In a significant ruling, the Supreme Court held that income tax deduction under section 36(1)(va) and section 43B of the Income Tax Act, 1961shall not be available to the late deposit of contributions towards the Employees’ Provident Funds Scheme and the Employees’ State Insurance Act, 1948.
The petitioner, M/s Checkmate Services Pvt Ltd, alongwithBerger Paints India Ltd and Others approached the High Court challenging the High Court judgment denying the deduction.
A division bench of the Apex Court comprising Justice S. Ravindra Bhat, Justice Uday Umesh Lalitand Justice Sudhanshu Dhulia observed that “There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers’ contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available.”
Upholding the impugned High Court order, the Apex Court held that “Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction.”
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