R.C. Sharma, A.M. -
(1.) THIS is an appeal filed by the assessee against the order of CIT(A)-VHI, New Delhi, dt. 28th Feb., 2007 for the asst. yr. 2001-02, in the matter of order passed under Section 143(3) of the IT Act, 1961, wherein following grounds of appeals have been taken:
1. That the learned CIT(A) has erred both on facts as well as in law in upholding the disallowance of Rs. 5,75,263 as deemed income under Section 2(24)(x) r/w Section 36(l)(va) of the IT Act, 1961 being the employer's/employees' contributions made towards provident fund and ESI for alleged belated payments. While doing so, the learned CIT(A) has failed to appreciate the decision (sic-deletion) of the second proviso to Section 43B of the Act, thereby placing the misconceived interpretation on the provisions of said section of the Act.
(2.) That the submissions, as made, along with the individual view during the appellate proceedings and the amendment to Section 43B of the Act stood arbitrarily disregarded by the learned CIT(A), while confirming the disallowance.
That the learned CIT(A) has further erred in viewing the delay in making such contributions without reference to the provisions of Section 43B of the Act read with the provisions of the particular statutes governing the admissibility of the expenditure under those statutes.
It is thus accordingly prayed that the disallowance as made of the expenditure of Rs. 5,75,263 be held without any basis or justification and be ordered to be cancelled.
2. Rival contentions have been heard and record perused. In this appeal, the assessee is aggrieved for disallowance of PF and ESI contributions by treating the same as deemed income under Section 2(24)(x) r/w Section 36(l)(va) of the IT Act, 1961. Contention of the learned Authorised Representative was that after deletion of second proviso to Section 43B by the Finance Act, 2003, no disallowance can be made if such contribution is paid even before the last date of filing the return. He placed reliance on the order of Hon'ble Supreme Court in case of CIT v. Vinay Cement Ltd., (2007) 213 CTR 268, wherein SLP filed by the Revenue against the order of Gauhati High Court was dismissed by the Hon'ble Supreme Court vide order dt. 17th March, 2007 and it was held that even under the law as stood prior to the amendment of Section 43B, the assessee was entitled to claim the benefit of Section 43B if the amount of contribution was paid prior to the last date of filing of the return under Section 139(1) of the Act. The learned Authorised Representative further submitted that the Gauhati High Court in IT Appeal No. 83 of 2003 vide order dt. 26th June, 2006 has allowed the claim of the assessee with regard to employer's and employees' contribution both, accordingly, the learned Authorised Representative contended that no distinction can be made now, even if the disallowance has been made with respect to the employees' contribution under Section 2(24)(x) r/w Section 36(l)(va)of the Act. Learned Authorised Representative also placed on record the decision of Karnataka High Court in case of CIT v. Sobari Enterprises, (2007) 213 CTR (Kar) 269, wherein question before the High Court was with regard to allowing the deduction under Section 36(l)(va) r/w Section 2(24)(x) and Section 43B of the Act. Attention was drawn to the pp. 8 to 12 of the order of the High Court wherein question referred to the Hon'ble High Court and elaborate discussion was made with regard to the employer's and employees' contribution towards PF, superannuation funds, gratuity funds, etc. Finally, the issue was decided in favour of the assessee and against the Revenue, on the plea that actual payment was made prior to last date of filing return under Section 139(1).
3. On the other hand, learned Departmental Representative relied on the orders passed by lower authorities wherein payments made after the statutory time-limit prescribed under PF and ESI Acts, were declined the deduction.
(3.) WE have considered rival contentions. From the record we found that in the instant case the AO has disallowed the employer's contribution and employees' contributions, which were deposited beyond the due date as provided under Section 36(1)(va) of the Act, by observing that employees' contributions could not be allowed under Section 43B and employees' contribution was to be treated as income of the assessee within the meaning of Section 2(24)(x) of the Act. By the impugned order, CIT(A) confirmed the disallowance made by the AO. WE have carefully gone through the decisions of Hon'ble Supreme Court and Hon'ble High Court as referred above and found that issue before the Karnataka High Court was with respect to claim of deduction under Section 36(l)(va) r/w Section 2(24) which pertains to employees' contribution which was not paid by the assessee before the statutory dates provided under the PF Act, but before the due date for furnishing return of income under Section 139(1) of the Act. The disallowance made by invoking provisions of Section 43B pertains to deduction claimed with reference to employer's contribution. After discussing in detail the history of provisions of Section 2(24)(x) and Sections 36(l)(va) and 43B of the Act, and the amendment brought therein by various Finance Acts, the High Court observed as under:
After hearing the learned Counsel for the parties, we have carefully examined the above statutory provisions of the Act including definition of Section 2(24)(x) and Sections 36(l)(va) and 43B(b), which reads thus:
'2(24)(x) '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 or any other fund for the welfare of such employees'.
