rajesh balia, j. - (1.) : 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?"
(2.) 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 of-- (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 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 : 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)......................... 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.
(3.) 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." 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. 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). 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. ;