ITO vs. Indore Steel and Iron Mills Ltd (ITAT Mumbai)

The Revenue relies on the decision in the case of Bengal Chemical and Pharmaceuticals Ltd. [2011] 11 taxmann.com 328/10 taxmann.com 26) (Kol), holding that the employee’s contribution to the said employee welfare funds is covered by section 36(1)(va) read with section 2(24)(x) of the Act. As such, the provision of s. 36(1)(va), which provides for the deduction of the said sum/s to be subject to payment by the due date of deposit under the relevant statute, shall prevail. The said issue has in fact been the subject matter of consideration by the special bench of the Tribunal in CIT v. ITC Ltd. [2008] 112 ITD 57 (Kol)(SB), holding likewise (paras 55-56/pgs.102-104). There was, therefore, it stands explained, no question of applicability of section 43B to such sums. The matter stands discussed again in extenso by the tribunal per its decision in the case of ITO v. LKP Securities Ltd. [2013] 36 CCH 093 (Mum)[in ITA Nos. 638 & 1093/Mum/2012 dated 17.05.2013]. Even if, it stands explained therein, s. 43B is considered as applicable, being a non obstante clause, it would come into play only where the relevant payment/s is otherwise allowable, i.e., under any other provision of the Act, being a condition precedent for the applicability of section 43B. The same being not deductible under the relevant provision, i.e., section 36(1)(va) r/w s. 2(24)(x), no occasion for invocation of section 43B arises. In other words, even assuming section 43B to be applicable to the employee’s contribution to the said funds would be of little moment. This is as section 43B stipulates a payment criteria, irrespective of the method of accounting followed by the assessee, for deduction qua the sums specified thereunder, which stands rendered superfluous, with section 36(1)(va) also providing the same, i.e., the condition of payment, for the allowability of deduction there-under, and which is rather more stringent than that provided by section 43B. Further on, hon’ble Gujarat High Court has also recently, i.e., vide its decision in CIT v. Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 (Guj) (copy on record), relied upon by the Revenue before us, dealt with the matter in considerable detail, stating that the issue stands squarely covered by the relevant provisions, so that the deduction of the employee’s contribution to the relevant funds would stand to be governed by the provisions of section 36(1)(va) r/w s. 2(24)(x), distinguishing and disapproving the several decisions by other High Courts advanced before it.

(ii) Be that as it may, the ld. Authorized Representative (AR), cited before us the decision by the hon’ble jurisdictional High Court in CIT v. Hindustan Organics Chemicals Ltd (2014) 270 CTR 478 (Bom), placing a copy of the same on record, wherein the honb’le court has held the deduction in respect of employee’s contribution as valid where deposited by the assessee-employer before the due date of filing of its return of income for the relevant year. True, the issue before the hon’ble court, as raised by the Revenue, was not the applicability or otherwise of the provisions of s. 36(1)(va) r/w s. 2(24)(x) to the impugned sum/s – which is the issue under reference and, further, as discerned by us. The hon’ble court was thus not called upon to answer the same; rather, proceeded on the basis of the deduction qua the relevant sum/s as being covered u/s. 43B, so that the issue was of the retrospectivity of the amendment to s. 43B by way of omission of the first proviso thereto, bringing the deductibility of the said sums at par with others covered by the said provision. However, again, it cannot be denied that per the said decision, which is judicially binding on us, the hon’ble court has abundantly clarified that the deduction in respect of the employee’s contribution (to the employee welfare funds) in the hands of the assessee-employer is governed by the provision of section 43B, so that where deposited by the due date of the filing of the return for the relevant year, shall be valid in terms of the amended s.43B, i.e., by Finance Act 2003, with effect from 01.04.2004, which amendment stands held by the apex court in Alom Extrusions Ltd. (supra) to the retrospective, so that it shall apply even to years prior to A.Y.2004-05. The hon’ble court, we note, does not discuss nor refer to any judicial precedents. The question of law framed by the Department, as well as its representation before the hon’ble court, leaves much to be desired. That, however, would not in any manner detract from or dilute its binding nature on us as a subordinate forum. We are not mentioning any of the decisions by the other high courts, also relied upon before us by the ld. AR. The reason is simple. None of them, which are not binding on us, as explained by the hon’ble Gujarat High Court, before which, likewise, several decisions by other high courts were cited in Gujarat State Road Transport Corporation (supra), address the pertinent issue, i.e., whether the impugned sums are at all governed by s. 43B, but proceed on the basis that it does, so that the issue is reduced to the year since which the amended s. 43B is applicable, which is in any case applicable for the current year. And, accordingly, constitutes the principal reason for the said court being not moved by the said decisions. In fact, as explained hereinbefore, even assuming so would also not assist the assessee’s case inasmuch as s. 43B provides an additional condition qua sums otherwise allowable, so that the provision of s. 36(1)(va) r/w s. 2(24)(x) would in any case have to be complied with or satisfied. Under the circumstances, notwithstanding the decisions holding otherwise cited in this order; the rationale of which stands also explained by us, or at bar, we, respectfully following the decision by the jurisdictional High Court in Hindustan Organics Chemicals (supra), allow the assesee’s claim; it being admitted that the impugned payments were made well before the due date of the filing the return of income for the relevant year. Further, the fact that some of the impugned payments, admittedly made after the due dates under the relevant statutes, are outside the grace period allowed by the administrative or legal injunction (for the purpose of levy of interest, penalty, etc.), even as stated by the AO in his order, would be in this view of the matter of no consequence.