'36(1) The deduction provided for in the following clauses shall be allowed respect of the matters dealt with therein in computing the income referred to in Section 28-
(va) any sum received by the assessee from any of his employees to which the provisions Sub-clause (x) of (24) of Section 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.'
This clause is inserted by Finance Act w.e.f. 1st April, 1988. Explanation to this clause is read very carefully. "Due date" has been explained stating that "means the date by which the assessee is required as an employer to credit contribution to the employee's account in the relevant fund under any Act, rules or order or notification issued thereunder or under any standing order, award contract or service or otherwise". Prior to the above clause was inserted to Section 36 giving statutory deductions of payment of tax under the provisions of the Act, Section 43B(b) was inserted by Finance Act, 1983 which came into force w.e.f. 1st April, 1984. Therefore, again the provision of Section 43B(b) clearly provides that notwithstanding anything contained in other provisions of the Act including Section 36(1) Clause (va) of the Act, even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted by Finance Act, 1987 which came into effect from 1st April, 1988, the letters numbered as Clause (a) or Clause (c) or Clause (d) or Clause (e) or Clause (f) are omitted from the above proviso and therefore deduction towards the employer's contribution paid can be claimed by the assessee.
The Explanation to Clause (va) of Section 36 of the IT Act further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under Section 139 of the Act to the Revenue in respect of the previous year can be claimed by the assessee for deduction out of their gross income. The abovesaid statutory provisions of the IT Act abundantly make it clear that, the contention urged on behalf of the Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under Section 139 is permissible only if statutory liability of payments of PF or other contributions funds referred to in Clause (b) are paid within the due date under the respective statutory enactment by the assessee as contended by the learned Counsel for the Revenue is not tenable in law and therefore the same cannot be accepted by us.
The learned Counsel, Sri Parthasarathy and Departmental Representative, Kishna appearing for respondents, also drew our attention to the deletion of second proviso to Section 43B of the IT Act by Finance Act, 2003 which provision has come into force w.e.f. 1st April. 2004. The reliance placed upon the decision of the apex Court in the Allied Motors (P) Ltd. v. CIT and also on the decision in General Finance Co. v. CIT, in respect of applicability of Section 43B(b) and also omission of Clause (a) or (c) or (d) or (f) referred to above occurred in the first proviso to Section 43B, support the case of the assessee and also relevant paras extracted from Allied Motor's case and para 59 referred to supra in this judgment from the Finance Bill with all fours support the case of the assessee/respondents. Therefore, we have no answer the substantial question of law No. 1 framed by this Court in these appeals at the instance of the Revenue against them viz. in the negative. Accordingly, we answer the substantial question No. 1 framed in these appeals in the negative.
5, It is crystal clear from the detailed discussion made by the Hon'ble Karnataka High Court that both the employer's and employees' contributions were considered for allowing as a deduction if paid before last date of filing the return under Section 139(1). Undisputedly, in the instant case also, both the employer's and employees' contributions were not paid before statutory dates defined under PF Act, but the actual payment was before the last date of filing the return under Section 139(1) of IT Act. The verdict of Hon'ble Karnataka High Court is squarely applicable to the facts and circumstances of the instant case. Recently, Hon'ble Delhi High Court in case of CIT v. Dharmendra Sharma, (2007) 213 CTR (Del) 609, vide order dt. 28th Jan., 2008 held that Tribunal was right in deleting the disallowance of payments towards PF and ESI as the same were paid before the due date of filing of return. While so holding Hon'ble Delhi High Court relied on the verdict of Hon'ble Supreme Court in the case of CIT v. Vinay Cement Ltd. (supra), wherein SLP filed by the Department was dismissed by observing that even prior to amendment of Section 43B by the Finance Act, 2003, no disallowance can be made if such payment is made before last date of filing the return of income. However, no contrary decision of any High Court was brought to our notice by the learned Departmental Representative. WE, therefore, respectfully follow the decision of Hon'ble Karnataka High Court, and reverse the orders of the lower authorities declining the deduction of payments actually made before last date of filing the return under Section 139(1) of IT Act Accordingly, we allow the appeal in favour of the assessee.
6. In the result, the appeal of the assessee is allowed.;