Jainendra Kumar Ranka, J.@mdashThese income tax appeals under s. 260A of the IT Act, 1961 (for short, ''IT Act'') are directed against the
order of the income tax Appellate Tribunal, Jaipur (for short, ''Tribunal'') in ITA No. 359/Jp/2006, ITA No. 358/Jp/2006 and ITA No.
825/Jp/2008 dt. 30th April, 2010, 30th April, 2010 and 24th Aug, 2009 respectively for the asst. yrs. 2002-03, 2001-02 and 2002-03
respectively. Since the controversy involved is identical, these income tax appeals are being decided by this common order.
2. The appeals were admitted on the following substantial question of law:
Substantial question of law in the case of State Bank of Bikaner & Jaipur (IT Appeal Nos. 177 of 2011 and 272 of 2011)
Whether on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made on account of depositing the PF
payment beyond prescribed time, despite the fact that as per s. 36(1)(va) employee''s contribution should have been deposited in time and s. 43B
permits delayed payment as regards employer''s contribution and not the employee''s contribution?
Substantial question of law in the case of JVVNL (IT Appeal No. 189 of 2011)
Whether in the facts and circumstances of the case, the Tribunal was justified in law in deleting addition made by the AO on account of delay in
deposit of employees'' contribution to PF under s. 36?
3. The brief facts, as emerging on the face of record, are that the respondent-assessees are being assessed to income tax from year to year and the
assessment stood completed originally under s. 143(3) of the IT Act in the case of SBBJ and notice under s. 154 was issued, as the AO felt that
there is a mistake apparent on the face of record.
4. In the case of the respondent-assessee--JVVNL assessment was completed under s. 143(3) of the IT Act and thereafter the respondent
proceeded before the appellate authorities.
5. The issue in short is that it came to the notice of the AO that the respondent-assessees, though made payment of provident fund account (PF)
and/or EPF, CPF, GPF but it was deposited beyond the prescribed time-limit under those Acts and accordingly the AO disallowed the same.
However, it may be observed that insofar as the case of the respondent-assessee--SBBJ is concerned, even the AO has not chosen to mention
under which provision of law the claim has been disallowed on account of the above facts, however, the CIT(A) as well as the Tribunal have
clarified that the amount was disallowed under the provisions contained under s. 43B.
5.1 Insofar as the case of the respondent-assessee--JVVNL is concerned, the AO has certainly observed that the amount is being disallowed
under the provisions of s. 43B of the IT Act.
6. It was contended by the respondent-assessee--SBBJ before the AO that the payment was made before the due date of filing of the return of
income and accordingly as per provisions of s. 43B of the IT Act, the claim was allowable. It was submitted that there is no mistake apparent on
the face of record and alternatively the issue, being debatable, will not come within the purview of s. 154 of the IT Act. However, the AO did not
agree with the contention raised by the respondent-assessee and disallowed the amount as according to him, the payments were made beyond the
due date as prescribed under the relevant Act of PF etc. and once the payment was made beyond the prescribed time, then the amount had to be
disallowed.
6.1 In the matter of respondent-assessee--JVVNL as well, it was submitted that there is an amendment under s. 43B of the IT Act which came
into effect from 1st April, 2004 and there was a submission of the respondent-assessee that it is retrospective in nature and therefore, is applicable
in the facts of the present case. The AO was not satisfied with the explanation offered by the respondent-assessee and disallowed the claim by
observing that the law has to be strictly followed and at least the assessee ought to have paid the amount according to the due date under the
relevant provisions of PF Act or GPF etc. and since there was violation of even those Acts, therefore, the benefit/deduction cannot be
granted/allowed. Accordingly, the amounts were disallowed.
7. Dissatisfied with the said disallowance, as aforesaid, the matter was carried in appeal before the CIT(A). Before the CIT(A), same explanation
was offered and it was further submitted that the payment under the PF Act could not be disallowed under s. 43B of the IT Act even as per the
provision as it stood prior to the amendment w.e.f. 1st April, 2004. Reliance was placed by the respondent-assessees on the judgment of the
Hon''ble apex Court in the case of Commr. of Income Tax-II, Gauhati Vs. Vinay Cement Ltd. and after considering the said judgment, the CIT(A)
agreed with the contention offered by the respondent-assessees and deleted the disallowance as made by the AO.
