HIGH COURT OF GUJARAT AT AHMEDABAD

Tax Appeal No. 637 of 2013

Commissioner of Income Tax-II (Appellant) vs Gujarat State Road Transport Corporation (Respondent)
Date of Judgment: 26/12/2013

Facts of the Case:
The respondent assessee was is a Corporation run by State of Gujarat, engaged in the business of public transportation. For the AY 2005-06 the case was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 (Act) was issued. On scrutiny of the chart showing provident fund contribution collected from the employees and deposited with PF Trust along with Corporation’s contribution it was found by the Assessing Officer (AO) that that there was shortfall in remittance of provident fund collected from the employees amounting Rs.24,89,41,130/- which was treated as income of the assessee as per section 2(24)(x) read with section 36(1)(va) of the Act. Since there was also shortfall in the contribution of the Corporation, the Assessing Officer also was added an amount of Rs.1,93,55,580/- as disallowance under section 43B.

On appeal by the assessee, the CIT(A) deleted the additions on the ground that both the employees’ contribution and employer’s contribution was deposited before the filing of the return under section 139(1) for the relevant period.

Dissatisfied with the order, the revenue preferred appeal before the ITAT being ITA No.2785/Ahd/2009 That the learned ITAT by the impugned Judgement and Order, relying upon the decision of the Hon’ble Supreme Court in the case of  Commissioner of Income-Tax Vs. Alom Extrusions Ltd. reported in [2009] 319 ITR 306 (SC) dismissed the appeal confirming the order passed by the CIT(A) deleting disallowance of short fall in employees’ contribution and employers’ contribution to PF Account.

Question before the Court:
Thus the question before the High Court was with respect to the disallowance of the amount of employees’ contribution to PF Account/ESI Contribution admittedly not deposit with the PF Department / DSI Department within due date under the PF Act and/or ESI Act.

Held by the High Court:
The High Court quashed the order of the ITAT and held that  the deduction with respect to Employer/Employee PF/ESI contribution is available if paid on or before the due date mentioned in explanation to section 36(1)(va).

Excerpts from the Judgment:

Considering the aforesaid provisions of the Act, as per section 2(24)(x), any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees shall be treated as an ‘Income’. Section 36 of the Act deals with the deductions in computing the income referred to in section 28 and as per section 36(1)(va) such sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 apply, the assessee shall be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the “due date” i.e. date by which the assessee is required as an employer to credit the employee’s contribution to the employee’s account in the relevant fund, in the present case, the provident fund and ESI Fund under the Provident Fund Act and ESI Act. Section 43B is with respect to certain deductions only on actual payment. It provides that notwithstanding anything contained in any other provisions of the Act, a deduction otherwise liable under the Act in respect of …….(B) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. It appears that prior to the amendment of section 43B of the Act vide Finance Act, 2003, an assessee was entitled to deductions with respect to the sum paid by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees (employer’s contribution) provided such sum – employer’s contribution is actually paid by the assessee on or before the due date applicable in his case for furnishing 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 and the evidence of such payment is furnished by the assessee along with such return. It also further provided that no deduction shall, in respect of any sum referred to in clause (B) i.e. with respect to the employer’s contribution, be allowed unless such sum is actually been paid in cash or by issue of cheque or draft or by any other mode on or before the due date as defined in explanation below clause (va) of sub-section (1) of section 36 and where such sum has been made otherwise that in cash, the sum has been realised within 15 days from the due date. By the Finance Act 2003, Second Proviso of section 43B of the Act has been deleted and First Proviso to section 43B has also been amended which is reproduced hereinabove. Therefore, with respect to employer’s contribution as mentioned in clause (b) of section 43(B), if any sum towards employer’s contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B on actual payment and such deduction would be admissible for the accounting year. However, it is required to be noted that as such there is no corresponding amendment in section 36(1) (va). Deletion of Second Proviso to section 43B vide Finance Act 2003 would be with respect to section 43B and with respect to any sum mentioned in section 43(B) (a to f) and in the present case, employer’s contribution as mentioned in section 43B(b). Therefore, deletion of Second Proviso to section 43B and amendment in first proviso to section 43B by Finance Act, 2003 is required to be confined to section 43B alone and deletion of second proviso to section 43B vide amendment pursuant to the Finance Act, 2003 cannot be made applicable with respect to section 36(1)(va) of the Act. Therefore, any sum with respect to the employees’ contribution as mentioned in section 36(1)(va), assessee shall be entitled to the deduction of such sum towards the employee’s contribution if the same is deposited in the accounts of the concerned employees and in the concerned fund such as Provident Fund, ESI Contribution Fund, etc. provided the said sum is credited by the assessee to the employees’ accounts in the relevant fund or funds on or before the ‘due date’ under the Provident Fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. It is required to be noted that as such there is no amendment in section 36(1) (va) and even explanation to section 36(1)(va) is not deleted and is still on the statute and is required to be complied with. Merely because with respect to employer’s contribution Second Proviso to section 43B which provided that even with respect to employers’ contribution [(section 43(B)b], assessee was required to credit amount in the relevant fund under the PF Act or any other fund for the welfare of the employees on or before the due date under the relevant Act, is deleted, it cannot be said that section 36(1)(va) is also amended and/or explanation to section 36(1)(va) has been deleted and/or amended.

 

It is also required to be noted at this stage that as per the definition of “income” as per section 2(24)(x), any sum received by the assessee from his employees as contribution to any Provident Fund or Superannuation Fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of the such employees is to be treated as income and on fulfilling the condition as mentioned under section 36(1) (va), the assessee shall be entitled to deduction with respect to such employees’ contribution. Section 2(24)(x) refers to any sum received by the assessee from his employees as contribution and does not refer to employer’s contribution. Under the circumstances and so long as and with respect to any sum received by the assessee from any of his employees to which provisions of sub-clause (x) of sub-section 24 of section 2 applies, assessee shall not be entitled to deduction of such sum in computing the income referred to in section 28 unless and until such sum is credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date as mentioned in explanation to section 36(1)(va). Therefore, with respect to the employees contribution received by the assessee if the assessee has not credited the said sum to the employees’ account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1) (va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in section 28 of the Act.

In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees’ account in the relevant fund or funds on or before the “due date” mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees’ contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees’ accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees’ contribution to the employees’ account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.

Consequently, all these appeals are allowed and the impugned judgement and orders passed by the tribunal in deleting the disallowances made by the AO are hereby quashed and set aside and the disallowances of the respective sums with respect to the Provident Fund / ESI Fund made by the AO is hereby restored. The questions raised in present appeal are answered in favour of the revenue. With this, all these appeals are allowed.

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