DCIT Corporate Circle 5(1), CHENNAI V. Repco Home Finance P Ltd., CHENNAI

ITA 2885/CHNY/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0586 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 28-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M VISWANATHAN
• Keywords: Business income; Business expenditure; Earning of tax free income; Question of law; Bad and doubtful debts; Difference of opinion; Benefit of exemption; Rule 8D; Set aside; Liquidation
• Section: 43B; 143(3); 14A; 80P; 201; 143(2); 139(1); 64; 113; 43; 48; 73; 72; 13; 119; 22; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTANT MEMBER HEARD THROUGH VIDEO CONFERENCING ./ ITA NO.2885/CHNY/2017 !' # /ASSESSMENT YEAR: 2013-14 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-5(1), CHENNAI-600034 V. M/S. REPCO HOME FINANCE PVT. LTD., 33, NORTH USMAN ROAD, T.NAGAR, CHENNAI 600 017. [PAN: AAACR 0209 F] ( / APPELLANT) ( /RESPONDENT) $ % & / APPELLANT BY : SHRI ARV SREENIVASAN, JCIT '( $ % & /RESPONDENT BY : SHRI M. VISWANATHAN, C.A ) * % + / DATE OF HEARING : 03 - 0 6 - 20 20 ,#' % + / DATE OF PRONOUNCEMENT : 17 - 0 6 - 20 20 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL FILED BY REVENUE IS DIRECTED AGAINST AP PELLATE ORDER DATED 30.08.2017 PASSED BY LEARNED COMMISSIO NER OF INCOME TAX (APPEALS)-3, CHENNAI (HEREINAFTER CALLED THE CIT(A)), ITA NO.2885/CHNY/2017 :- 2 -: IN ITA NO.51/2016-17/CIT(A)-3 , FOR ASSESSMENT YEA R (AY) 2013- 14, THE APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) HAD ARISEN FROM ASSESSMENT ORDER DATED 29.03.2016 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/ S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . THE APPELLATE PROCEEDINGS ARE CONDUCTED BY INCOME-TAX APPELLATE T RIBUNAL, CHENNAI BENCH A, CHENNAI THROUGH VIRTUAL COURT. 2. THE GROUNDS OF APPEAL RAISED BY REVENUE IN MEMO OF APPEAL FILED WITH INCOME-TAX APPELLATE TRIBUNAL, CHENNAI ( HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE ORDER OF THE LD CIT(A) IS CONTRARY TO LAW A ND FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 THE LD CIT(A) ERRED IN DELETING THE DISALLOWANC E EFFECTED U/S. 14A R.W.R 8D MADE BY THE AO TO THE TU NE OF RS.4,02,500/-, HOLDING THAT THE DISALLOWANCE CANNOT BE MADE IN THE ABSENCE OF EXEMPT INCOME EARNED DURING A YEAR. 2.2 THE LD CIT(A) ERRED IN DELETING THE DISALLOWANC E MADE U/S. 14A R.W.R 8D, WITHOUT APPRECIATING THE FACT TH AT THE ASSESSEE HAD INVESTMENTS TO THE TUNE OF RS.8.05 CRO RES, CAPABLE OF EARNING EXEMPT INCOME, THEREBY ATTRACTIN G THE PROVISIONS OF SEC. 14A READ WITH RULE 8D. 2.3 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE HAS HELD THAT THE PROVISIONS OF SUB SECTIONS (2) AN D (3) OF SECTION 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID AND THAT THE PROVISIONS OF R ULE 8D OF THE INCOME TAX RULES AS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRES TH E PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SE CTION (2) AND DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTIO N. 2.4 THE CIT(A) ERRED IN PLACING RELIANCE ON THE HON BLE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF M/S. ITA NO.2885/CHNY/2017 :- 3 -: REDINGTON (INDIA) LTD, SINCE THE DECISION WAS MADE IN THE CONTEXT OF PROVISIONS OF SEC. 14A AS IT EXISTED DUR ING THE ASSESSMENT YEAR 2007-08. IN THE INSTANT CASE THE ASSESSMENT YEAR INVOLVED IS 2013-14 FOR WHICH THE AMENDED PROVISIONS OF SEC. 14A R.W. RULE 8D IS APPLICABLE. 