8. Dissatisfied with the deletion of the disallowance under s. 43B of the IT Act, the matter was carried in appeal before the Tribunal by the
Revenue. It was submitted on behalf of the Revenue that the AO had correctly disallowed the amount as per the provisions of s. 43B of the IT Act
and strict compliance is required to be made in the given facts, then certainly when the amount was paid beyond the due date, then there was no
occasion for the CIT(A) to come to a different conclusion. On behalf of the respondent-assessees, reliance was placed not only on the judgment of
the Hon''ble apex Court [Vinay Cement (supra)] but also a direct authority of Karnataka High Court rendered in the case of Commissioner of
Income Tax Vs. Sabari Enterprises, . Accordingly, after considering the submissions, the Tribunal dismissed the appeals preferred by the Revenue.
It is these orders of the Tribunal which have been assailed before us.
9. Shri R.B. Mathur, learned counsel for the Revenue drew attention of this Court towards provisions of s. 36(1)(va) coupled with s. 43B of the IT
Act and submitted that there was no justification for allowing the claim by the Tribunal as well as CIT(A) as under s. 36(1)(va) of the IT Act; the
amount was to be allowed only if the amount was paid on or before the due date and therefore, he contended that s. 43B of the IT Act would
come at a later stage and the first point, which is required to be looked into, is that under s. 36(1)(va) of the IT Act, if the amount has been paid on
or before the due date under the relevant Act, then certainly the deduction could have been allowed. He further submitted that as per Explanation,
as given under s. 36(1)(va) of the IT Act, the ''due date'' means the date by which the assessee is required, as an employer to credit the
employees'' contribution to the concerned Department within due date prescribed under that Act and once it has been found as a finding of fact
that the amount was not deposited on or before the due date even the very deduction under s. 36 was not permissible and secondly, he submitted
that under s. 43B also, the amount could have been allowed if the same would have been paid on or before the due date as contemplated under
the relevant PF or GPF or CPF Act. He further submitted that the intention of the legislature was very clear that the amount was allowable only in
cases where the amount was paid before the due date and it was for the welfare of the employees as earlier several instances came where though
the amount was not paid but was claimed and therefore, this provision was brought in. Accordingly, he submitted that both the authorities have
come to a wrong conclusion which is not permissible under the Act.
10. Per contra, Shri P.K. Kasliwal and Mr. Gunjan Pathak, learned counsel for the respondent-assessees submitted that the Tribunal, after
considering all the facts, has come to the correct conclusion in analyzing the provisions contained under the Act.
11. It was further contented by them that though proviso was applicable from 1st April, 2004 but it was clarified that it has to be treated as
retrospective in nature. Nevertheless, they submitted that even the Hon''ble apex Court in the case of Vinay Cement Ltd. (supra) has come to the
conclusion that even the plain language of s. 43B of the Act makes it clear that even without the proviso the claim was allowable under the
provisions of s. 43B of the Act and accordingly submitted that the Tribunal has come to the correct conclusion and the appeal deserves to be
dismissed.
12. We have heard learned counsel for the parties. It would be fruitful to quote ss. 2(24)(x), 36(1)(va) and 43B of the IT Act which are required
to be considered in the present appeals:
Sec. 2(24) ''income'' includes--
(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under
the provisions of the Employees'' State Insurance Act, 1948 (34 of 1948) or any other fund for the welfare of such employees.
Sec. 36(1)(va) any sum received by the assessee from any of his employees to which the provisions of sub-cl. (x) of cl. (24) of s. 2 apply, 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.
Explanation.--For the purposes of this clause, ''due date'' means the date by which the assessee is required as an employer to credit an employee''s
contribution to the employee''s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order,
award, contract of service or otherwise.
Sec. 43B--Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this in respect of--
(a).........., or
(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 employees,
(c) to (f)...........
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of
accounting regularly employed by him) only in computing the income referred to in s. 28 of that previous year in which such sum is actually paid by
him:
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-s. (1) of s. 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.
Explanation 1.--For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in cl. (a) or cl. (b) of this
section is allowed in computing the income referred to in s. 28 of the previous year (being a previous year relevant to the assessment year
commencing on the 1st day of April, 1983 or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the
assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the
sum is actually paid by him.
13. On perusal of the above, it transpires that s. 36(1)(va) was inserted by Finance Act, 1987 w.e.f. 1st April, 1988 and Explanation to this
clause, if read collectively, explains to mean that the date by which the assessee is required as an employer to credit the contribution to the
employee''s account in the relevant fund under any Act/rule or order or notification issued thereunder or under any standing order, award, contract
of service or otherwise, prior to the above, clause was inserted to s. 36 for statutory deductions of payment of tax under the provisions of the Act.
