High Court Of Delhi
CIT vs. Aimil Ltd. & Ors.
Section 36(1)(va), 43B
Asst. Year 2002-03
A.K. Sikri & Siddharth Mridul, JJ.
IT Appeal No. 1063 of 2008
23rd December, 2009
Counsel Appeared :
Ms. Prem Lata Bansal with Paras Chaudhry, Sanjeev Sabharwal & Rashmi Chopra, for the Revenue : Dr. Rakesh Gupta with Ms. Poonam Ahuja, Satyen Sethi with Johnson Bara, Prakash Kumar & N.P. Sahni for the Assessee.
JUDGMENT
A.K. SIKRI, J. :
Though the assessees are different in these appeals, the aforesaid question is common in all these cases, which falls for consideration in almost identical factual backdrop. In fact, it is a matter of pure interpretation of the provisions of the IT Act, 1961 (for short, the ‘Act’), particularly s. 36(1) (va) of the Act. However, in order to understand the implication, it would be necessary to take note of facts of one appeal. We, accordingly, are stating the facts as they appear in IT Appeal No. 1063 of 2008.
2. The case relates to the asst. yr. 2002-03. The respondent assessee had filed its return on 30th Oct., 2002 declaring income at Rs. 7,95,430. During the assessment proceedings, the AO found that the assessee had deposited employers’ contribution as well as employees’ contribution towards PF and ESI after the due date, as prescribed under the relevant Act/Rules. Accordingly, he made addition of Rs. 42,58,574 being employees’ contribution under s. 36(1)(va) of the Act and Rs. 30,68,583 being employer’s contribution under s. 43B of the Act. Feeling aggrieved by this assessment order, the assessee preferred appeal before the CIT(A), who decided the same vide orders dt. 15th July, 2005. Though the CIT(A) accepted the contention of the assessee that if the payment is made before the due date of filing of return, no disallowance could be made in view of the provisions of s. 43B, as amended vide Finance Act, 2003, he still confirmed the addition made by the AO on the ground that no documentary proof was given to support that payment was in fact made by the assessee. The assessee filed an application under s. 154 of the Act before the CIT(A) for rectification of the mistake. After having satisfied that payment had, in fact, been made, the CIT(A) rectified the mistake and deleted the addition by holding that the assessee had made the payment before the due date of filing of the return, which was a fact apparent from the record.
3. It was now the turn of the Revenue to feel agitated by these orders and, therefore, the Revenue approached the Income-Tax Appellate Tribunal (‘Tribunal’) challenging the orders of the CIT(A). The Department has, however, remained unsuccessful as the appeal preferred by the Department is dismissed by the Tribunal vide its impugned decision dt. 31st Dec., 2007, which is the subject-matter of appeal before us. Perusal of the order of the Tribunal would show that it has relied upon the judgment of the Supreme Court in the case of CIT vs. Vinay Cement Ltd. (2007) 213 CTR (SC) 268, to support its decision to the effect that if the employer’s as well as employees’ contribution towards PF and ESI is paid before the due date of filing of return, no disallowance can be made by the AO.
4. In some other appeals preferred by the assessees, the Tribunal has taken contrary view and upheld the addition made by the AOs. Under these circumstances, all these appeals were admitted and heard on the following question of law : “Whether the Tribunal was correct in law in deleting the addition relating to employees’ contribution towards PF and ESI made by the AO under s. 36(1)(va) of the IT Act, 1961 ?”
5. Sec. 36 of the Act deals with certain deductions which shall be allowed in respect of matters dealt with therein, in computing the income referred to in s. 28 of the Act. Different types of deductions are provided therein in various clauses of s. 36. Clause (iv) of sub-s. (1) deals with deductions on account of contribution towards a recognized provident fund or an approved superannuation fund made by the assessee as an employer, subject to certain limits and also subject to certain conditions as the CBDT may think fit to specify. Clause (v) of sub-s. (1) of s. 36 enables the assessee to seek deduction in respect of sum paid by it as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust. Then comes cl. (va) which deals about employees’ contribution in the PF and ESI and reads as under : “(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 or service or otherwise.”
6. It would also be appropriate to take note of s. 43B of the Act primarily for the reason that in Vinay Cement (supra) it was this provision which came up for discussion before the Supreme Court and also keeping in view the contention of learned counsel for the Revenue that this judgment would be of no avail to the assessee while discussing the matter under s. 36(1)(va) of the Act. Sec. 43B stipulates that certain deductions are to be given only on actual payment. Clause (b) thereof talks about contribution by the assessee as employer to any PF or superannuation fund or gratuity fund or any other fund for the welfare of the employees. Since we are concerned only with cl. (b), we reproduce the same for clearer understanding : “43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—……… (b) 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, or, ……… 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.”
7. During the period in question with which we are concerned, s. 43B contained second proviso also, which stands omitted by the Finance Act, 2003 w.e.f. 1st April, 2004. Since this provision existed at the relevant time, it also needs to be reproduced : “Provided further that no deduction shall, in respect of any sum referred to in cl. (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below cl. (va) of sub-s. (1) of s. 36, and where such payment has been made otherwise than in cash, the sum has been realized within fifteen days from the due date.”