2.5 THE ID CIT(A) OUGHT TO HAVE NOTED THAT AS PER T HE DECISION OF THE HONBLE MUMBAI BENCH OF THE TRIBUNA L IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT PRIVATE LIMITED (117 ITR 169), RULE 8D IS APPLICABLE IN ALL CASES WHEREIN EVEN THERE IS NO EXEMPT INCOME IS EARNED. 2.6 THE LD CIT(A) FAILED TO NOTE THAT THE BOARD, VI DE CIRCULAR NO.5 OF 2014, HAS CLARIFIED THAT THE DISAL LOWANCE IS APPLICABLE EVEN IN CASES WHERE NO EXEMPT INCOME WAS EARNED DURING THE YEAR, BUT THERE IS A POSSIBILITY OF EARNING THE EXEMPT INCOME. 3.1 THE LD CIT(A) ERRED IN DIRECTING THE AO TO COMP UTE THE DEDUCTION U/S 36(1)(VIII) BY INCLUDING THE LOAN S CLASSIFIED AS SHORT TERM LOANS & ADVANCES SINCE T HEY ALSO RELATE TO LONG TERM LOANS ADVANCED FOR THE PUR POSE OF HOUSING, BUT CLASSIFIED AS SHORT TERM LOANS, AS PER THE REQUIREMENT OF SCHEDULE VI OF THE COMPANIES ACT. 3.2 THE LD CIT(A) FAILED TO APPRECIATE THAT THE LOA NS GIVEN BY THE ASSESSEE COMPANY TO THE INDIVIDUALS ARE FOR DIFFERENT PURPOSES AND THEY CANNOT BE GROUPED TOGET HER UNDER ONE ROOF AS LONG TERM LOANS AND INCLUDED WHIL E COMPUTING THE DEDUCTION U/S 36(1)(VIII). 3.3 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE LOANS ARE GIVEN AGAINST MORTGAGE OF PROPERTIES FOR MANY PURPOSES SUCH AS REPAIRS AND RENOVATION OF PROPERTI ES, PURCHASE OF PLOTS ETC., AS PER THE WISH OF THE BORR OWERS WHICH CANNOT BE GROUPED UNDER ONE HEAD AS LONG TER M LOANS AND ACCORDINGLY THE AO IS JUSTIFIED IN EXCLU DING SUCH SHORT TERM LOANS FROM THE PURVIEW OF SEC.36(1) (VIII) OF THE ACT. 4.1 THE ID CIT(A) ERRED IN DELETING THE DISALLOWANC E U/S 36(1)(VA) R.W.S 2(24)(X) MADE BY THE AO TO THE TUNE OF RS.6,31,788/- ON EMPLOYEES CONTRIBUTION TOWARDS PF , ON ACCOUNT OF BELATED REMITTANCE INTO GOVERNMENT ACCOU NT, NOT CONFORMING TO THE DUE DATES AS PER RELEVANT ACT S. 4.2 THE LD CIT(A) FAILED TO NOTE THAT AS PER THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS MADRAS RADIATORS AND PRESSING LIMITED (2003) 129 TAXMANN 7 09, THE EMPLOYEES CONTRIBUTION RECEIVED BY THE EMPLOYE R ITA NO.2885/CHNY/2017 :- 4 -: WOULD BE INCOME IN HIS HANDS AND THAT WOULD BE ALLO WED AS PERMISSIBLE DEDUCTION UNDER CLAUSE (VA) OF SEC.3 6(1) IN COMPUTING THE BUSINESS INCOME U/S 28, PROVIDED T HE ASSESSEE CREDITS THE SAME TO THE RELEVANT FUND AS P ER THE DUE DATES SPECIFIED. 4.3 THE LD CIT(A) OUGHT TO HAVE NOTED THAT AS PER T HE DECISION OF THE HONBLE GUJARATH HIGH COURT IN THE CASE OF CIT II VS GUJARATH STATE ROAD TRANSPORT CORPORATION , AS PER THE DEFINITION OF INCOME AS PER SEC.2(24)(X), ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTION TO ANY PF OR SUPERANNUATION FUND ETC., AS PER THE RELEVANT ACTS, IS TO BE TREATED AS INCOME A ND THE EMPLOYER-ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION OF SUCH AMOUNT AS PER EXPLANATION TO SEC.36(1)(V) ONLY WHEN THE SAME IS CREDITED INTO THE RELEVANT FUND WITHIN THE DUE DATES SPECIFIED UNDER THOSE ACTS. 4.4 THE LD CIT(A) FAILED TO NOTE THAT IN THE CASE O F M/S GUJARATH STATE ROAD TRANSPORT CORPORATION, THE HON BLE GUJARATH HIGH COURT HAS CLEARLY DISCUSSED THAT THE HONBLE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LIMITED, NEVER HAD THE OCCASION TO CONSIDER THE DED UCTION U/S 36(1)(VA) WITH RESPECT TO EMPLOYEES CONTRIBUTI ON AND THE ONLY CONTROVERSY BEFORE THE SUPREME COURT WAS W ITH RESPECT TO THE AMENDMENT (DELETION) OF SECOND PROVI SO TO SEC.43B OPERATIVE W.E.F 1.4.2004 OR WHETHER IT OPER ATES RETROSPECTIVELY W.E.F 1.4.1988 ? 