High Court Of Himachal Pradesh
H.P. Tourism Development Corporation Ltd. vs. CIT
Section 43B
Asst. Year 2002-03, 2003-04
Deepak Gupta & V.K. Ahuja, JJ.
IT Appeal No. 36 of 2007
16th December, 2009
Counsel Appeared :
Vishal Mohan, for the Appellant : M/s Vinay and Vandana Kuthiala, for the Respondent
JUDGMENT
Deepak Gupta, J. :
This appeal was admitted on the following substantial questions of law :
“1. Whether the learned Tribunal was correct in law in upholding the disallowance made on account of payments made qua the contribution to employees’ provident fund after the due date prescribed under the said Act but before the due date of filing of the return of income ?
2. Whether in the facts and circumstances of the case the learned Tribunal is justified in holding that the amendment which were made by the Finance Act, 2003, w.e.f. 1st April, 2004, vide which the second proviso to s. 43B stands omitted, was not curative and hence not retrospective in operation relying upon only on the judgment of the Hon’ble High Court of Madras and ignoring all other law on the same ?”
The main question which arises for determination in this appeal is whether omission (deletion) of the second proviso to s. 43B of the IT Act, 1961, by the Finance Act, 2003, operates w.e.f. 1st April, 2004, or whether it operated retrospectively w.e.f. 1st April, 1988 ?
The admitted facts of the case are that the assessee deposited the amount of provident fund due to its employees prior to the due date of filing of the return of income under the IT Act but the same was not deposited within the time prescribed under the Employees’ Provident Fund Act. Prior to deletion of the second proviso by the Finance Act, 2003, the second proviso to s. 43B of the IT Act, 1961 (for short, “the Act”) restricted the deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees only to the amounts paid by the due date specified in the Act under which the payment was made. According to the first proviso, which relates to payments other than payments of employees’ provident fund, etc., if the payment was made before the due date fixed for filing of the return of income and necessary evidence of such payment was enclosed with the return of income then such payment was deductible. Sh. Vishal Mohan contends that to bring the payments made under cl. (b) of s. 43B in consonance with the other payments covered by the said section, the second proviso was deleted and as per the terms of the first proviso since the amount was paid before the date fixed for filing of return, the amount should be permitted to be deducted.
On behalf of the assessee, it is urged that the deletion of the second proviso is curative in nature and must be given retrospective effect. However, according to the Revenue, the omission of the second proviso by which relief is given to the assessee is effective only from 1st April, 2004 and will not apply to the present case since the present case relates to the asst. yrs. 2002-03 and 2003-04. It is not disputed that in case the deletion of the second proviso is not held to be retrospective then the assessee would not be entitled to deduction of the amount paid as contribution to the employees’ provident fund since the payment was admittedly made after the due date fixed under the Employees’ Provident Fund Act. However if it is held that this amendment is retrospective in nature then the assessee would be entitled to claim deduction of such amounts. This matter is no longer res integra. The apex Court in CIT vs. Alom Extrusions Ltd. (2009) 227 CTR (SC) 417 : (2009) 32 DTR (SC) 49 : (2009) 319 ITR 306 (SC) and other connected matters, Civil Appeal No. 7771 of 2009 decided on 25th Nov., 2009, has dealt with this question. It held as follows (p. 314) : “We find no merit in these civil appeals filed by the Department for the following reasons : firstly, as stated above, s. 43B (main section), which stood inserted by the Finance Act, 1983, w.e.f. 1st April, 1984, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on the mercantile system of accounting. At the same time, s. 43B (main section) made it mandatory for the Department to grant deduction in computing the income under s. 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognisance of the fact that the accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of the first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess, and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply, retrospectively, w.e.f. 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law should be disallowed under s. 43B of the Act while computing the business income of the previous year ? That was a case which related to the asst. yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e.f. 1st April, 1988, was not on the statute book when the assessments were made in the case of Allied Motors (P) Ltd. (supra). However, the assessee contended that even though the first proviso came to be inserted w.e.f. 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when s. 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Ltd. (supra). This Court, in Allied Motors (P) Ltd. (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read as retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Ltd. (supra), held that the first proviso was curative in nature, hence, retrospective in operation w.e.f. 1st April, 1988. It is important to note once again that, by the Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about uniformity in tax, duty, cess and fee on the one hand, vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. (supra) is delivered by a Bench of three learned judges, which is binding on us. Accordingly, we hold that the Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respondents have deposited the contributions with the R.P.F.C. after March, 31 (end of the accounting year) but before filing of the returns under the IT Act and the date of payment falls after the due date under the Employees’ Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under s. 43B of the Act. In our view, therefore, the Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that Parliament has explicitly stated that the Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of the Finance Act, 2003.
Before concluding, we extract hereinbelow the relevant observations of this Court in the case of CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), which reads as under (p. 339) : ‘. . . 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 in injustice, then such construction should be preferred to the literal construction.’
For the aforestated reasons, we hold that the 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).”
7. In view of the law laid down by the apex Court, both the questions have to be decided in favour of the assessee and against the Revenue. The appeal is accordingly allowed with no order as to costs.
[Citation : 328 ITR 508]
