M/S.h.p. Tourism Development Corporation Ltd. … v. Commissioner Of Income Tax

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA I.T.A No. 36 of 2007 Reserved on: 1.12.2009 Date of decision: 16.12.2009 M/s.H.P. Tourism Development Corporation Ltd. …. Appellant Versus Commissioner of Income Tax Coram: ….. Respondent The Hon’ble Mr. Justice Deepak Gupta, J. The Hon’ble Mr.Justice V.K.Ahuja, J. Whether approved for reporting? Yes For the appellant: Mr.Vishal Mohan, Advocate. For the respondent: M/s.Vinay and Vandana Kuthiala Advocates Deepak Gupta, J. This appeal was admitted on the following substantial questions of law:- “1. Whether the learned Tribunal was correct in law in upholding the disallowance made on account of payments made qua the contribution to Employees Provident Fund after the due date prescribed under the said Act but before the due date of filing of the return of income? 2. Whether in the facts and circumstances of the case the learned Tribunal is justified in holding that the amendment which were made by Finance Act, 2003 w.e.f. 1.4.2004 vide which the second proviso to Section 43B stands omitted, was not curative and hence not retrospective in operation relying upon only on the judgment of the Hon’ble High Court of Madras and ignoring all other law on the same?” The main question which arises for determination in this appeal is whether omission [deletion] of the second proviso to Section 43-B of the Income Tax Act, 1961, by the Finance Act, 2003, operates with effect from 1st April, 2004, or whether it operated retrospectively with effect from 1st April, 1988? The admitted facts of the case are that the assessee deposited the amount of provident fund due to its employees prior to the due date of filing of the return of income under the Income Tax Act but the same was not deposited within the time prescribed under the Employees’ Provident Fund Act. Prior to deletion of the second proviso by the Finance Act, 2003, the second proviso to Section 43-B of the Income Tax Act, 1961 [for short, "the Act"] restricted the deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees only to the amounts paid by the due date specified in the Act under which the payment was made. According to the first proviso which relates to payments other than payments of employees provident fund etc. if the payment was made before the due date fixed for filing of the return of income and necessary evidence of such payment was enclosed with the return of income then such payment was deductible. Sh.Vishal Mohan contends that to bring the payments made under clause (b) of Section 43B in consonance with the other payments covered by the said section, the second proviso was deleted and as per the terms of the first proviso since the amount was paid before the date fixed for filing of return, the amount should be permitted to be deducted. On behalf of the assessee, it is urged that the deletion of the second proviso is curative in nature and must be given retrospective effect. However, according to the revenue, the omission of the second proviso by which relief is given to the assessee is effective only from 1[st] April, 2004 and will not apply to the present case since the present case relates to the assessment years 2002-03 and 2003-04. It is not disputed that in case the deletion of the second proviso is not held to be retrospective then the assessee would not be entitled to deduction of the amount paid as contribution to employees provident fund since the payment was admittedly made after the due date fixed under the Employees’ Provident Fund Act. However if it is held that this amendment is retrospective in nature then the assessee would be entitled to claim deduction of such amounts. This matter is no longer res integra. The Apex Court in Commissioner of Income Tax Vs. M/s.Alom Extrusions Limited and other connected matters, Civil Appeal No.7771 of 2009 decided on 25.11.2009 has dealt with this question. It held as follows:- This matter is no longer res integra. The Apex Court in Commissioner of Income Tax Vs. M/s.Alom Extrusions Limited and other connected matters, Civil Appeal No.7771 of 2009 decided on 25.11.2009 has dealt with this question. It held as follows:- “We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Section 43-B [main section], which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non-obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Merchantile System of Accounting. At the same time, Section 43-B [main section] made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act [octroi] and other Tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under the Income Tax Act [due date], the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only fee. to tax, duty, cess and It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under Social Welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Limited vs. Commissioner of Income Tax, reported in [1997] 224 I.T.R.677, the Scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax law should be disallowed under Section 43- B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, as stated above, was inserted with effect from 1[[st]]It is also relevant to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited (supra). However, the assessee contended that even though income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, as stated above, was inserted with effect from 1[[st]]It is also relevant to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited (supra). However, the assessee contended that even though inserted with effect from 1[[st]] April, 1984. the first proviso came to be inserted with effect from 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when Section 43-B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Limited (supra). This Court, in Allied Motors (P) Limited (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Limited (supra), held that the first proviso was curative in nature, hence, retrospective in operation with effect from 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P) Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively with effect from 1st April, 1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and [when the first proviso stood inserted]. the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43-B of the Act. In our view, Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43-B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. Before concluding, we extract hereinbelow the relevant observations of this Court in the case of Commissioner of Income Tax, Bangalore vs. J.H. Gotla, reported in [1985] 156 I.T.R. 323, which reads as under: "We should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then another construction is possible apart if from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction." For the afore-stated reasons, we hold that Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate with effect from 1st April, 1988 [when the first proviso came to be inserted].” In view of the law laid down by the Apex Court, both the questions have to be decided in favour of the assessee and against the revenue. The appeal is accordingly allowed with no order as to costs. ( Deepak Gupta ) Judge December 16, 2009 (V.K.Ahuja) (m) Judge