Supreme Court to decide difference between employees & employer contribution to PF, ESI for allowability under Section 43B of the Income Tax Act.
In a recent case, the Hon’ble Supreme Court has admitted SLP to decide if there is difference between employees and employer contribution to PF, ESI for allowability under Section 43B of the Income Tax Act, 1961 (the Act)
ABCAUS Case Law Citation:
5024 (2026) (01) abcaus.in SC
In 2022, a full bench of the Hon’ble Supreme Court settled the law that deposit of employees’ contribution beyond the due dates prescribed in the relevant Statute is not deductible under section 43B even if deposited before due date for filing return of income.
However, the controversy continued with respect to allowability u/s 43B of employers’ contribution if made after the due dates prescribed in the relevant Statute.
In the instant case, the assessee was a company. For the AY 2019-20, there was a delay in making payment of Employees’ Provident Fund (EPF) and Employees State Insurance (ESI) contributions received by the appellant company from its employees, as compared to the due dates set out in the EPF/ESI Acts. However, the appellant had made the said payments before the due date for the submission of the appellant’s Income-tax Return.
The Assessing Officer (AO), in the assessment order passed under Section 143(1) of the Income Tax Act, 1961 (the Act) made adjustments/additions in respect of these payments. The disallowance was confirmed by the ITAT and the Delhi High Court observing that the judgment of the Supreme Court in Checkmate Services (P) Ltd. has conclusively interpreted the provision of Section 43B of the Act.
The matter travelled to Hon’ble Supreme Court which observed that according to the High Court Employer’s contributions under Section 36(1)(iv) and employees’ contributions covered under Section 36(1)(va) read with Section 2(24)(x) are fundamentally different in nature and must be treated separately. That Employees’ contribution deducted from their salaries are deemed to be income under Section 2(24)(x) and are held in trust by the employer. The employers can claim deduction only if they deposit these amounts on or before the statutory due date under Section 36(1)(va). The High Court further held that the non-obstante clause in Section 43B cannot be applied to employees’ contributions governed by Section 36(1)(va).
The Hon’ble Supreme Court also noted that High Court had distinguished the Apex Court decision in Alom Extrusions and had not considered Explanation 5 to Section 43B at all while at the decision that employees’ contribution must be deposited on or before the due dates under relevant statutes.
The Hon’ble Supreme Court observed that as per Section 2(24)(x), any amount recovered by the employer from the employees towards their contribution to any provident or superannuation fund or any other fund set up under the provisions of the ESI Act, 1948 or any other fund for the welfare of the employees is income. Further, section 36(1)(va) of the Act says that any sum so received by the assessee – employer from his employees to which provisions of Section 2(24)(x) applies, the assessee employer shall be entitled to deduction while computing income under Section 28, if such sum is credited by the assessee – employer to the employees account before the due date. The Explanation to Section 36(1) (va) lays down that the ‘due date’ means the date by which the assessee employer is required to credit the employees contribution in the relevant fund under any Act, Rule, Order or Notification issued thereunder.
The Hon’ble Supreme Court observed that there are following two School of thoughts as regards the interpretation of the words “due date” and both views are supported by catena of judgments.
(1) According to the first view, a combined reading of the Section 2(24)(x) and that Section 36(1) (va) of the Act, prima facie is indicative that any sum received by the assessee – employer from any of his employees as contribution towards PF & ESI is the income of the assessee under Section 2(24)(x) and it continues to be so, unless it is credited by the assessee – employer to the employee’s account in the relevant fund on or before the due date specified under the relevant PF, ESI Act. If the employer wants to have it deducted from his income under Section 36(1)(va), he must credit the same to the employee’s account in the relevant fund on or before the due date specified under the relevant PF, ESI Act.
(2) The other view is that there is no difference between employees and employer contribution to PF, ESI and both would be guided by the provisions of Section 43B of the Act so as to allow deduction in the hands of the assessee – employer if the contributions are deposited on or before the due date of filling of return under Section 139(1) of the Income Tax Act, 1961.
In view of the conflicting opinions on the allowability of employer’s contribution the Hon’ble Supreme Court has admitted the Special Leave Petition (SLP) of the assessee.
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