4.5 THE ID CIT(A) FAILED TO NOTE THAT THE BOARD ITS ELF HAS DIFFERENTIATED BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUTION TO FUNDS, VIDE BOARDS CIRC ULAR NO. 22/2015 DATED 17-12-2015, WHEREIN IT HAS BEEN CLARIFIED THAT THE HONBLE APEX COURTS DECISION IN THE CASE OF CIT VS ALOM EXTRUSION LIMITED, HAS BEEN ACCEPTED WITH REGARD TO EMPLOYERS CONTRIBUTION ONLY AND DOES NOT APPLY TO THE CLAIM OF DEDUCTION UNDER EMPLOYEES CONTRIBU TION. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASS ESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A HOUSING FINANCE COMPANY WHICH DULY HOLDS REGISTRATION CERTI FICATE GRANTED BY NATIONAL HOUSING BANK. ITA NO.2885/CHNY/2017 :- 5 -: 4. THE GROUND NUMBER 1 RAISED BY REVENUE IN MEMO OF APPEAL FILED WITH TRIBUNAL IS GENERAL IN NATURE AND DOES NOT REQ UIRE SEPARATE ADJUDICATION , HENCE , GROUND NUMBER 1 RAISED BY RE VENUE IN ITS MEMO OF APPEAL FILED WITH TRIBUNAL STAND DISMISSED AS BE ING GENERAL IN NATURE. WE ORDER ACCORDINGLY. 5. THE FIRST EFFECTIVE ISSUE AGITATED BY REVENUE BE FORE THE BENCH IN ITS APPEAL FILED WITH TRIBUNAL VIDE GROUND NUMBER 2.1 T O 2.6 IS WITH RESPECT TO DISALLOWANCE BY AO OF EXPENDITURE INCURR ED IN RELATION TO EARNING OF AN EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION 14A OF THE 1961 ACT READ WITH RULE 8D(2)(III) OF THE INCOM E-TAX RULES, 1962, TO THE TUNE OF .4,02,500/- , WHICH DISALLOWANCE ON FIRST APPEAL FI LED BY ASSESSEE WITH LEARNED CIT(A) STOOD DELETED BY LEARN ED CIT(A) ON THE GROUND THAT THE ASSESSEE HAS NOT RECEIVED ANY EXEMP T INCOME DURING THE YEAR UNDER CONSIDERATION . SINCE NO EXEMPT INC OME WAS RECEIVED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION, LE ARNED CIT(A) WAS PLEASED TO DELETE ENTIRE DISALLOWANCE OF EXPENDIT URE TO THE TUNE OF .4,02,500/- AS WAS MADE BY THE A.O. , BY FOLLOWING DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RE DINGTON (INDIA) LTD. V. ADDL. CIT REPORTED IN (2017) 392 ITR 633(MADRAS) , AND OF CO- ORDINATE DIVISION BENCH OF THE CHENNAI TRIBUNAL IN THE CASE OF ACIT V. ITA NO.2885/CHNY/2017 :- 6 -: M.BASKAAN IN I.T.A. NO. NO.1717/MDS/2013 DATED 31.0 7.2014 FOR AY: 2009-10. 5.2 BEFORE THE BENCH DURING THE COURSE OF HEARING , LD. D.R, AT THE OUTSET, PLACED RELIANCE ON THE ASSESSMENT ORDER PAS SED BY AO AND DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 14A OF THE 1961 ACT, AND SUBMITTED BEFORE THE BENCH THAT DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME A S WAS MADE BY AO WHILE FRAMING ASSESSMENT, OUGHT TO HAVE BEEN UPHEL D BY LEARNED CIT(A) AS THE ASSESSEE HAS MADE INVESTMENT TO THE T UNE OF .8.05 CRORES IN SECURITIES , WHICH ARE CAPABLE OF EARNING AN EXEMPT INCOME ALBEIT ADMITTEDLY NO EXEMPT INCOME WAS RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . IT IS ADMITTE D BY LEARNED DR THAT NO EXEMPT INCOME WAS RECEIVED BY THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION. THE LD. A.R ON THE OTHER HAND SUBMI TTED THAT THERE WAS NO EXEMPT INCOME EARNED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND HENCE, THERE IS NO QUESTION OF DI SALLOWANCE OF ANY EXPENDITURE BEING INCURRED IN RELATION TO EARNING O F AN EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION 14A OF THE 1961 A CT. 5.3 WE HAVE HEARD BOTH THE PARTIES THROUGH VIDEO CO NFERENCING AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS AN ADMITTED POSITION NOW BETWEEN RIVAL PARTIES THAT THE ASSESSEE HAS NOT EARNED/RECEIVED ANY DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERA TION AND HENCE, ITA NO.2885/CHNY/2017 :- 7 -: NO EXEMPTION OF INCOME WAS SOUGHT TO BE CLAIMED BY ASSESSEE IN THE RETURN OF INCOME FILED BY IT WITH REVENUE. WE HAVE ALSO OBSERVED THAT ALTHOUGH IN THE ASSESSMENT ORDER, THE A.O. HAS STAT ED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF .23,34,346/-, BUT THE LEARNED CIT(A) AFTER PERUSAL OF THE AUDITED FINANCI AL STATEMENT FILED BY ASSESSEE COMPANY, HAD OBSERVED THAT THE A.O. HAS WR ONGLY TREATED INTEREST EARNED ON DEPOSITS WITH THE BANK AS DIV IDEND INCOME AND A CATEGORICAL FINDING IS GIVEN BY LEARNED CIT(A) THAT THE ASSESSEE DID NOT RECEIVED ANY EXEMPT INCOME DURING THE YEAR UNDER CO NSIDERATION . THIS FINDING OF LEARNED CIT(A) THAT THE ASSESSEE HAS NOT EARNED/RECEIVED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATI ON HAS NOT BEEN CHALLENGED/REBUTTED BY REVENUE BEFORE THE TRIBUNAL , NEITHER IN THE GROUNDS OF APPEAL RAISED BY REVENUE BEFORE THE TRIB UNAL NOR BY LEARNED DR BEFORE THE BENCH DURING THE COURSE OF HE ARING OF THIS APPEAL. THE LD. D.R. INFACT ADMITTED BEFORE US TH AT NO EXEMPT INCOME WAS EARNED/RECEIVED BY THE ASSESSEE DURING T HE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS ALSO PRODUCED BEFOR E US RELEVANT PORTION OF ITS AUDITED FINANCIAL STATEMENT, ON PERU SAL OF WHICH WE HAVE OBSERVED THAT THE ASSESSEE HAS EARNED INTERES T ON DEPOSITS WITH THE BANK TO THE TUNE OF .23,34,346/-(PLACED AT PAGE NO.4 OF PAPER BOOK/SCHEDULE BEING NOTE 16 OF THE AUDITED FINANCIA L STATEMENTS UNDER THE HEAD OTHER INCOME INTEREST ON DEPOSITS WITH BANK-RS. ITA NO.2885/CHNY/2017 :- 8 -: 23,34,346/-), WHICH WAS INFACT CONSIDERED BY AO TO BE DIVIDEND INCOME AND LATER RECTIFIED BY LEARNED CIT(A). THUS, KEEPING IN VIEW OF THE FACTUAL POSITION AS IS EMANATING FROM THE RECOR DS THAT THE ASSESSEE HAS NOT RECEIVED/EARNED ANY EXEMPT INCOME DURING TH E YEAR UNDER CONSIDERATION, WE ARE OF CONSIDERED VIEW THAT NO DI SALLOWANCE OF EXPENDITURE BEING INCURRED IN RELATION TO EARNING O F AN EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION 14A OF THE 1961 A CT IS WARRANTED IN THIS CASE. WE HAVE ALSO OBSERVED THAT HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF C.I.T, CHENNAI 1, CHENNAI V. M/S.CHE TTINAD LOGISTICS PVT LTD., IN T.C.A NO.24 OF 2017 DATED 13.03.2017 FOR A Y: 2011-12, REPORTED IN (2017) 248 TAXMAN 55(MAD.) HAS HELD THA T NO DISALLOWANCE OF EXPENDITURE U/S 14A OF THE 1961 ACT IS WARRANTED WHEN THERE IS NO EXEMPT INCOME RECEIVED BY TAX-PAY ER. WE HAVE ALSO OBSERVED THAT HONBLE DELHI HIGH COURT IN THE CASE OF M/S.CHEMINVEST LTD., V. C.I.T REPORTED IN (2015) 378 ITR 33 (DELHI ), HAD HELD THAT NO DISALLOWANCE OF EXPENDITURE IS WARRANTED BY INVOKIN G PROVISIONS OF SECTION 14A OF THE ACT WHEN NO EXEMPT INCOME IS REC EIVED BY THE TAX- PAYER DURING THE YEAR UNDER CONSIDERATION . THUS , ON THIS SHORT REASONING ALONE THAT NO DISALLOWANCE OF EXPENDITURE INCURRED CAN BE MADE BY INVOKING PROVISIONS OF SECTION 14A OF THE 1 961 ACT WHENCE THE TAX-PAYER HAS NOT RECEIVED ANY EXEMPT INCOME DU RING THE YEAR UNDER CONSIDERATION, WE DISMISS THE GROUNDS RAISED BY REVENUE W.R.T. ITA NO.2885/CHNY/2017 :- 9 -: DISALLOWANCES MADE U/S 14A OF THE 1961 ACT AND UPHO LD DECISION OF LEARNED CIT(A) IN DELETING DISALLOWANCE OF EXPENDIT URE. THE REVENUE FAILS ON THIS ISSUE. WE ORDER ACCORDINGLY. 6. THE SECOND ISSUE, WHICH IS AGITATED BY REVENUE BEFORE THE TRIBUNAL VIDE GROUND NO. 3.1 TO 3.3 RAISED IN MEMO OF APPEAL FILED WITH TRIBUNAL, IS WITH RESPECT TO DISALLOWANCE OF RS. 8, 78,08,404/- UNDER SECTION 36(1)(VIII) OF THE 1961 ACT MADE BY THE A. O AGAINST WHICH THE ASSESSEE FILED FIRST APPEAL WITH LEARNED CIT(A) WHO WAS PLEASED TO GRANT PARTIAL RELIEF TO THE ASSESSEE. THE A.O. