11/2006 for the assessment year 2006-07 (previous year ending 31/3/2006) under the Income Tax Act, 1961, for short the ‘Act’, claiming deduction of Rs.22,91,791/- being the employees’ contribution under the Employees’ Provident Fund & Miscellaneous Provisions Act, 1952, for short ‘EPF Act’, and the Employees’ State Insurance Act, 1948, for short ‘ESI Act’, though remitted late and beyond the due dates prescribed under the said statutes.
The assessing officer concluded the assessment under Sec.143(1) of the Act by order dt. 29/8/2008 disallowing the deduction of Rs.22,91,791/- on the premise that the remittance was delayed and beyond the period prescribed under the aforesaid statutes.
Petitioner called in question the said order invoking Sec.264 of the Act by way of Revision before the respondent on the premise that Rs.20,76,915/-
W.P.No.8834/11 - 3 - being the employees’ contribution under the EPF Act and ESI Act was remitted during the very financial year ending 31/3/2006, while the balance of Rs.2,14,876/- was remitted prior to the last date for filing of the income tax return under Sec.139(1) of the Act, extended upto 30/11/2006, by placing reliance upon the decision of the Division Bench of this court in CIT VS. SABARI ENTERPRISES1 [as affirmed by the Apex Court in CIT VS. ALOM EXTRUSIONS LTD.2, DD. 25/11/2009]. Respondent having considered the revision petition, observed that the Revenue had preferred Civil Appeal Nos. 7763- 7764/2009 and that the question that arose for consideration in Sabari Enterprises’ case was, allowability of deduction under Sec.43B of the Act in respect of the employees’ contribution under the EPF Act and ESI Act, remitted beyond the stipulated period as contemplated under the respective Acts, but paid before the due date of furnishing returns of income under Sec.139(1) of the Act. The respondent declined to accept the plea of the petitioner that the allowability of
1 298 ITR 141 2 (2009) 319 ITR 306 (SC)
W.P.No.8834/11 - 4 - the deduction in so far as the employees’ share of the PF and ESI, when not remitted on or before the due dates prescribed under the relevant statutes, though remitted after the due date, but before filing of the return on the premise and that Sec.43B(b) of the Act deals with employers’ contribution, while the relevant provision in relation to employees’ contribution is Sec.36(1)(va) of the Act. In addition, the authority also observed that the decision of the Apex Court in ALOM Extrusions, being in relation to whether deletion of the 2nd proviso to Sec.43B(b) of the Act by Finance Act 2003, was prospective from 1/4/2004 or retroactive from 1/4/1998, was inapplicable to the claim of the petitioner and accordingly by order dt. 10/12/2010 – Annex.G, rejected the revision petition. Hence this writ petition.
Although no objections are filed to the petition, nevertheless learned counsel for the respondent – Revenue seeks to sustain the order impugned as being well merited, fully justified and not calling for interference.
W.P.No.8834/11 - 5 -
Learned counsel for the petitioner while pointing to Sec.2(24)(x); Sec.36(1)(va) and Sec.43B of the Act, submits that in similar circumstances, a Division Bench of this court in Sabari Enterprises’ case, considered the said provisions of law and upheld the finding of the Tribunal that the contributions remitted by the assessee to PF and ESI are allowable deductions even though made beyond the stipulated period as contemplated under the mandatory provisions of Sec.36(1)(va) r/w Sec.2(24)(x) and Sec.43B of the Act, since the same was paid by the assessee on or before the due date of furnishing the return of income under Sec.139(1) of the Act. According to the learned counsel, this judgment when carried in Civil Appeal Nos. 7763- 7764/09 by the Revenue, was affirmed by order dt. 25/11/2009 dismissing the Civil Appeals, in THE COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSIONS LTD. Learned counsel hastens to add that the Revenue having suffered a judgment at the hands of the Division Bench of this court, could not have sat in judgment and render a finding contrary to that of the Division Bench.
W.P.No.8834/11 - 6 -
Having heard the learned counsel for the parties, perused the pleadings and examined the order impugned, the core question for decision making is: “Whether the assessing authority and the revision authority were correct in disallowing the deduction towards contributions remitted by the petitioner, employee – assessee under the EPF and ESI Act, though some of which were remitted beyond the stipulated periods prescribed under the said statutes and the mandatory provisions of Sec.36(1)(va) r/w Sec.2(24)(x) and Sec.43B of the Act, while the said payments were effected by the assessee before the due date for filing returns of income under Sec.139(1) of the Act, as extended upto 30/11/2006 ?”
