Putting an end to the debate on the allowance of contributions to the provident fund by the employer, the Delhi High Court recently clarified that employees’ contributions deducted from their salaries are deemed to be income under Section 2(24)(x) of the Income Tax Act and are held in trust by the employer.
Hence, the employers can claim a deduction of the said contributions only if they deposit these amounts on or before the statutory due date under Section 36(1)(va) of the Income Tax Act. The Court also made it clear that the non-obstante clause in Section 43B of the Income Tax Act cannot be applied to employees’ contributions governed by Section 36(1)(va).
Reference was made to the decision of the Apex Court in the case of Checkmate Services (P) Ltd. v. Commissioner of Income Tax [(2023) 6 SCC 451], where it was held that the non-obstante clause under Section 43B or anything contained in that provision would not absolve the employer-taxpayer from its liability to deposit the employee’s contribution on or before the due date as a condition for the deduction, and therefore, the deduction under Section 36(1)(va) can be allowed only if the employees’ share in the relevant funds is deposited by the employer before the due date.
The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar also referred to the decision of the Apex Court in the case of Pr. Commissioner of Income Tax vs. Pepsico India Holding Pvt Ltd. [ITA No. 12/2023], to reiterate that if the due date fell on a date which was a National Holiday, then the deposit could have been made by the employer only on the date that followed the National Holiday.
Briefly, in this case, the I-T return filed by the appellant, a Partnership Firm engaged in the business of manufacturing, supplying, and exporting leather products under the name of Woodland, was scrutinised, wherein adjustments to the tune of ₹4.14 crores were proposed to be deducted from the income of the appellant on account of payment of Provident Fund, Employer’s State Insurance and Labour Welfare Fund to the extent of the disputed amount deposited beyond the due date of the relevant fund under the Income Tax Act.
The appellant clarified that the said employee’s contribution deposited before filing of the ITR under Section 139(1) should have been admissible, even though the same was deposited after the due date as prescribed under the relevant acts. However, the intimation notice from the Department reflected an enhancement of the amount of ₹4.14 crores, thereby disallowing the deduction of the disputed amount under Section 36(1)(va) of the Income Tax Act. Since this finding was confirmed by the Appellate Revenue Authorities, the appellant approached the High Court.
Cases Relied On:
Checkmate Services (P) Ltd. v. Commissioner of Income Tax [(2023) 6 SCC 451]
Pr. Commissioner of Income Tax vs. Pepsico India Holding Pvt Ltd. [ITA No. 12/2023]
Cases Distinguished:
CIT v. Vatika Township Pvt Ltd. (2014) 367 ITR 466 (SC) (Constitution Bench)
Sedco Forex International Inc v. C.I.T. [(2017) 399 ITR 1 SC]
Appearances:
Senior Advocate S. Ganesh, along with Advocates Anukalp Jain, Abhijit Mittal, Anukalp Jain, Nishtha Nanda & Shaivya Singh, for the Appellant/ Taxpayer
Advocate Siddhartha Sinha, for the Respondent/ Revenue