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS CONDUCTED U/S 143(3) READ WI TH SECTION 143(2) OF THE 1961 ACT OBSERVED THAT THE ASSESSEE H AS CLAIMED DEDUCTION U/S. 36(1)(VIII) OF THE 1961 ACT TO THE T UNE OF .23,12,14,754/-. THE AO OBSERVED THAT PROVISIONS OF SECTION 36(1)(VIII) OF THE 1961 ACT PROVIDES FOR DEDUCTION TO THE TUNE OF 20% OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS , WHI CH AS PER EXPLANATION (B) TO SECTION 36(1)(VIII) OF THE 1961 ACT , THE EL IGIBLE BUSINESS IS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PUR CHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES . THE AO OBSERVED TH AT THE ASSESSEE HAS CLAIMED DEDUCTION TO THE TUNE OF 20% OF TOTAL BUSIN ESS INCOME INSTEAD OF PROFITS DERIVED FROM PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSE S. THE A.O. OBSERVED THAT THE ASSESSEE DECLARED BUSINESS INCOME OF ITA NO.2885/CHNY/2017 :- 10 -: 106,79,59,847/- WHICH INCLUDED A SUM OF 2,64,22,322/- BEING OTHER OPERATIVE INCOME, WHICH AS PER AO NEEDS TO BE EXCL UDED FROM ELIGIBLE PROFITS SINCE THE SAME IS NOT DERIVED FROM THE ELIG IBLE TRANSACTION. THE A.O. OBSERVED THAT THE OTHER OPERATING INCOMES ARE NOT IN THE NATURE OF INCOME DERIVED FROM PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSE S AND HENCE, THESE RECEIPTS CANNOT BE INCLUDED IN TOTAL INCOME FOR THE PURPOSES OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 3 6(1)(VIII) OF THE 1961 ACT. THE AO OBSERVED THAT THESE OTHER OPERATI VE INCOME CAN BE ATTRIBUTED TO THE INCOME OF BUSINESS OF PROVIDING L ONG TERM FINANCE BUT IT CANNOT BE SAID THAT THESE ARE INCOME DERIVED FRO M THE BUSINESS OF PROVIDING LONG TERM FINANCE. THE AO RELIED UPON FOL LOWING DECISIONS TO DECIDE AGAINST THE ASSESSEE TO EXCLUDE OTHER OPERA TIVE INCOME FROM THE BUSINESS INCOME TO COMPUTE DEDUCTION U/S 36(1)( VIII) OF THE 1961 ACT : A) CIT V. STERLING FOODS (1999) 237 ITR 579(SC) , AND B) PANDIAN CHEMICALS LIMITED V. CIT REPORTED IN (20 03) 262 ITR 278(SC). 6.2 THUS, THE A.O. OBSERVED THAT AN AMOUNT OF 2,64,22,322/- BEING OTHER OPERATIVE INCOME IS TO BE FIRSTLY EXCLUDED FROM THE BUSINESS ITA NO.2885/CHNY/2017 :- 11 -: INCOME TO COMPUTE DEDUCTION U/S. 36(1)(VIII) OF THE ACT. THE A.O. FURTHER OBSERVED THAT AS PER THE BALANCE SHEET, LON G TERM LOANS AND ADVANCES OUTSTANDING AS ON 31.03.2013 WERE TO THE TUNE OF 3,320.55 CRORES, WHILE SHORT TERM LOANS AND ADVANCES OUTSTAN DING WERE TO THE TUNE OF .229.49 CRORES, TOTALING TO RS. 3550.04 CRORES FROM WHICH THE ASSESSEE IS RECEIVING INTEREST INCOME. THE A.O. FUR THER OBSERVED THAT OUT OF THE AFORESAID AMOUNT OF RS. 3550.04 CRORES, ONLY AN AMOUNT OF .2833.25 CRORES WERE GIVEN AS HOUSING LOANS TO INDI VIDUALS IN INDIA FOR PURCHASE OR CONSTRUCTION OF HOUSES FOR RESIDENT IAL PURPOSES IN INDIA, WHICH IS AN ELIGIBLE TRANSACTION TO CLAIM D EDUCTION U/S. 36(1)(VIII) OF THE 1961 ACT. THE A.O. OBSERVED FRO M THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AO, AS TO DETAILS O F VARIOUS CLASSES OF HOME LOANS SANCTIONED BY ASSESSEE THAT THE ASSESSEE HAS SANCTIONED FOLLOWING LOANS:- I) INDIVIDUAL HOME LOANS: LOAN PROVIDED FOR THE PU RPOSE OF CONSTRUCTION AND/OR PURCHASE OF RESIDENTIAL PROPERT IES. II) PLOT LOANS: LOANS GIVEN FOR THE PURPOSE OF PURC HASE OF A RESIDENTIAL PLOT PROMOTED BY HOUSING BOARD DEVELOPM ENT AUTHORITIES, REGISTERED COOPERATIVE SOCIETIES AND A PPROVED LAYOUTS CONSTRUCTING DWELLING UNIT THEREON. III) REPAIRS AND RENOVATION: THIS IS ONE TYPE OF LO NG TENURE HOUSING LOAN PROVIDED TO NEEDY PEOPLE FOR THE PURPOSE OF EX TENSION OR RECONSTRUCTING EXISTING DWELLING UNIT UNDERTAKE MAJ OR REPAIRS. ITA NO.2885/CHNY/2017 :- 12 -: IV) HOME EQUITY LOANS: THESE ARE LOAN AGAINST MORT GAGE OF IMMOVABLE RESIDENTIAL PROPERTIES. 