Facts not being in dispute, petitioner remitted Rs.20,76,915/- from out of RS.22,91,791/- during the financial year ending 31/3/2006 and the balance, well before the extended date ie., 30/11/2006 for filing of return of income under Sec.139(1) of the Act (though details of the dates of remittances and the due dates are furnished in Annex.B disclosing the number of days delay, as also the dates when there was no delay),
W.P.No.8834/11 - 7 - coupled with the non-obstante clause in Sec.43B of the Act, and the words “due date” in the proviso to Sub- sec.(b) thereto, read with the word ‘due date’ in the explanation to Sec.36(1)(va) of the Act, the authorities were not justified in disallowing Rs.22,91,791/- being the employees’ contribution remitted by the employer, petitioner-assessee.
In Sabari Enterprises case, the Division Bench after extracting Sec.2(24)(x), Sec.36(1)(va) and Sec.43B(b), regard being had to the expression “due date”, meaning the date by which the assessee is required, as an employer, to credit the contributions to the employees’ account in the relevant fund under any Act, Rule or Order or notification issued thereunder or under any standing order, award or contract of service or otherwise, as well as non-obstante clause in Sec.43B, held that the provisions read along with the first proviso to the section as was inserted by Finance Act, 1987, which came into effect from 1/4/1988, deduction towards the Employees’ contribution paid can be claimed by the Assessee. Their Lordships further held thus:
W.P.No.8834/11 - 8 - “The explanation to Clause (va) of Sec.36(1) of the Income Tax Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under Sec.139 of the Act to the Revenue in respect of the previous years can be claimed by the assessee for deduction out of their gross income”. The plea of the Revenue that deductions from out of the gross income of payment of tax at the time of submitting of returns under Sec.139 is permissible only if the statutory liability of payment of provident fund or other contribution referred to in clause (b) are paid within the due date under the respective statutory enactments by the assessee, was not accepted as tenable in law.
It is no doubt true that in ALOM Extrusions case, the question that fell for consideration by the Apex Court was, whether the omission (deletion) of the second proviso to Sec.43B of the Act by Finance Act 2003 operated w.e.f. 1/4/2004 or retrospectively w.e.f. 1/4/1988? In order to answer the said question, the Apex Court felt the need to understand the scheme of
W.P.No.8834/11 - 9 - the Act as it existed prior to 1/4/1984 and as it stood after 1/4/1984 and accordingly examined the definition of the term ‘income’ under Sec.2(24)(x), the mercantile system of accounting with regard to tax, duty and contribution to welfare funds, which was discontinued under Sec.43B leading to the introduction of the first proviso w.e.f. 1/4/1988 and the insertion of the second proviso vide Finance Act 1988, making reference to the term ‘due date’ in the explanation to Sec.36(1)(va) of the Act, as well as the amended second proviso by Finance Act 1989, w.e.f. 1/4/1989. Their Lordships observed that the hardship caused to employers was addressed and by the Finance Act 2003, w.e.f. 1/4/2004, two changes were made, namely deletion of second proviso and further amendment to the first proviso, equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to the employees provident fund, superannuation fund and other welfare funds on the other. It is further observed that in order to bring about uniformity in allowing deductions to contributions to welfare funds, the amendment was
W.P.No.8834/11 - 10 - necessitated, while the reason not to extend such deduction appeared to be that the employer should not sit on the collected contributions and deprive the workman of the rightful benefits under the social welfare legislations by delaying payment of contribution to the social welfare fund.
Regard being had to the words “due date” as interpreted in Sabari Enterprises case, and affirmed by the Apex Court in ALOM Extrusions Ltd., there can be no more doubt that the assessing officer as well as the revision authority fell in error in disallowing the deduction of Rs.22,91,791/- being the employees’ contribution remitted by the petitioner-employer- assessee both under the ESI and EPF Act, partly before 31/3/2006 in the financial year concerned and the balance before the filing of the returns under Sec.139(1) of the Act, as extended upto 30/11/2006.
In the circumstances, the question is answered in the negative and against the Revenue.
W.P.No.8834/11 - 11 -
In the result this petition is allowed. The order dt. 10/12/2010 – Annex.G of the respondent for the assessment year 2006-07 is quashed and the revision petition filed by the petitioner invoking Sec.264 of the Act – Annex.D, is allowed. Sequentially the order of the assessing officer declining deduction of Rs.22,91,791/- being the employees’ contribution remitted by the employer-petitioner, stands modified.
Sd/- JUDGE
Rd/-