Commissioner of Income Tax vs Udaipur Dugdh Utpadak Sahakari Sangh Ltd.

The defect pointed out by the office is overruled. This appeal has been filed by the Revenue aggrieved by the order dt. 16th Dec., 2011 passed by the income tax Appellate Tribunal, Jodhpur Bench, Jodhpur (''Tribunal'') in ITA No. 351/Jd/2010 for the asst. yr. 2006-07, whereby, the appeal filed by it against the order dt. 15th March, 2010 passed by the CIT(A), Udaipur has been dismissed.

The facts in brief are that the assessee is engaged in the business of dairy product, processing and marketing of milk and milk products and cattle feed etc. It filed its return of income for the asst. yr. 2006-07 on 30th Oct., 2006 declaring total income of Rs. 9,80,723. While completing the assessment under s. 143(3) of the IT Act, 1961 (''the Act'') vide its order dt. 26th Dec., 2008 the AO noticed that the assessee had deposited payment of Rs. 14,60,412 in the PF and Rs. 973 in the ESI fund with delay that is the said payments were deposited after the due dates i.e. after 15th of next month and, therefore, added the said amount to the income of the assessee as per the provisions of s. 36(1)(va) r/w s. 2(24)(x) of the Act.

Aggrieved by the assessment order dt. 26th Dec., 2008, the assessee filed an appeal before the CIT(A), who, vide its appellate order dt. 15th March, 2010 after noticing certain judgments came to the conclusion that it is a settled position of law that where payments on account of contribution to the PF, ESI etc. are made within the due date of filing the return, such deductions are allowable. It was further noticed that it was not in dispute that the PF contribution and ESI was deposited by the appellant before the due date of filing the return and, consequently, the CIT(A) deleted the disallowance made by the AO and granted a relief of Rs. 14,61,385.

The order dt. 15th March, 2010 passed by the CIT(A) was questioned by the Revenue before the Tribunal and, the Tribunal by its order dt. 16th Dec., 2011 upheld the order passed by the CIT(A) on the said issue, inter alia, holding that the employees'' contribution is allowable, if the same is paid before the due date of return.

It was contended by learned counsel for the Revenue that the CIT(A) and Tribunal fell in error in deleting the addition made under s. 36(1)(va) r/w s. 2(24)(x) of the Act without considering the facts and legal aspect involved therein. It was submitted with reference to s. 43B of the Act that the deletion of second proviso therein, after the amendment by the Finance Act, 2003; the contribution of the employer is governed by provisions of s. 43B, whereas, employees'' contribution continues to be governed by provision of s. 36(1)(va) r/w s. 2(24)(x) of the Act and, therefore, the Tribunal fell in error in upholding the order passed by the CIT(A).

The effect of deletion of second proviso to s. 43B of the Act was considered by Hon''ble Supreme Court in Commissioner of Income Tax Kolkata-III Vs. Alom Extrusions Limited, and it was observed at p. 314 of the report as under:

.......s. 43B (main section), which stood inserted by the Finance Act, 1983, w.e.f. 1st April, 1984, expressly commences with a non obstante clause, the underlying object being to disallow deductions claimed merely by making a book entry based on the mercantile system of accounting. At the same time, s. 43B (main section) made it mandatory for the Department to grant deduction in computing the income under s. 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that the accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of the first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess, and fee with contributions to welfare funds.

Further the Hon''ble Supreme Court in Commr. of Income Tax-II, Gauhati Vs. Vinay Cement Ltd. while dismissing the SLP preferred by the Revenue against the judgment of the Guwahati High Court observed as under:

In the present case we are concerned with the law as it stood prior to the amendment of s. 43B. In the circumstances the assessee was entitled to claim the benefit in s. 43B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return.

Following the observations of Hon''ble Supreme Court in Vinay Cement (supra), the Delhi High Court in Commissioner of Income Tax Vs. AIMIL Limited, as under: We may only add that 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 IT 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 by the Supreme Court in Vinay Cement (supra).

In view of the settled legal position, the appeal preferred by the Revenue has no substance and the same is, therefore, dismissed. No costs.