Principal Commissioner Of Income Tax Jaipur-Ii, Jaipur v. Rajasthan Rajya Vidhut Utpadan Nigam Ltd., Vidyut Bhawan,Janpath Marg, Jyoti Nagar, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 248/2018 Principal Commissioner of Income Tax Jaipur-II, Jaipur ----Appellant Versus Rajasthan Rajya Vidhut Utpadan Nigam Ltd., Vidyut Bhawan,Janpath Marg, Jyoti Nagar, Jaipur ----Respondent For Appellant : Mr. Anuroop Singhi withMr. N.S. Bhati and Mr. Aditya KhandelwalFor Respondent: Mr. Prakul Khurana withMr. Rajat Sharma HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE ASHUTOSH KUMAR 25/09/2024 Order -AVNEESH JHINGAN, J: 1.This appeal is filed under Section 260A of the Income TaxAct, 1961 (for short ‘the Act’) against the order dated27.02.2018passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur(for short ‘the Tribunal’). 2.The brief facts are that the respondent-company is engagedin distribution of electricity. The return for assessment year 2005-06 was filed and the assessment was finalized under Section143(3) of the Act. The two issues arose in the assessmentproceedings. Firstly, can deduction be allowed if employees’ shareof provident fund is deposited beyond the date stipulated in theemployees’ provident funds and Miscellaneous Provisions Act,1952 (for short ‘EPF Act’) and Employees’ State Insurance Act, 1948 (for short ‘ESI Act’). Secondly, the effect of late deposit ofTDS claiming deduction of the expenditure. 3.The appeal filed by the respondent was accepted by theCommissioner of Income Tax (Appeal) and the appeal filed by theappellant was dismissed by the Tribunal, hence this appeal. 4.The appeal was admitted on 19.05.2023 on the followingsubstantial questions of law:- “(1) Whether the view taken by the ITATthat employees’ contribution to ProvidentFund and ESI is governed by theprovisions of Section 43B of the IncomeTax Act, 1961 and not by Section 36(1)(va) read with Section 2(24)(x) of theIncome Tax Act, 1961 is sustainable inlaw in view of the decision of the Hon’bleSupreme Court in the case of CheckmateServices P Ltd Vs. Commissioner ofIncome Tax-I (Civil Appeal No.2833 of2016 decided on 12.10.2022)? (2)Whether in the facts andcircumstances of the case, the ITAT wasjustified in law in deleting addition ofRs.37295533/- made for depositing theemployees’ contribution to Provident Fundbeyond the prescribed time limit providedin the respective Acts? (3) Whether in the facts andcircumstances of the case the ITAT wasjustified in law in confirming the decisionof the CIT(A) regarding the disallowanceof Rs.131473/- made u/s. 40(a)(ia) onaccount of late deposition of TDSobserving that amendment to section40(a)(ia) made by the finance Act 2010was retrospective in nature?” 5.Heard learned counsel for the parties. 6.The substantial questions No.1 and 2 are covered by thedecision of the Supreme Court in the case of CheckmateServices Pvt. Ltd. Vs. Commissioner of Income Tax-1 reported as (2022) 448 ITR 518. It was held that share of theemployee in the Provident Fund deducted by the Employer has tobe deposited as per the due date fixed by the EPF Act and ESI Actand not as per Section 43B of the Act. There is no leeway with theassessee in depositing of amount of employees contribution underEPF Act and ESI Act, beyond the due date as prescribed by therespective Act. It is only on the deposit of amount in compliancewith the provisions of the EPF Act and ESI Act, the retainedamount is treated for deduction. The relevant portion of the judgment is quoted below:- 6.The substantial questions No.1 and 2 are covered by thedecision of the Supreme Court in the case of CheckmateServices Pvt. Ltd. Vs. Commissioner of Income Tax-1 reported as (2022) 448 ITR 518. It was held that share of theemployee in the Provident Fund deducted by the Employer has tobe deposited as per the due date fixed by the EPF Act and ESI Actand not as per Section 43B of the Act. There is no leeway with theassessee in depositing of amount of employees contribution underEPF Act and ESI Act, beyond the due date as prescribed by therespective Act. It is only on the deposit of amount in compliancewith the provisions of the EPF Act and ESI Act, the retainedamount is treated for deduction. The relevant portion of the judgment is quoted below:- “54. In the opinion of this Court, thereasoning in the impugned judgmentthat the non-obstante clause would notin any manner dilute or override theemployer's obligation to deposit