The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has held that failure to pay within due date under Provident Fund (PF) Act will be negating the employer’s claim for deduction permanently forever under section 36(1)(va) of Income Tax Act, 1961.
Chase Security, the assessee raised an issue about whether the Revenue authorities were justified in disallowing payment made to ESI/PF being employees’ share of contribution under section 36(1)(va) of the Income Tax Act, 1961(‘the Act’).
The fund includes contributions from the employer and employee both, calculated in the prescribed manner under the relevant Act. As per Employee’s Provident Fund Scheme, 1952, the contribution towards the provident fund has to be deposited within fifteen days of the close of every month. Similar provisions are contained in the Employees State Insurance Act, of 1948.
The employer is under statutory obligation to deduct the employee’s contribution from the salary/wages etc. payable/paid to an employee every month and deposit the same on or before the 15th of the succeeding month in the specified fund, irrespective of whether the salary, wages etc. have been paid or not.
Theamount deducted from the employees is held in a fiduciary capacity by the employer and has to be deposited within the prescribed due date under the respective specified fund. Therefore, it is first treated as income in the hands of the employer in computing its profits & gains of business and profession under the Income Tax Act and thereafter it is allowed as a business deduction only if it has been paid within the prescribed due date.
A Coram comprising of Shri N V Vasudevan, Vice President observed that the distinction between the two contributions i.e. employer’s contribution and employee contribution was further elucidated by the CBDT’s Circular No. 22/2015 dated 17th December 2015, wherein it was clarified that no disallowance shall be made for the employer’s share of the contribution referred to in clause (b) section 43B which is deposited before ‘due date’ of filing of return of Income u/s 139(1) of the Income Tax Act, 1961.
Further viewed that the result of any failure to pay within the prescribed dates leads to different results. In the case of the employee’s contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating the employer’s claim for deduction permanently forever u/s.36(1)(va).
The Tribunal held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates. The result of any failure to pay within the prescribed dates also leads to different results. In the case of an employee’s contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating the employer’s claim for deduction permanently forever u/s.36(1)(va).
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