8. As per the first proviso, if the payment is actually made on or before the due date applicable in his case for filing the return, it would be admissible as deduction. Thus, the ‘due date’ is the date on which return is to be filed. The case of the Revenue is that for employees’ contribution, the second proviso was specifically incorporated and in the present case, as we are concerned with non-deposit of the employees’ contribution towards PF as well as ESI contribution by the employer, only second proviso be looked into.
9. What is sought to be argued is that distinction is to be made while treating the case related to employer’s contribution on the one hand and employees’ contribution on the other hand. It was submitted that when employees’ contribution is recovered from their salaries/wages, that is trust money in the hands of the assessee. For this reason, rigors of law are provided by treating it as income when the assessee receives the employees’ contribution and enabling the assessee to claim deduction only on actual payment by due date specified under the provisions.
10. Ms. Prem Lata Bansal, learned counsel for the Revenue, thus, argued that the second proviso to s. 43B, as it stood at the relevant time, clearly mentioned that deduction in respect of any sum referred to in cl. (b) shall not be allowed unless such sum has actually been paid in cash or by issuance of cheque or draft or by any other mode on or before the due date, as defined in the Explanation below cl. (va) of sub-s. (1) of s. 36. Thus, the assessee would earn the entitlement only if the actual payment is made before the due date specified in Explanation below cl. (va) of sub-s. (1) of s. 36 of the Act. As per the said Explanation, ‘due date’ means the date by which the assessee is required, as an employer, to credit the employees’ contribution to the employees account in the relevant fund under any Act, rules, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
11. Before we delve into this discussion, we may take note of some more provisions of the Act. Sec. 2(24) of the Act enumerates different components of income. It, inter alia, stipulates that income includes 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’. It is clear from the above that as soon as employees’ contribution towards PF or ESI is received by the assessee by way of deduction or otherwise from the salary/wages of the employees, it will be treated as ‘income’ at the hands of the assessee. It clearly follows therefrom that if the assessee does not deposit this contribution with PF/ESI authorities, it will be taxed as income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of s. 36(1)(va) of the Act. Sec. 43B(b), however, stipulates that such deduction would be permissible only on actual payment. This is the scheme of the Act for making an assessee entitled to get deduction from income insofar as employees’ contribution is concerned. It is in this backdrop we have to determine as to at what point of time this payment is to be actually made.
12. Since the Tribunal while holding that the amount would qualify for deduction even if paid after the due dates prescribed under the PF/ESI Act but before the filing of the IT returns by placing reliance upon the Supreme Court judgment in Vinay Cement (supra), at this juncture we take note of the discussion of Tribunal on this aspect : “11. We have carefully considered the rival submissions in the light of material placed before us. In the assessment order learned AO has categorically stated that what the amount due was for which month in respect of EPF, family pension, PF inspection charges and ESI deposits and what were the due dates for these deposits and on which date these deposits were made. The dates of deposits are mentioned between 23rd May, 2001 to 23rd April, 2002. The latest payment is made on 23rd April, 2002 and assessee being limited company had filed its return on 20th Oct., 2002 which is a date not beyond the due date of filing of the return. Thus, it is clear beyond doubt that all the payments which have been disallowed were made much earlier to the due date of filing of the return. The disallowance is not made by the AO on the ground that there is no proof of making such payment but disallowance is made only on the ground that these payments have been made beyond the due dates of making these payments under the respective statute. Thus, it was not an issue that the payments were not made by the assessee on the dates which have been stated to be the dates of deposits in the assessment order. If such is a factual aspect then according to latest position of law clarified by Hon’ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. (2007) 213 CTR (SC) 268 that no disallowance could be made if the payments are made before the due date of filing the return of income. This issue came before Hon’ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. (supra) which was a special leave petition filed by the Department against the High Court order of 26th June, 2006 in IT Appeal No. 2 of 2005 and IT Appeal No. 56 of 2003 and IT Appeal No. 80 of 2003 of the High Court of Guwahati, Assam and it is order dt. 7th March, 2007. A copy of the said order is placed on record. The observations of their Lordships on the issue are 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 PF before filing of the return.
