INCOME TAX ACT, 1961

--Business disallowance under section 43B--ESI and PF Contributions contribution paid after due date under relevant Act--During the assessment proceeding the assessing officer noticed by the assessing officer that amount which had been collected by the assessee from its employees as their contributions towards ESI and PF had not been deposited in the ESI and PF accounts by the due dates prescribed under Employee's Insurance and provident Fund act. The assessing officer disallowed the same under section 43B read with section 36(1)(va). Both the lower appellate authorities allowed assessee's appeals. Held: Rightly so. ESI and PF contribution paid after due date prescribed under relevant Acts would be allowed as deduction if these contributions had been paid before due date of filing return of income.

By the Finance Act of 2003, which came into effect from 1-4-2004, the second proviso to section 43B, which specifically made reference to section 36(1)(va) was deleted. The Apex Court in Alom Extrusions' case clearly held that the amendment was curative in nature and, hence, would apply with, retrospective effect from 1-4-1988. The second proviso to section 43B(b) specifically referred to the due date under section 36(1)(va) and as such, it cannot be urged that the provisions of section 43B and section 36(1)(va) should, not be read together, It is clear that the law was enacted to ensure that, the payment of the contributions towards the provident funds, the ESI, funds or other, such welfare schemes, must be, made before furnishing the return of income under sub-section (1) of section 139. When one read section 36(1)(va), and section 43B together, it is obvious that earlier section 43B made reference to the due date as prescribed under section 36(1)(va). There was a conflict between the first and the second proviso, and the second proviso was deleted. The Apex Court held that this amendment being curative in nature was retrospective. The benefit of this amendment must be extended to the employees' contribution also. [Para 22] This court is dealing with cases where though the amount was not deposited by the due date under the Welfare Acts, it was definitely deposited before furnishing the returns. There is no reason to make any distinction between the employees' contribution or the employers' contribution. Once the contribution is there, whether by the employee or by the employer, it is a contribution to a welfare fund held in trust by the employer, who is bound to deposit the same. When the employer does not deposit the same within the time prescribed under the Welfare Acts, such as the Provident Fund Act, ESI Act, etc., he may face criminal prosecution under the said Act. He may also become liable to pay interest or penalty. However, that is no reason to deny him the benefit of section 43B, which starts with a non obstante clause and which clearly lays down that the assessee can take benefit of deduction of such contributions, if the same are paid before furnishing of the return. [Para 23]

Income Tax Act, 1961 Section 43B

Income Tax Act, 1961 Section 36(1)(va)

In the Himachal Pradesh High Court

Deepak Gupta & Rajiv Sharma JJ.

CIT v. Nipso Polyfabrics Ltd.

ITA No 73 of 2008

7 November, 2012

Appellant by : Vinay Kuthiala, Senior Advocate, with Vandana Kuthiala, Advocate

Respondent by : Radhika Suri

Deepak Gupta, J.