The Supreme Court observed that employers have to deposit the employee's contribution towards EPF/ESI on or before the due date for availing deduction under Sections 36(1)(va) and 43B of the Income Tax Act, 1961.
The court observed that there is a marked distinction between the nature and character of the two amounts viz. the employers' contribution and employees' contribution required to be deposited by the employer. The first one is the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer, the bench of CJI UU Lalit, Justices S. Ravindra Bhat and Sudhanshu Dhulia said.
In these cases, the employers had belatedly deposited their employees' contribution towards the EPF and ESI, considering the due dates under the relevant acts and regulations. The Assessing Officer ruled that by virtue of Section 36(1)(va) read with Section 2(24)(x) of the IT Act, such sums received by the appellants constituted "income". It was held that those amounts could not have been allowed as deductions under Section 36(1)(va) of the IT Act when the payment was made beyond the relevant due date under the respective acts. The Income Tax Appellate Tribunal and later the Gujarat High Court dismissed the challenge against this order of AO.
In appeal, the court noted that the Kerala High Court has also ruled in favour of revenue on this issue whereas the High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi have favoured the interpretation beneficial to the assesses.
Before the Apex Court bench, the appellant- assessees relied on the judgment in Commissioner of Income Tax v. Alom Extrusions Ltd , (2010) 1 SCC 489. While dismissing the appeal, the bench observed thus:
"In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction."
Case details
Checkmate Services Pvt. Ltd. vs Commissioner of Income Tax-I | 2022 LiveLaw (SC) 838 | CA 2833 OF 2016 | 12 October 2022 | CJI UU Lalit, Justices S. Ravindra Bhat and Sudhanshu Dhulia
Headnotes
Income Tax Act, 1961 ; Sections 36(1)(va), 43B - The non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction - There is a marked distinction between the nature and character of the two amounts viz. the employers' contribution and employees' contribution required to be deposited by the employer - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. (Para 53-54)
Original copy of the judgement has been enclosed herewith
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