High Court Of Rajasthan
CIT vs. Udaipur Distillary Co. Ltd.
Sections 36(1)(va), Expln., 43B
Asst. Year 1992-93
Rajesh Balia & Sunil Kumar Garg, JJ.
IT Appeal No. 76 of 2001
15th October, 2003
K.K. Bissa, for the Appellant : N.M. Ranka & K.N. Joshi with Mahendra Gargieya, R.K. Yadav & Rajesh Joshi, for the Respondent
Rajesh Balia, J. :
While admitting the appeal, the following question of law was framed by the Court for the consideration in this appeal on 15th March, 2003.
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the disallowances made under s. 43B r/w second proviso thereto and Explanation below cl. (va) of sub-s. (1) of s. 36(1) of the Act in spite of the fact that the payments in respect of PF, EPF, DLI and ESI, etc., were not paid within the due date specified?”
This appeal relates to the asst. yr. 1992-93 and as the question suggests, the AO has disallowed the claim of deduction in respect of contribution towards PF, ESI and superannuation fund as the same were made beyond due date. It was contended by the assessee that in respect of ESI contribution which was to be made on 21st of the next month and in respect of other heads it was to be made on 15th of the next month, the sum disallowed was though not paid on or before due date but was paid during the previous year. According to assessee since amounts have been paid before the end of assessment year, the same are allowable as deduction notwithstanding there were small delays in making payments on due date when such sums were payable under the relevant statute or settlement. As the assessee has not paid these dues during the previous year on the due date relevant to the assessment year in question, the AO held that the same are not allowable as deduction in the asst. yr. 1992-93 merely because the liability has been discharged before the end of previous year.
On appeal, it was contended that though the contributions to the PF, EPF, DLI and ESI have been delayed from the due date but they have been paid during the relevant previous year, and therefore, the same are allowable.
The Tribunal upheld the order of the CIT(A).
The relevant provision of s. 43B, which governs the allowances of the contributions made by the assessee as deduction to the provident fund, superannuation fund, gratuity fund or any other funds for the welfare of the employee, is as under: 43B. Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect ofâ (a)………….. (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, 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 sum is actually paid by him: Provided that nothing contained in this section shall apply in relation to any sum (referred to in cl. (a) [or cl. (c)] [or cl. (d)] [or cl. (e)] [or cl. (f)] 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 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. (c)…………………… (d)…………………… (e)…………………… f)…………………….
6. It is relating to the aforesaid second proviso to s. 43B(1) that Revenue contends that the second proviso which has been inserted w. e. f. 1st April, 1989, by the Finance Act of 1989 has made material difference in the scheme of the liability under second proviso to s. 43B and the payment referred to in cl. (b) has to be made timely on or before the due date in respect of the contributions towards different heads when they are payable under the concerned statute or settlement and the mere fact that payment has been made before closing of the previous year is of little relevance.
7. The proviso second to s. 43B was inserted, firstly, by the Act No. 11 of 1987 w. e. f. 1st April, 1988, in the following terms: “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 during the previous year on or before the due date as defined in the Explanation below cl. (va) of sub-s. (1) of s. 36.”
8. We may notice that s. 43B was firstly inserted by the Finance Act, 1983, w.e.f. 1st April, 1983 and at the relevant time both the proviso first and second had not been appended to the main provision and it had only two clauses, i.e. cls. (a) and (b). For claiming deduction in respect of liabilities falling in the two clauses, method of accounting viz., mercantile or cash, lost its relevance. The sums mentioned in cls. (a) and (b) were to be allowed as deductions in terms of s. 43B only while computing the income referred to in s. 28 of the previous year in which a sum was actually paid by him. Apart from actual payment, it had no further conditions. Thus, expenses on account of tax duty, or contributions to provident fund, superannuation fund or gratuity fund or any other welfare fund for employees could not be allowed merely on arising of liability under relevant statutes but were to be allowed only when actually paid. In other words, payment at any time during the previous year relevant to the assessment year in question was only the condition subject to which the deduction could be allowed in computing the income from profits and gains of business.
9. By Finance Act No. 11 of 1987, proviso first and second were inserted. Proviso first was made applicable to the payments referred to in cl. (a), and proviso second was made applicable to the payment referred to in cl. (b).
10. The well settled principle about construing any proviso to main provision is that ordinarily, the proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso, would fall within the main enactment. Ordinarily, it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. The principle was stated in CIT vs. Indo-Mercantile Bank Ltd. (1959) 36 ITR 1 (SC) by the apex Court. The Supreme Court in J.K. Industries vs. Chief Inspector of Factories & Boilers (1996) 89 Taxman 321 (SC) laid down that a proviso qualifies the generality of the main enactment by providing an exception and taking out from the main provision a portion, which but for the proviso would be the part of the main provision. A proviso must, therefore, be considered in relation to the principal matter to which it stands as a proviso. A proviso should not be read as if providing something by way of addition to the main provision which is foreign to the main provision itself.
11. Cardinal rule of interpretation is that a proviso to a particular provision of a statute embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other.
12. A perusal of s. 43B makes it clear that by generality of the provision under the main enactment of s. 43B is that sums mentioned in different clauses of s. 43B are to be allowed as deduction in computing the income in accordance with s. 28 only in the previous year in which such sum has actually been paid by him. Thus, as per the generality of provisions, there is no room for allowing a deduction in respect of any sum, liability which has not been incurred in the previous year relevant to the assessment year in question that the sum has been paid after the end of the previous year. However, shortly thereafter the period was immaterial. It was also immaterial that last date fixed for making such payment under relevant statute fell after the end of the previous year and the payment has been made before the expiry of such date.