theamounts retained by it or deducted by itfrom the employee's income, unless thecondition that it is deposited on or beforethe due date, is correct and justified. Thenon-obstanteclause has to beunderstood in the context of the entireprovision of Section 43B which is toensure timely payment before thereturns are filed, of certain liabilitieswhich are to be borne by the assessee inthe form of tax, interest payment andother statutory liability. In the case ofthese liabilities, what constitutes the duedate is defined by the statute.Nevertheless, the assessees are givensome leeway in that as long as depositsare made beyond the due date, butbefore the date of filing the return, thededuction is allowed. That, however,cannot apply in the case of amountswhich are held in trust, as it is in thecase of employees' contributions- whichare deducted from their income. Theyare not part of the assessee employer'sincome, nor are they heads of deduction per se in the form of statutory pay out.They are others' income, monies, onlydeemed to be income, with the object ofensuring that they are paid within thedue date specified in the particular law.They have to be deposited in terms ofsuch welfare enactments. It is upondeposit, in terms of those enactmentsand on or before the due datesmandated by such concerned law, thatthe amount which is otherwise retained,and deemed an income, is treated as adeduction. Thus, it is an essentialcondition for the deduction that suchamounts are deposited on or before thedue date. If such interpretation were tobe adopted, the non-obstante clauseunder Section 43B or anything containedin that provision would not absolve theassessee from its liability to deposit theemployee’s contribution on or before thedue date as condition for deduction.” 7.In view of the decision of the Supreme Court in the case ofCheckmate (supra) the substantial questions No.1 and 2 areansweredin favour of the appellant-Department. 8.The substantial question No.3 is with regard to the date ofapplicability of amendment made to the Section 40(a)(ia) in theFinance Act, 2010 is no longer res-integra. 9.The Supreme Court in the case of Commissioner ofIncome Tax Kolkata XII Vs. Calcutta Export Companyreported as [2018] 404 ITR 654 (SC) held that the amendmentis retrospective and shall apply with effect from the assessmentyear 2005-2006. The relevant portion of the judgment is quotedbelow:- “30. Hence, in light of the forgoingdiscussion and the binding effect of thejudgment given in Allied Motors (supra),we are of the view that the amended 7.In view of the decision of the Supreme Court in the case ofCheckmate (supra) the substantial questions No.1 and 2 areansweredin favour of the appellant-Department. 8.The substantial question No.3 is with regard to the date ofapplicability of amendment made to the Section 40(a)(ia) in theFinance Act, 2010 is no longer res-integra. 9.The Supreme Court in the case of Commissioner ofIncome Tax Kolkata XII Vs. Calcutta Export Companyreported as [2018] 404 ITR 654 (SC) held that the amendmentis retrospective and shall apply with effect from the assessmentyear 2005-2006. The relevant portion of the judgment is quotedbelow:- “30. Hence, in light of the forgoingdiscussion and the binding effect of thejudgment given in Allied Motors (supra),we are of the view that the amended provision of Sec.40(a)(ia) of the IT Actshould be interpreted liberally andequitable and applies retrospectivelyfrom the date when Sec.40(a)(ia) wasinserted i.e., with effect from theAssessment Year 2005-2006 so that anAssessee should not suffer unintendedand deleterious consequences beyondwhat the object and purpose of theprovisionmandates.Asthedevelopments with regard to the Sectionrecorded above shows that theamendment was curative in nature, itshould be given retrospective operationas if the amended provision existed evenat the time of its insertion. Since theAssessee has filed its returns on01.08.2005 i.e., in accordance with thedue date under the provisions of Section139 IT Act, hence, is allowed to claim thebenefit of the amendment made byFinance Act, 2010 to the provisions ofSec.40(a)(ia) of the IT Act.” 10.In view of the decision of the Supreme Court, the substantialquestion No.3 is decided against the appellant-Department and infavour of the assessee. 11.In view of the above, the appeal is accordingly disposed of. (ASHUTOSH KUMAR),J(AVNEESH JHINGAN),J Aarzoo Arora/ Riya /72 Whether Reportable : Yes