6.3 THE A.O. FURTHER OBSERVED FROM THE WEBSITE OF T HE ASSESSEE COMPANY THAT THE ASSESSEE IS GIVING LOANS FOR PURCH ASE OR CONSTRUCTION OF COMMERCIAL PROPERTIES, PLOT LOANS FOR COMMERCIAL PROPERTIES AND PROSPERITY LOANS (LOANS AGAINST MORTGAGE OF IMMOVAB LE PROPERTY FOR SUCH PURPOSES AS MAY BE DESIRED BY THE BORROWER). T HE A.O. ALSO OBSERVED SO FAR AS PLOT LOANS ARE CONCERNED , THERE IS NO CHECKING MECHANISM AVAILABLE WITH ASSESSEE TO VERIFY WHETHER THE BORROWER HAS CONSTRUCTED ANY RESIDENTIAL HOUSE THEREAFTER OTHER THAN THE LETTER OF UNDERTAKING FROM THE BORROWER. WITH RESPECT TO LOAN S GIVEN FOR REPAIRS AND RENOVATION OF PROPERTIES, THE AO OBSERVED THAT THE SAID LOANS WERE GIVEN FOR LONG TERM BUT IT CANNOT BE SAID THAT THES E LOANS WERE UTILIZED FOR THE PURCHASE OR CONSTRUCTION OF HOUSES FOR RESI DENTIAL PURPOSES AND THE AO FURTHER OBSERVED THAT THE NAME ITSELF SU GGEST THAT THE SAID LOANS WERE FOR REPAIRS AND RENOVATION AND FURTHER T HE AO OBSERVED THAT IT COULD NOT BE ASCERTAINED WHETHER THE SAID L OANS WERE WITH RESPECT TO COMMERCIAL OR RESIDENTIAL PROPERTIES. T HE AO FURTHER OBSERVED THAT SO FAR AS PROSPERITY LOANS ARE CONCE RNED, IT CANNOT BE SAID THAT THESE LOANS ARE FOR PURPOSES OF PURCHASE/ CONSTRUCTION OF RESIDENTIAL HOUSES AND THESE LOANS ARE GIVEN AGAINS T THE MORTGAGE OF THE PROPERTY AND THE BORROWER MAY USE THE SAME FOR ANY PURPOSES AS ITA NO.2885/CHNY/2017 :- 13 -: PER THEIR WISH. THUS, THE AO REJECTED THE SUBMISSIO NS MADE BY ASSESSEE BEFORE THE AO THAT ALL THE LOANS WERE GIVE N FOR PURCHASE/CONSTRUCTION OF RESIDENTIAL HOUSE IN INDIA . 6.4 THE A.O. ALSO OBSERVED FROM ANNUAL REPORT OF TH E ASSESSEE FOR AY: 2013-14 THAT THE ASSESSEE IS PROVIDING A VARIETY OF HOME LOAN PRODUCTS FOR CONSTRUCTION AND/OR PURCHASE OF RESIDENTIAL AND COMMERCIAL PROPERTIES INCLUDING REPAIRS AND RENOVATIONS. THE A O OBSERVED THAT THE ASSESSEE APART FROM OFFERING HOME LOANS , THE ASSES SEE IS ALSO OFFERING LOANS AGAINST PROPERTIES . THE AO OBSERVED THAT HOM E LOANS TO INDIVIDUALS AMOUNTED TO .3,017 CRORES , WHILE THE LOAN AGAINST THE PROPERTY AMOUNTED TO .528 CRORES AS PER ASSESSEES OWN SEGREGATION OF LOANS. THE AO ALSO OBSERVED THAT MANAGEMENT OF T HE ASSESSEE AT PAGE NUMBER 51 OF ANNUAL REPORT HAS CERTIFIED THE E XPOSURE TO THE REAL ESTATE SECTOR WITH THE BREAKUP FOR RESIDENTIAL AND COMMERCIAL MORTGAGES . 6.5 THE A.O. RESTRICTED AND ALLOWED DEDUCTIONS U/S. 36(1)(VIII) OF THE ACT TO HOUSING LOANS, THEREBY THE A.O. ALLOWED DEDUCTI ON TO THE TUNE OF .14,34,06,350/- TO THE ASSESSEE U/S 36(1)(VIII) OF THE 1961 ACT, AS AGAINST DEDUCTION OF .23,12,14,754/- CLAIMED BY THE ASSESSEE U/S 36(1)(VIII) OF THE 1961 ACT, WHICH LED TO THE DISAL LOWANCE OF .8,78,08,404/- OF THE DEDUCTION CLAIMED BY ASSESSEE U/S 36(1)(VIII) OF ITA NO.2885/CHNY/2017 :- 14 -: THE 1961 ACT, VIDE ASSESSMENT ORDER DATED 29.03.201 6 PASSED BY AO U/S 143(3) OF THE 1961 ACT. 7. THE ASSESSEE BEING AGGRIEVED BY AN ASSESSMENT FR AMED BY AO U/S 143(3) OF THE 1961 ACT FILED FIRST APPEAL WITH LEAR NED CIT(A) AND SUBMITTED BEFORE LEARNED CIT(A) THAT THE ASSESSEE IS IN BUSINESS OF PROVIDING FINANCE FOR HOUSING AND HOLDS CERTIFICATE OF REGISTRATION GRANTED BY NATIONAL HOUSING BANK(NHB). THE ASSESSE E ALSO SUBMITTED BEFORE LEARNED CIT(A) THAT AS PER PARA-2(M) OF THE HOUSING FINANCE COMPANIES NHB DIRECTIONS , THE HOUSING FINANCE COM PANY IS DEFINED AS FOLLOWS: HOUSING FINANCE COMPANY MEANS A COMPANY INCORPORA TED UNDER THE COMPANIES ACT, 1956 (1 OF 1956) WHICH PRIMARILY TRANSACTS OR HAS AS ONE OF ITS PRINCIPAL OBJECTS, THE