The special leave petition is dismissed’.” It is clear from the above that in Vinay Cement (supra), the SLP preferred by the Revenue against the judgment of the Guwahati High Court was dismissed making the aforequoted observations. The reasons are given and, thus, it amounts to affirmation of the view taken by the High Court of Guwahati. When we keep that proposition in mind and also take into consideration various judgments where Vinay Cement (supra) is applied and followed, it will not be possible to accept the contention of the Revenue. In CIT vs. Dharmendra Sharma (2007) 213 CTR (Del) 609 : (2008) 297 ITR 320 (Del), this Court specifically dealt with this issue and relying upon the aforesaid judgment of the Guwahati High Court, as affirmed by the Supreme Court in Vinay Cement (supra), the appeal of the Revenue was dismissed. More detailed discussion is contained in another judgment of this Court in CIT vs. P.M. Electronics Ltd. (IT Appeal No. 475 of 2007 decided on 3rd Nov., 2008) [reported at (2008) 220 CTR (Del) 635 : (2008) 15 DTR (Del) 258—Ed]. Specific questions of law which were proposed by the Revenue in that case were as under : “(a) Whether amounts paid on account of PF/ESI after due date are allowable in view of s. 43B, r/w s. 36(1)(va) of the Act ? (b) Whether the deletion of the 2nd proviso to s. 43B by way of amendment by the Finance Act, 2003 is retrospective in nature
16. These questions were answered by the Division Bench in the following manner : “7. Having heard the learned counsel for the Revenue, as well as, the assessee, we are of the view that the view taken by the Tribunal deserves to be sustained as it is no longer res integra in view of the decision of the Supreme Court in the case of CIT vs. Vinay Cement Ltd. (2007) 213 CTR (SC) 268 which has been followed by a Division Bench of this Court in the case of CIT vs. Dharmendra Sharma (2007) 213 CTR (Del) 609 : (2008) 297 ITR 320 (Del). Despite the aforesaid judgments, the learned counsel for the Tribunal (sic—Revenue) has contended that in view of the judgment of the Division Bench of the Madras High Court in the case of CIT vs. Synergy Financial Exchange Ltd. (2006) 205 CTR (Mad) 481 : (2007) 288 ITR 366 (Mad) and that of the Division Bench of the Bombay High Court in the case of CIT vs. Pamwi Tissues Ltd. (2008) 215 CTR (Bom) 150 : (2008) 3 DTR (Bom) 66 : (2008) Taxindiaonline.com 104 (TIOL) the issue requires consideration. According to us, in view of the dismissal of the SLP in the case of Vinay Cement (supra) by the Supreme Court by a speaking order, the submission of the learned counsel for the Revenue has to be rejected at the very threshold. The reason for the same is as follows : The Gauhati High Court in the case of CIT vs. George Williamson (Assam) Ltd. (2006) 284 ITR 619 (Gau) dealt with the very same issue. In the said judgment the Division Bench of the Gauhati High Court noted a contrary view taken by the Kerala High Court in the case of CIT vs. South India Corporation Ltd. (1999) 157 CTR (Ker) 422 : (2000) 242 ITR 114 (Ker). After noting the said judgment the fact that the amendments had been made to the provisions of s. 43B of the Act by virtue of Finance Act, 2003 w.e.f 1st April, 2004 it agreed with the submission of the learned counsel for the assessee that by virtue of the omission of the second proviso and the omission of cls. (a), (c), (d), (e) and (f) without any saving clause would mean that the provisions were never in existence. For this purpose, in the said case the assessee had placed reliance on the judgment of a Constitution Bench of the Supreme Court in the case of Kolhapur Canesugar Works Ltd vs. Union of India (2000) 2 SCC 536 and Rayala Corporation (P) Ltd vs. Director of Enforcement (1969) 2 SCC 412 and General Finance Co. & Anr. vs. Asstt. CIT (2002) 176 CTR (SC) 569 : (2002) 257 ITR 338 (SC).
The said submissions found favour with the Division Bench of the Guahati High Court and relying on earlier decisions of its own Court in CIT vs. Assam Tribune (2002) 253 ITR 93 (Gau) and CIT vs. Bharat Bamboo & Timber Suppliers (1998) 146 CTR (Gau) 487 : (1996) 219 ITR 212 (Gau) the Division Bench dismissed the appeal of the Revenue. It transpires that the aforesaid matter was taken up in appeal along with other matters including Vinay Cement (supra). The order in Vinay Cement (supra) was passed by the Supreme Court on 7th March, 2007 wherein it observed as follows : Delay condoned. 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 PF before filing of the return. SLP is dismissed.’
10. In view of the above, it is quite evident that the SLP was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertain to a period prior to the amendment brought about in s. 43B of the Act. The aforesaid position as regards the State of the law for a period prior to the amendment to s. 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma (supra). Applying the ratio of the decision of the Supreme Court in Vinay Cement (supra) a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT vs. Nexus Computer (P) Ltd. by a judgment dt. 18th Aug., 2008 passed in Tax Case (Appeal) No. 1192 of 2008 [reported at (2008) 219 CTR (Mad) 54 : (2008) 12 DTR (Mad) 77—Ed] discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd. (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra). The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed & Ors. vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97 : 119 STC 505 at p. 526 in para 40 and noted the following observations : ‘If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Art. 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal or authority below has stood merged in the order of the Supreme Court rejecting SLP or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.’
11. Upon noting the observations of the Supreme Court in Kunhayammed & Ors. (supra) the Division Bench of the Madras High Court in the case of Nexus Computer (P) Ltd. (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was non declared by the Supreme Court under Art. 141 of the Constitution.
12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra).
13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd. (supra).
14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed.” It also becomes clear that deletion of the second proviso is treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the first proviso.
17. We may only add that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Acts permit the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the IT Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra).
18. We, thus, answer the question in favour of the assessee and against the Revenue. As a consequence, the appeals filed by the assessees stand allowed and those filed by the Revenue are dismissed. No costs.
[Citation : 321 ITR 508]