Sec. 43B(b) was inserted by the Finance Act, 1983 which came into force w.e.f. 1st April, 1984. There again, provisions of s. 43B clearly
postulate that it is notwithstanding anything contained in other provision of the Act including s. 36(1)(va) and even prior to insertion of the clause,
assessee is entitled to get statutory benefit of deduction of payment of amount from the Revenue. It may be observed that the Hon''ble apex Court,
in the case of ALLIED MOTORS (P) LTD. ETC. Vs. COMMISSIONER OF INCOME TAX., , considered the scheme of s. 43B and the
scope of the said provision and observed thus as under:
Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer''s
contribution to PF, ESI Scheme, etc. for long periods of time, extending sometimes to several years. For the purpose of their income tax
assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand, they
dispute the liability and do not discharge the same. For some reason or the other, undisputed liabilities also are not paid. To curb this practice, it is
proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force
(irrespective of whether such tax or duty is disputed or not) or any sum payable by the assessee as an employer by way of contribution to any PF,
or superannuation fund or gratuity fund or any other fund for the welfare of employees shall be allowed only in computing the income of that
previous year in which such sum is actually paid by him.
Sec. 43B was, therefore, clearly aimed at curbing the activities of those taxpayers, who did not discharge their statutory liability of payment of
excise duty, employer''s contribution to PF, etc., for long periods of time but claimed deductions in that regard from their income on the ground
that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that s. 43B was inserted.
It was clearly not realised that the language in which s. 43B was worded, would cause hardship to those taxpayers who had paid sales-tax within
the statutory period prescribed for this payment, although the payment so made by them did not fall in the relevant previous year. This was because
the sales-tax collected pertained to the last quarter of the relevant accounting year. It could be paid, only in the next quarter which fell in the next
accounting year. Therefore, even when the sales-tax had in fact been paid by the assessee within the statutory-period prescribed for its payment
and prior to the filing of the IT return, these assessees were unwittingly prevented from claiming a legitimate deduction in respect of the tax paid by
them. This was not intended by s. 43B. Hence, the first proviso was inserted in s. 43B. The amendment which was made by the Finance Act of
1987 in s. 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause
undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation.
14. The Hon''ble apex Court in the case of Vinay Cement Ltd. (supra), after approving the judgment rendered by Gauhati High Court in the case
of Commissioner of Income Tax Vs. George Williamson (Assam) Ltd., , came to the conclusion that such omission under s. 43B(b), without any
saving clause of the General Clauses Act, means that the above provisions namely, cl. (a) or (c) or (d) or (e) or (f) were not in existence or never
existed and after considering the judgments rendered by the Hon''ble apex Court in the cases of Kolhapur Canesugar Works Ltd. and Another Vs.
Union of India and Others, and Rayala Corporation (P) Ltd. and M.R. Pratap Vs. Director of Enforcement, New Delhi, , held the claim of the
assessee as allowable. The Hon''ble apex Court, as aforesaid, approving the judgment of Gauhati High Court, has held as under:
In the present case we are concerned with the law as it stood prior to the amendment of s. 43B. In the circumstances the assessee was entitled to
claim the benefit in s. 43B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return.
15. The Hon''ble apex Court, in the case of Commissioner of Income Tax Kolkata-III Vs. Alom Extrusions Limited, , while considering the scope
of the amendment made w.e.f. 1st April, 2004, observed that the same is curative in nature, hence it is retrospective in nature and would operate
w.e.f. 1st April, 1988 (when the first proviso came to be inserted) and after discussing this, held as under:
Before concluding, we extract hereinbelow the relevant observations of this Court in the case of Commissioner of Income Tax, Bangalore Vs. J.H.
Gotla, Yadagiri, , which reads as under:
We should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., a result not
intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from
strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers,
attempts should be made that these do not remain always so and if a construction results in equity rather than injustice, then such construction
should be preferred to the literal construction.
For the aforestated reasons, we hold that Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it
would operate w.e.f. 1st April, 1988 (when the first proviso came to be inserted). For the above reasons, we find no merit in this batch of civil
appeals filed by the Department which are hereby dismissed with no order as to costs.
16. Similarly, the Gauhati High Court, in the case of Commissioner of Income Tax Vs. Assam Tribune, , came to the similar conclusion that the
contribution towards the PF etc. having been deposited before filing of the return by the assessee, deduction could not be disallowed under s. 43B
of the Act.
