CIT vs. Gujarat State Road Transport Corp (Gujarat High Court)

DATE: (Date of pronouncement)
DATE: January 13, 2014 (Date of publication)

Click here to download the judgement (Gujarat_43B_employees_contribution.pdf)

Employees’ PF/ ESI Contribution is not covered by s. 43B & is only allowable as a deduction u/s 36(1)(va) if paid by the “due date” prescribed therein

In AY 2005-06 the assessee collected Rs.51 crore from its employees as their contribution to the provident fund but deposited an amount of Rs.21 crore with the provident fund trust within the time allowed under the Provident Fund Act. The shortfall was deposited with the PF trust before the due date for filing the ROI u/s 139(1). The AO held that the amount not deposited in time was assessable as “income” u/s 2(24)(x) & that a deduction u/s 36(1)(va) could not be allowed as the payment was not within the prescribed “due date”. He also held that s. 43B applied only to the employer’s contribution. On appeal by the assessee, the CIT(A) and ITAT upheld the assessee’s claim by relying on Alom Extrusions Ltd 319 ITR 306 (SC). On appeal by the department to the High Court HELD allowing the appeal:

S. 43B which permits a deduction for payments made upto the due date for filing the ROI applies only to the employer’s contribution to the provident fund etc. It does not apply to the employees’ contribution. The employees’ contribution received by the employer-assessee is deemed to be income in the assessee’s hands u/s 2(24)(x) and if the assessee has not credited the said sum to the employees’ account in the relevant fund or funds on or before the due date mentioned in Explanation to s. 36(1)(va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in s. 28 of the Act. The argument that two view are possible is not acceptable because only one view is possible on a correct interpretation of the provision (Alom Extrusions 319 ITR 306 (SC) distinguished, Aimil Ltd 321 ITR 508 (Del), Nipso Polyfabriks 350 ITR 327 (HP), Spectrum Consultants 34 20 (Kar), Udaipur Dugdh Utpadak Sahakari Sandh 35 616 (Raj) & Hemla Embroidery Mills (P&H) dissented

Note: The consequence is that if the payment of employees’ contribution is delayed, a deduction will never be allowed. The same view is taken in LKP Securities following ITC Ltd 112 ITD 57 (Kol)(SB). Contrast with Kichha Sugar 356 ITR 351 (Utt) where it was held that the “due date” in s. 36(1)(va) meant the “due date” for filing ROI u/s 139(1). See also Bharati Shipyard 132 ITD 53 (SB)(Mum) where it was held that s. 43B applies even to the employees’ contribution
3 comments on “CIT vs. Gujarat State Road Transport Corp (Gujarat High Court)
  1. Ganesh says:

    In the present case, I’ve observed that there is a difference of Rs.5 Crore in disallowance u/s 36(1)(va):

    Amount of PF Contribution collected i.e. Income U/s 2(24)(x) – Rs.51,06,02,712
    Amount deposited within due date – Rs.21,16,61,582

    Amount (difference) to be disallowed – Rs.29,89,41,130
    Amount of shortfall treated as income by AO – Rs.24,89,41,130

    Shortfall in shortfall treated as Income – Rs.5,00,00,000.

  2. Sher Singh says:

    This proves that there is dire & urgent need of training among judiciary at all levels

  3. karanjit Singh says:

    thats why there is urgent need to simplify tax provision in INDIA.

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