1. Dispute over deductibility of employees' contributions to provident and state insurance funds deposited after the statutory due date under Section 36(1)(va) and Section 43B, Income Tax Act. (Para 1 , 2 )
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2022 Supreme(SC) 1041
SUPREME COURT OF INDIA
UDAY UMESH LALIT, CJI., S. RAVINDRA BHAT, SUDHANSHU DHULIA, JJ.
Checkmate Services Pvt. Ltd. – Appellant
Versus
Commissioner of Income Tax – Respondent
Civil Appeal Nos. 2830, 2831, 2832, 2833 of 2016, 159 of 2019, SLP (C) Nos. 32361 of 2015, 24548 of 2016, 1358, 3250, 17739, 23295, 23388, 25483 of 2019, 4241, 4971-4973 of 2020
Decided On : 12-10-2022
Employees' contributions to PF/ESI, deemed income under Section 2(24)(x), are deductible under Section 36(1)(va) only if deposited by the due date specified in the relevant welfare acts. The lenient payment timeline under Section 43B does not override this strict requirement for employees' contributions.
Headnote:(A) Income Tax Act, 1961 - Sections 2(24)(x), 36(1)(va) and 43B - Interpretation of statutory provisions regarding deductions for contributions to Employee Provident Fund and Employee State Insurance - Court addressed the question of whether delayed payments of contributions are deductible - Assessees contended that omission of second proviso to Section 43B was curative and allowed deductions if amounts were paid before tax return filing - Revenue contended that contributions beyond due dates under EPF/ESI Acts could not be claimed as deductions under Section 36(1)(va) - The court held that the distinction between employee's and employer's contributions must be adhered to, where the latter is subject to Section 43B and is treated differently under the Act. (Paras 1-55)
Facts of the case:
Appeals arose from a conflicting interpretation of tax provisions regarding the assessable income of employers with respect to employee contributions. The ITAT and Gujarat High Court denied deduction for contributions paid after statutory due dates despite payments made before tax return filing.
Findings of Court:
Confirmed differentiation between employer and employee contributions, emphasizing the requirement under Section 36(1)(va) for timely deposit of employee contributions to qualify for deduction.
Issues: Whether contributions made by employers on behalf of employees after statutory due dates could qualify for deduction under the Act.
Ratio Decidendi: The omission of the second proviso to Section 43B did not undermine the existing requirements for timely payment of employee contributions, which must be deposited before the due date to qualify for deduction as per Section 36(1)(va).
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Assessees claim Section 43B overrides Section 36(1)(va) allowing deductions if paid before return filing; Revenue contends Section 36(1)(va) specifically mandates payment by the statutory due date. (Para 10 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 )
3. The court distinguished employer contributions from employees' contributions, noting the latter are held in trust and deemed income, requiring strict compliance with statutory due dates for deductibility. (Para 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 )
4. Deduction for employees' contributions under Section 36(1)(va) is conditional upon deposit by the statutory due date; Section 43B does not override this requirement for trust monies. (Para 53 , 54 )
5. Appeals dismissed and the impugned judgment upholding the disallowance of deductions for belated deposits of employees' contributions is affirmed. (Para 55 )
6. How does the Income Tax Act distinguish between employer and employee contributions to provident funds for deduction purposes?
Employer contributions are governed by Section 36(1)(iv), while employee contributions are governed by Section 36(1)(va). Employee contributions are deemed income under Section 2(24)(x) as they are held in trust, making their deductibility strictly conditional upon deposit by the statutory due date. (Para 32 , 33 , 34 , 52 , 53 )
7. Does the non-obstante clause in Section 43B allow deductions for employees' contributions deposited after the due date but before filing the return?
No. Section 43B ensures actual payment of the assessee's own liabilities. It does not override the specific condition in Section 36(1)(va) regarding employees' contributions, which are held in trust and must be deposited by the due date specified in the relevant welfare act. (Para 52 , 54 )
8. What is the general principle for interpreting conditions for deductions or exemptions in taxing statutes?
Taxing statutes must be construed strictly. If a deduction is available upon compliance with certain conditions, those conditions must be strictly followed, and equitable considerations or hardships are irrelevant to the interpretation. (Para 46 , 48 , 49 , 50 )
JUDGMENT :
S. RAVINDRA BHAT, J.
1. Leave granted. Berger Paints India Ltd. vs. Commissioner of Income Tax, Kolkata-IV and Another, Civil Appeal No. 2830 of 2016 was the lead matter while hearing this batch of appeals. However, the parties agreed to treat Checkmate Services Pvt. Ltd. vs. Commissioner of Income Tax, C.A. No. 2383 of 2016, as the lead appeal, for convenience. In all these appeals, the common question involved is with respect to the interpretation of Section 36(1)(va) and Section 43B of the INCOME TAX ACT , 1961 (hereinafter “IT Act”) and whether the appellant assessees are entitled to deduction of amounts deposited by them towards contribution in terms of The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter “EPF Act”), The Employees’ Provident Funds Scheme, 1952 (hereinafter “EPF Scheme”), The Employees’ State Insurance Act, 1948 (hereinafter “ESI Act”), The Employees’ State Insurance (Central) Regulations, 1950 (hereinafter “ESI Regulations”) or any other provident or superannuation fund.
2. In the years under consideration, the Assessing Officers (hereinafter “AO”) had ruled that the appellants had belatedly deposited their employees’ contribution towards the EPF and ESI, considering the due dates under the relevant acts and regulations. Consequently, the AO 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.” 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. In other words, as per the AO, as such sums were paid beyond the due dates as prescribed under the respective acts, the right to claim such sums as allowable deduction while computing the income was lost forever. The assessees’ pleas were unsuccessful before the Income Tax Appellate Tribunal (hereafter “ITAT”). Ultimately, in the case of the impugned judgment, the Gujarat High Court too rejected its pleas. [Commissioner of Income Tax vs. Checkmate Services Pvt. Ltd. Tax Appeal No. 680 of 2014, dated 14.10.2014]
3. Noticing a division of opinion on the issue, with the High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favouring the interpretation beneficial to the assesses on the one hand, and the High Courts of Kerala and Gujarat preferring the interpretation in favour of the Revenue on the other, this court granted special leave to appeal in all these cases.
The relevant statutory provisions of the IT Act
4. The relevant provisions of the IT Act, with amendments, made from time to time, are as extracted below:
“Section 2. Definitions
In this Act, unless the context otherwise requires:
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(24) “income” includes:
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(x) 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 (34 of 1948), or any other fund for the welfare of such employees.......”1 [Inserted by the FINANCE ACT , 1987 (11 of 1987) w.e.f. 01.04.1988]
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“Section 36. Other deductions
(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28:
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(iv) any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognizing the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed amounts or annual contributions fixed on some definite basis by reference to the income chargeable under the head “Salaries” or to the contributions or to the number of members of the fund.”
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(va) any su