17. The Delhi High Court in the case of Commissioner of Income Tax Vs. Dharmendra Sharma, , Madras High Court in the case of Commissioner
of Income Tax Vs. Nexus Computer (P) Ltd., , Delhi High Court in the case of The Commissioner of Income Tax-V Vs. P.M. Electronics Ltd., ,
Karnataka High Court in the case of 969846--> , Himachal Pradesh High Court in the case of Commissioner of Income Tax Vs. Nipso
Polyfabriks Ltd., also came to the aforesaid view.
18. Uttarakhand High Court in the case of The Commissioner of Income Tax Vs. M/s. Kichha Sugar Company Ltd., , after considering the
aforesaid provisions, held as under:
Therefore, the due date referred to in s. 36(1)(va) of the Act must be read in conjunction with s. 43B(b) of the Act and a reading of the same
would make it amply clear that the due date as mentioned in s. 36(1)(va), is the due date as mentioned in s. 43B(b) i.e., payment/contribution
made to the provident fund authority any time before filing the return for the year in which the liability to pay accrued along with evidence to
establish payment thereof. The AO proceeded on the basis that ''due date'', as mentioned in s. 36(1)(va) of the Act, is the due date fixed by the
provident fund authority, whereas in the matter of culling out the meaning of the word ''due date'', as mentioned in the said section, the AO was
required to take note of s. 43B(b) of the Act and by not taking note of the provisions contained therein committed gross error, which having been
rectified by the appellate authority and confirmed by the Tribunal, there is no scope of interference.
19. On perusal of s. 36(1)(va) and s. 43B(b) and analyzing the judgments rendered, in our view as well, it is clear that the legislature brought in the
statute s. 43B(b) to curb the activities of such taxpayers who did not discharge their statutory liability of payment of dues, as aforesaid, and rightly
so as on the one hand claim was being made under s. 36 for allowing the deduction of GPF, CPF, ESI etc. as per the system followed by the
assessees in claiming the deduction i.e. accrual basis and the same was being allowed, as the liability did exist but the said amount though claimed
as a deduction was not being deposited even after lapse of several years. Therefore, to put a check on the said claims/deductions having been
made, the said provision was brought in to curb the said activities and which was approved by the Hon''ble apex Court in the case of Allied
Motors (P.) Ltd. (supra).
20. A conjoint reading of the proviso to s. 43B which was inserted by the Finance Act, 1987 made effective from 1st April, 1988, the words
numbered as cls. (a), (c), (d), (e) and (f), are omitted from the above proviso and, furthermore second proviso was removed by Finance Act,
2003 therefore, the deduction towards the employer''s contribution, if paid, prior to due date of filing of return can be claimed by the assessee. In
our view, the Explanation appended to s. 36 of the Act further envisages that the amount actually paid by the assessee on or before the due date
admissible at the time of submitting return of the income under s. 139 of the Act in respect of the previous year can be claimed by the assessee for
deduction out of their gross total income. It is also clear that s. 43B starts with a notwithstanding clause and would thus override s. 36(1)(va) and if
read in isolation s. 43B would become obsolete. Accordingly, contention of counsel for the Revenue is not tenable for the reason aforesaid that
deductions out of the gross income for payment of tax at the time of submission of return under s. 139 is permissible only if the statutory liability of
payment of PF or other contributions referred to in cl. (b) are paid within the due date under the respective enactments by the assessees and not
under the due date of filing of return.
21. We have already observed that till this provision was brought in as the due amounts on one pretext or the other were not being deposited by
the assessees though substantial benefits had been obtained by them in the shape of the amount having been claimed as a deduction but the said
amounts were not deposited. It is pertinent to note that the respective Acts such as PF etc. also provides that the amounts can be paid later on
subject to payment of interest and other consequences and to get benefit under the IT Act, an assessee ought to have actually deposited the entire
amount as also to adduce evidence regarding such deposit on or before the return of income under sub-s. (1) of s. 139 of the IT Act.
22. Thus, we are of the view that where the PF and/or EPF, CPF, GPF etc., if paid after the due date under respective Acts but before filing of
the return of income under s. 139(1), cannot be disallowed under s. 43B or under s. 36(1)(va) of the IT Act.
23. Accordingly, the substantial question of law is answered against the appellant-Revenue and in favour of the assessee. Consequently, these
appeals, being devoid of merit, are hereby dismissed. No order as to costs.