TRANSACTIN G OF THE BUSINESS OF PROVIDING FINANCE FOR HOUSING, WHETHER DIRECTLY OR INDIRECTLY; THE ASSESSEE SUBMITTED BEFORE LEARNED CIT(A) THAT M AIN OBJECT OF THE ASSESSEE COMPANY IS PROVIDING OF LONG TERM LOANS FO R PURCHASE AND CONSTRUCTIONS OF HOUSES, THE ENTIRE AMOUNT OF PROF ITS AND GAINS FROM BUSINESS HAS BEEN RECKONED FOR THE PURPOSES OF ARRI VING AT DEDUCTION UNDER SECTION 36(I)(VIII) OF THE 1961 ACT. THE ASS ESSEE ASSAILED ASSESSMENT ORDER PASSED BY A.O. BEFORE LEARNED CIT( A) DURING FIRST APPELLATE PROCEEDINGS ON FOLLOWING GROUNDS:- ITA NO.2885/CHNY/2017 :- 15 -: (A) THE ASSESSING OFFICER FAIL TO APPRECIATE THAT ALL T HE LOANS EXTENDED BY THE COMPANY ARE LONG TERM IN NATURE AND ARE EXTENDED ONLY TO INDIVIDUALS. (B) OTHER OPERATING INCOME CANNOT BE EXCLUDED FROM THE PROFITS OF THE BUSINESS SINCE THE SAME INCLUDES INCOME BY WAY OF INTEREST ON ACCOUNT OF FORECLOSURE OF LOANS BY THE BORROWER. (C) PLOT LOANSCANNOT BE EXCLUDED FOR THE PURPOSES OF C LAIMING DEDUCTION UNDER SECTION 36(1)(VIII) SINCE THE LOANS ARE EXTENDED FOR THE PURPOSES OF PURCHASE OF PLOTS AND LATER ON FOR THE PURPOSES OF CONSTRUCTION. NO CONSTRUCTION C AN BE COMPLETED WITHOUT PURCHASE OF LAND AND ACCORDINGLY THE SAME NEED TO BE RECKONED FOR THE PURPOSES OF CLAIMI NG DEDUCTION UNDER SECTION 36(1)(VIII) OF THE INCOME T AX ACT. (COPY OF SAMPLE LOAN SANCTION LETTER FOR PLOT LOAN IS ENCLOSED). (D) LOANS GIVEN FOR THE PURPOSES OF REPAIRS AND RENOVAT ION ARE AKIN TO CONSTRUCTIONS AND CANNOT BE SAID TO BE AS NON HO USING. (A COPY OF SAMPLE LOAN SANCTION LETTER FOR REPAIRS LOA N IS ENCLOSED). (E) THE LEARNED ASSESSING OFFICER FAILED TO APPRECIATE THAT ALL THE LOANS EXTENDED ARE LONG TERM IN NATURE AND THE ASSE SSEE HAS REFLECTED SHORT TERM ADVANCES IN LINE WITH THE REQU IREMENTS OF SCHEDULE VI OF THE COMPANIES ACT WHICH WAS REVISED DURING THE YEAR2012. THE PRESENTATION OF FINANCIAL STATEME NTS UNDER THE COMPANIES ACT HAS UNDERGONE A CHANGE DURING 201 1-12. REVISED SCHEDULE VI OF THE COMPANIES ACT WAS MADE APPLICABLE FROM THE FINANCIAL YEAR 2011-12. ONE OF THE KEY CHANGES AS PER THE REVISED SCHEDULE VI WAS THAT ALL THE LONG TERM LIABILITIES AND ASSETS, NEED TO BE ITA NO.2885/CHNY/2017 :- 16 -: BIFURCATED INTO LONG TERM AND SHORT TERM. ALL THE B ORROWINGS/ LIABILITIES DUE WITHIN ONE YEAR SHOULD BE DISCLOSED UNDER SHORT TERM BORROWINGS OR CURRENT LIABILITIES . SIMILARLY ALL THE LOANS AND ADVANCES DUE WITHIN ONE YEAR NEED TO BE DISCLOS ED UNDER SHORT TERM LOANS AND ADVANCES. COPY OF THE RELEVANT PORTION OF THE ADVISORY ISSUED UNDER THE COMPANIES ACT IS E NCLOSED. (F) FURTHER THE LEARNED ASSESSING OFFICER HAS NOTIONALL Y WORKED OUT THE CLAIM UNDER SECTION 36(1)(VIII) WITHOUT CALLING FOR THE INCOME EARNED UNDER THE RESPECTIVE HEADS THE ASSESSEE SUBMITTED BEFORE LEARNED CIT(A), DETAI LS OF INCOME EARNED UNDER EACH OF THE ACTIVITY :- S.NO. PURPOSE OF LOAN OPERATING INCOME IN RS. OTHER OPERATING INCOME IN RS. TOTAL REVENUE FROM OPERATIONS IN RS. A CONSTRUCTI ON 189,33,11,359 1,04,61,169 190,37,72,528 B PURCHASE 116,94,03,752 93,10,203 117,87,13,955 C PROSPERITY LOAN AGAINST MORTGAGE OF HOUSING PROPERTIES 49,67,31,193 36,97,789 50,04,28,982 D COMMERCIAL LOAN 25,23,18,670 9,64,431 25,32,83,101 E PLOT LOAN 19 ,35,14,433 19,09,930 19,54,24,363 F REPAIRS LOAN 2,54,18,073 78,800 2,54,96,876 TOTAL A + B + C + D + E + F 403,06,97,480 264,22,322 405,71,19,802 THE ASSESSEE SUBMITTED THAT OUT OF THE ABOVE BIFURC ATION OF LOANS GRANTED BY ASSESSEE, INCOME DERIVED FROM LOANS GRAN TED A CONSTRUCTION, B- PURCHASE, E-PLOT LOAN AND F REPAI RS