Deductions u/s 43 B of I.T. Act for PF Payments.

This query is : Resolved

CA Sanjay Baheti (Querist)
Follow

20 December 2010 One of My client being Contractor in Individual Capacity is selected for Scrutiny Assessement For Asst.Year 2008-09. One of Query is related to disallowance of PF Payments both Employees and Employer's contribution made during the Year beyond the stipulated Date as per relevent Statue/law.

can A.O. do the same or not.

As per my knowledge now as per recent I.T.amendments if Such payments are not made prior to filing of Return of the relevant Asst Year then it is only disallowed.

What's best opnion in this regard with cited case law.

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

20 December 2010 1. Reliance is placed for claim of late payment of Employees Contribution to Provident Fund in CIT vs. Alom Extrusions in 319 ITR 306 (SC) where it has been held by the Supreme Court as under:

S. 43B (b) provides that any sum payable by way of contribution to a provident fund etc shall be allowed as a deduction only in the year of payment. The second proviso to s. 43B provided that the sums referred to in s. 43B (b) would not be allowed as a deduction unless the sum had been paid on or before the due date. The said second proviso was omitted by the Finance Act, 2003 w.e.f. 1.4.2004. Simultaneously, the benefit of the first proviso, which provides that even sums paid beyond the previous year but before the due date of filing the return shall be allowed as a deduction, was extended to s. 43B (b). The question arose whether the deletion of the said second proviso and amendment of the first proviso was retrospective or prospective. HELD upholding the claim of the assessee that the deletion had retrospective effect:

(i) The deletion of the second proviso to s. 43B, and the amendment to the first proviso, by the Finance Act, 2003 was to overcome implementation problems. Consequently, the amendments, though made applicable by Parliament only with effect from 1.4.2004, were curative in nature and would apply retrospectively w. e. f. 1.4.1988.

(ii) In Allied Motors 224 ITR 677 it was held that even though the first proviso to s. 43B was inserted w.e.f 1.4.1988, it operated retrospectively from 1.4.1984.It was held that when a proviso is inserted to remedy unintended consequences and to make the section workable it could be read retrospective in operation. This principle applies to the deletion of the second proviso as well.

(iii) if the contention of the Department that the deletion of the second proviso is prospective is accepted, there will be hardship and invidious discrimination because assessee who have paid the contributions after the due date will be denied deduction for all times while a defaulter who pays the contribution after 1st April, 2004 would get the benefit of deduction under s. 43-B.

(iv) Though Parliament has explicitly stated that the amendment will operate w.e.f. 1.4.2004, as a principle of construction the intention should be determined 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 sub-served by the object of the legislation, then if another construction should be preferred.

2. Also it has been held by the Honourable High Court of Delhi in Commissioner of Income Tax vs. Aimil Ltd. & Others in (2010) 229 CTR (Del) 418 : (2010) 35 DTR 68 as under:

Even employees’ contribution to PF paid before due date of filing ROI is allowable u/s 43B

S. 2 (24) (x) provides that amounts received by an assessee from employees towards PF contributions etc shall be “income”. S. 36 (1) (va) provides that if such sums are contributed to the employees account in the relevant fund on or before the due date specified in the PF etc legislation, the assessee shall be entitled to a deduction. The second Proviso to s. 43B (b) provided that any sum paid by the assessee as an employer by way of contribution to any provident etc fund shall be allowed as a deduction only if paid on or before the due date specified in 36(1)(va). After the omission of the second Proviso w.e.f 1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due date for furnishing the return of income. The High Court had to consider whether the benefit of s. 43B can be extended to employees’ contribution as well which are paid after the due date under the PF law but before the due date for filing the return. HELD deciding in favour of the assessee:

(i) Though the revenue has argued that a distinction is to be made between “employers’ contribution” and “employees’ contribution” and that employees’ contribution being in the nature of trust money in the hands of the assessee cannot be allowed as a deduction if not paid on or before the due date specified in the PF etc law, the scheme of the Act is that employees’ contribution is treated as income u/s 2(24)(x) on receipt by the assessee and allowed as a deduction u/s 36(1)(va) on making deposit with the concerned authorities. S. 43B(b) stipulates that such deduction would be permissible only on actual payment;

(ii) The question as to when actual payment should be made is answered by Vinay Cements 213 CTR 268 where the deletion of the second Proviso to s. 43B w. e. f. 1.4.2004 was held applicable to earlier years as well. As the deletion of the 2nd Proviso is retrospective, the case has to be governed by the first Proviso. Dharmendra Sharma 297 ITR 320 (Del) & P. M. Electronics 313 ITR 161 (Delhi) followed;

(iii) 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 Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax 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 in Vinay Cement.

Message likes : 1 times