Commissioner of Income Tax vs Spectrum Consultants India (P) Ltd.

N. Kumar, J.—This appeal is filed challenging the order passed by the learned Single Judge who has held, the benefit of the amendment of s. 43B of the IT Act equally applies to the employees'' contribution of provident fund. The respondent is a private limited company engaged in the business of placement services and outsourcing contractors. The respondent is a regular income tax assessee. The respondent filed its returns of income for the asst. yr. 2006-07. Proceedings were initiated under s. 143(3) of the IT Act, 1961 (for short, hereinafter referred to as ''the Act'') in respect of delayed remittances of ESI/PF contributions deducted from various employees and remitted late to the respective authorities. The assessing authorities, after hearing the assessee, concluded the assessment by an order dt. 29th Aug., 2008 and disallowed an amount of Rs. 22,91,791 on the ground of delayed remittance. The assessee did not file any appeal. He filed an application under s. 264 of the Act before the CIT, pleading that such remittances were allowable more so because all such remittances had been made prior to last date fixed for filing its return under s. 139(1) of the Act and a major portion had been remitted during the very financial year ended on 31st March, 2006. They relied on the judgment of this Court in the case of Commissioner of Income Tax Vs. Sabari Enterprises, and contended, the same is approved by the apex Court in the case of Commissioner of Income Tax Kolkata-III Vs. Alom Extrusions Limited, . The CIT rejected the petition by its order dt. 16th Dec., 2010. Aggrieved by the same, the assessee preferred a writ petition before this Court. The learned Single Judge, by the impugned order, accepted the case of the assessee and held that the contributions were deductible even though paid beyond the due date prescribed under the relevant Act as it has been paid within the due date prescribed under s. 139(1) of the Act. Aggrieved by the said order, the present appeal is filed.

Learned counsel for the Revenue, assailing the impugned order, contended that the benefits of s. 43B of the Act is only in respect of the employer''s contribution. It is not applicable to employee''s contribution. The said question has not been gone into either in Sabari''s case (supra) or in the Supreme Court case. As the section stands, the impugned order passed by the learned Single Judge as well as the authorities is erroneous and requires to be set aside.

Per contra, learned counsel for the assessee submitted that the word ''deduction'' used in s. 43B as any sum payable by the assessee as an employer by way of contribution to any provident fund. Referring to the provisions of the Employees'' Provident Funds Scheme, 1952, in particular, ss. 29 and 30 (sic-paras 29 and 30), he submitted, the employer shall, in the first instance, pay, both the contribution payable by himself and also on behalf of the member employed by him. Therefore, the words ''payable by the assessee as an employer by way of contribution to any provident fund'' includes both employer''s and employee''s contribution. That is why, the Division Bench of this Court, in the aforesaid Sabari''s case (supra), granted relief, which order has been now affirmed or approved by the apex Court in the case of CIT v. Alom Extrusions Ltd. (supra), which has elaborately gone into the question of law prior to the amendment and subsequent to the amendment and question whether these amendments are prospective in nature or retrospective in nature and then it has come to the conclusion that the amendments are in the nature of curative provision and therefore, they have extended the benefit of the section to such contributions. In fact, in the SLP filed by the Department against the judgment of this Court in Sabari''s case (supra) which was also connected to the said appeal, the apex Court has dismissed the appeal filed by the Revenue affirming the order passed by the High Court.

The answer to the question revolves round the interpretation of the words in s. 43B "any sum payable by the assessee as an employer by way of contribution to any provident fund". If it is to be read as only employer''s contribution, the Revenue is right. However, in order to find out what this contribution is, it is necessary to look into the provisions of the Provident Fund Act. Sec. 29 (sic-para 29 of the Scheme) defines what contribution is:

Contribution-(1) The contributions payable by the employer under the Scheme shall be at the rate of (ten per cent) of the basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance if any payable to each employee to whom the Scheme applies:

Provided that the above rate of contribution shall be (twelve) per cent in respect of any establishment or class of establishments which the Central Government may specify in the Official Gazette from time to time under the first proviso to sub-s. (1) of s. 6 of the Act.

(2) The contribution payable by the employee under the Scheme shall be equal to the contribution payable by the employer in respect of such employee:

Provided that in respect of any employee to whom the Scheme applies, the contribution payable by him may, if he so desires, be an amount exceeding (ten per cent) or (twelve per cent), as the case may be, of his basic wages, dearness allowance and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay ''any contribution over and above his contribution payable under the Act).

(3) The contributions shall be calculated on the basis of basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (if any) actually drawn during the whole month whether paid on daily, weekly, fortnightly or monthly basis.

(4) Each contribution shall be calculated to the nearest rupee, 50 paise or more to be counted as the next higher rupee and fraction of a rupee less than 50 paise to be ignored.

Sec. 30 (sic) deals with payment of contributions:

Payment of contributions.--(1) The employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer''s contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member''s contribution).

(2) In respect of employees employed by or through a contractor, the contractor shall recover the contribution payable by such employee (in this Scheme referred to as the member''s contribution) and shall pay to the principal employer the amount of member''s contribution so deducted together with an equal amount of contribution (in this Scheme referred to as the employer''s contribution) and also administrative charges.

(3) It shall be the responsibility of the principal employer to pay both the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor and also administrative charges.

Explanation : For the purposes of this para the expression "administrative charges" means such percentage of the pay (basic wages, dearness allowance, retaining allowance, if any, and cash value of food concessions admissible thereon) for the time being payable to the employees other than an excluded employee, as the Central Government may, in consultation with the Central Board and having regard to the resources of the Fund for meeting its normal administrative expenses, fix.

Sec. 31 (sic) deals with employer''s share of contribution: 31. Employer''s share not to be deducted from the members- Notwithstanding any contract to the contrary the employer shall not. be entitled to deduct the employer''s contribution from the wages of a member or otherwise to recover it from him.

A reading of the aforesaid provisions makes it clear that the contributions payable by the employer under the scheme shall be @ 10 per cent of the basic wages, dearness allowance. The contribution payable by the employee shall be equal to the contribution payable by the employer in respect of such employee. However, the employer shall, in the first instance, pay both the contribution payable by himself i.e. the employer''s contribution as well as the employee''s contribution and thereafter he is entitled to recover by means of deduction from the employee the contribution which he has paid as employee''s contribution. Therefore, in law, the payment of contribution by the employer to the fund under the scheme means both employer''s contribution and employee''s contribution. Whether he deducts the employee''s contribution from the salary or not, in law, he is liable to pay the said amount. Therefore, s. 2(24)(x) of the IT Act makes it clear that the employee''s contribution which the employer deducts from his salary before it is paid into the fund, is treated as the income of the employer, and the employer by contributing can get the deduction. That payment must be made within the due date i.e. the due date prescribed under s. 139(1) of the Act. Because it was causing lot of problem as discussed in the judgment of the apex Court, on a representation made by the industry, subsequent amendment was carried out to mitigate the difficulties caused to the employer under s. 43B of the Act. Though such contributions are not paid within the time prescribed under the relevant Act, if those contributions are paid before the due date prescribed under s. 139 of the Act, the employer shall be entitled to the deductions as provided under s. 36(1) of the Act. While extending such benefit, the Parliament has not made any distinction between the employee''s contribution and the employer''s contribution. It is for the simple reason, under the provident fund scheme, an employer has to pay both the contribution and then recover from the salary of the employee. Therefore, in view of the aforesaid judgment, we do not find any substance in this appeal. Therefore, the appeal is dismissed.