13. In the context of the aforesaid generality of the provision, we may examine the two provisos. First proviso makes an exception in respect of payment referred to in clauses other than cl. (b), where they have been actually paid after the end of previous year. It envisaged, ‘that certain sums even if actually paid beyond the previous year relevant to the assessment year in question can still be allowed as deduction because of the first proviso. It was envisaged that the sums referred to in cls. (a), (b), (c), (d) or (e) which was actually paid by the assessee on or before the due date in the return of income furnished under sub-s. (1) to s. 139 in respect of the previous year the sum was incurred as aforesaid and the evidence of such payment has been furnished along with such return shall be allowed as an exception to the generality of the clauses that actual payment has to be made prior to the end of the previous year contrary to the aforesaid proviso. It was introduced to remove the undue hardships caused to certain taxpayers who had represented that since for the last quarter within the previous year such amounts become due and are payable sometime after the close of previous year, and such amounts are paid in time still the deduction in that respect has to await for one year. It may be noticed that proviso one embraces within it only such payments liability in respect of which has been incurred during the previous year and not to further delayed payment. For example, tax which becomes due in financial year 1989-90 ending on 31st March, 1990, even if paid before filing the return for asst. yr. 1990-91 within the time allowed under s. 139, though after 31st March, 1990, may still be allowed as deduction while computing income of previous year ending on 31st March, 1990. However, if said liability is actually paid after 31st March, 1991, but before filing timely return for asst. yr. 1991-92, it will not be allowed as deduction while computing income for the financial year ending on 31st March, 1991. Such payment shall be allowed as deduction only in computing the income of previous year 1991-92 relevant to asst. yr. 1992-93. The subsequent insertion of cls. (c), (d), (e) and (f) on different dates in s. 43B provided that the sums in cls. (c), (d), (e) and (f) were also made part of first proviso to s. 43B. Thus, first proviso relieved the hardship by making liberalized exception to general provision about sums falling in cls. (a), (c), (d) and (e) of s. 43B, which have been incurred during the concerned previous year and has been paid before filing return for relevant assessment year within time
In contrast to first proviso, the second proviso contained an exception to general applicability of main provision of cl. (b) by making it further restrictive. It restricted further the provisions of s. 43B requiring actual payment within previous year to permit the deduction in respect of sums referred to in cl. (b) only if they were paid as and when they become due to be paid, under relevant statute or settlement, etc.
We have noticed above, the provision which was originally introduced w.e.f. 1st April, 1988, vide Finance Act, 1987, and the second proviso which has been substituted by the Finance Act, 1989, w.e.f. 1st April, 1989.
Before coming to that change, it would be appropriate to refer the “due date” as defined in Explanation below cl. (va) of sub-s. (1) of s. 36. Sec. 36 enumerates certain deductions to be allowed in respect of matters dealt with therein in computing the income referred to in s. 28 and defined in Explanation below cl. (va) of sub-s. (1) of s. 36 that 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. The Explanation which has been placed below cl. (va) of s. 36(1) reads as under: “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.” Sums enumerated in cl. (b) of s. 43B are that 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. These are the contributions which are to be made by an employer to discharge its obligations towards its employees for their welfare and the object of making the provision of cl.(b) was to ensure that these contributions which are required to be paid by the employer for the welfare of its employees must reach the destination on due date and the employer does not make default in making payment of contributions to these funds, he may not withhold the payment, and yet claim its benefits in the matter of reducing its tax liability. Therefore, the provisions relating to actual payment to these contributions and crediting the amounts relating to the funds concerned had been made stringent to the extent that unless the payment is made to these funds on or before the due date, no deduction can be allowed in respect of such liabilities.
The proviso second which was originally introduced w.e.f. 1st April, 1988, made it imperative that actual payments are to be made on or before the due date for crediting that sum in the employee’s account to the funds concerned and that did not take into account such negotiable instrument which may have been issued in time but realization may have taken place after the due date. It is for this reason that proviso was amended to make it possible that where payments made by cash or cheque or draft or any other mode on or before the due date, the same may be allowed as deduction notwithstanding that such instruments have been realized after the due date within the period of fifteen days therefrom.
The change by way of insertion of second proviso w.e.f. 1st April, 1988, and substituted in the present form w.e.f. 1st April, 1989 to s. 43B is that the deduction in respect of 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 shall be allowed for the asst. yr. 1988-89 and subsequent assessment year only when they are paid on or before the due date as defined in Explanation given below cl. (va) of sub-s. (1) of s. 36 referred to above. In order to avail the benefits of deduction in respect of contributions to the provident fund, superannuation fund and gratuity fund or any other funds for the welfare of the employees, the sums not only to be actually paid before the end of previous year but is further required to be paid within the time stipulated under the relevant statute or notification, standing order, award, contract or service of the rules. If the payments have not been made within the stipulated time, the deduction cannot be claimed at any time thereafter.
In the present case, the assessee has made the payments of his contributions towards different funds for the welfare of its employees but has not paid such contributions on the due dates as defined in Explanation given below cl. (va) of sub-s. (1) of s. 36 r/w second proviso to s. 43B therefore, the assessee is not entitled to claim such deductions.
In view of the aforesaid, the Tribunal has clearly erred in allowing the deduction in respect of contributions made to PF, EPF, DLI and ESI which have not been paid within the due date specified.
The appeal is accordingly allowed and the judgment under appeal passed by the Tribunal, Jodhpur Bench, Jodhpur, is set aside to the extent the Tribunal has allowed the deduction claimed by the assessee in respect of contributions towards ESI, PF, etc., by misplacing reliance on equity by holding that because of the omission of the expression “during the previous year” in second proviso to s. 43B, so long as the payments were made within the previous year the payments are to be allowed as deduction under main section even though the payments are made a few days later than the due date is reckoned qua the month for which the salary has been paid.
There is no order as to costs.
[Citation : 274 ITR 429]