LOAN , SHOULD BE CONSIDERED FOR ALLOWING DEDUCTION U/S. 36(1)(VIII) OF THE ACT, WHICH ITA NO.2885/CHNY/2017 :- 17 -: COMES TO .18.82 CRORES. THUS, THE ASSESSEE ITSELF SUBMITTED BEFORE THE LEARNED CIT(A), THAT IT IS ENTITLED FOR DEDUCTI ON TO THE TUNE OF RS. 18.82 CRORES U/S 36(1)(VIII) OF THE 1961 ACT AS AGA INST DEDUCTION TO THE TUNE OF RS. 23.12 CRORES CLAIMED BY IT IN RETURN OF INCOME FILED WITH THE REVENUE. IT IS PERTINENT TO MENTION THAT THE AO ALL OWED DEDUCTION TO THE TUNE OF RS. 14.34 CRORES TO THE ASSESSEE U/S 36 (1)(VIII) OF THE 1961 ACT. THUS, THE ASSESSEE ITSELF SUBMITTED BEFORE LE ARNED CIT(A) THAT IT IS NOT ENTITLED FOR DEDUCTION U/S 36(1)(VIII) OF TH E 1961 ACT WITH RESPECT TO INCOME DERIVED FROM PROSPERITY LOANS AGAINST MOR TGAGE OF HOUSING PROPERTIES AND ALSO ON PROFITS DERIVED FROM COMMERC IAL LOANS. THUS, ASSESSEE ITSELF VOLUNTARILY AND ADMITTEDLY FOREGO B EFORE LEARNED CIT(A) ITS ORIGINAL CLAIM OF DEDUCTION OF .23.12 CRORES U/S 36(1)(VIII) OF THE 1961 ACT CLAIMED BY IT IN RETURN OF INCOME FILED WI TH REVENUE AND INSTEAD RESTRICTED THE SAID CLAIM OF DEDUCTION U/S 36(1)(VIII) TO THE TUNE OF .18.82 CRORES. 7.2 THE LEARNED CIT(A) AFTER CONSIDERING THE CONTE NTIONS OF THE ASSESSEE HELD AS UNDER, VIDE APPELLATE ORDER DATED 30.08.2017 :- 4.6. I HAVE CONSIDERED WRITTEN SUBMISSIONS OF THE LD.AR AND ALSO ORAL ARGUMENTS. I HAVE ALSO PERUSED ASSESSMENT ORDER. THE UNDISPUTABLE FACTS ARE THAT APPELLANT COMPANY I S CARRYING BUSINESS OF ADVANCING LOANS FOR HOUSING. A O, WHILE EXAMINING THE CLAIM U/S.36(1)(VIII), HAS NOTICED TH AT APPELLANT ADVANCED HOUSING LOANS TO THE TUNE OF ITA NO.2885/CHNY/2017 :- 18 -: RS.2833,25,22,221/- OUT OF TOTAL LOANS ADVANCED OF RS.3550,04,88,705/-. FURTHER, AO HAS EXCLUDED OTHER OPERATING INCOME OF RS.2,64,22,322/- FROM T HE PROFITS OF BUSINESS AMOUNTING RS.92,71,93,360/-. AFT ER ALL THESE ADJUSTMENTS, AO HAS ALLOWED DEDUCTION U/S.36( 1)(VIII) TO THE TUNE OF RS. 14,34,06,350/- AND DISALLOWED AN AMOUNT OF RS.8,78,08,404/-. SO FAR, THE FACTS NARRATED HER EIN ABOVE INDICATE THAT DISALLOWANCE IS AGREED EVEN BY THE LD .AR. HOWEVER, LD.AR IS DISPUTING THE QUANTUM OF DISALLOW ANCE. AS PER THE LD.AR DISALLOWANCE SHOULD BE CONFINED TO ON LY RS.4,29,53,958/- BUT NOT RS.8,78,08,404/-. I HAVE CONSIDERED FACTS RELATING TO THE LOANS ADVANCED FOR HOUSING BY THE APPELLANT. I HAVE ALSO PERUSED FINANCIALS FI LED DURING THE APPELLATE PROCEEDINGS. ON PERUSAL, I HAVE FOUND THAT AO HAS CONFINED TO HOUSING LOAN TO INDIVIDUALS UNDER T HE HEAD LONG TERM LOANS AND ADVANCES AMOUNTING TO RS.2833,25,22,221/- WHEREAS LD.AR HAS TAKEN LOANS A ND ADVANCES FOR HOUSING TO THE TUNE OF RS.3300,34,07,7 22/-. THE DIFFERENCE OF OPINION AROSE WITH REGARD TO SHOR T TERM LOANS AND ADVANCE AMOUNTING TO RS.229,49,37,716/- A S TO WHETHER SAID LOANS ARE PART OF HOUSING LOANS OR NOT . LD.AR SAYS THAT THESE ARE LONG TERM LOANS ADVANCED FOR TH E PURPOSE OF HOUSING BUT CLASSIFIED AS SHORT TERM LOAN AS PER THE REQUIREMENTS OF SCHEDULE VI OF COMPANIES ACT. IT S EEMS THIS ARGUMENT HAS NOT BEEN ACCEPTED BY THE AO. ON PERUS AL OF FINANCIALS AND SUBMISSIONS MADE BY THE LD.AR, I FIN D THERE IS A MERIT IN THE ARGUMENTS OF THE LD.AR. THE SCHEDULE UNDER SHORT TERM LOANS AND ADVANCES GIVES A DETAILS WHICH ARE AS UNDER: SHORT TERM LOANS & ADVANCES (SECURED & CONSIDERED GOOD EXCEPTING PROVISION MADE FOR NON PERFORMING ADVANCES) - 31.03.2013 IN RS. 31.03.2012 IN RS. ITA NO.2885/CHNY/2017 :- 19 -: CURRENT MATURITIES OF HOUSING LOAN 183,29,26,110 144,61,67,768 CURRENT MATURITIES OF MORTGAGE / OTHER LOANS 45,64,94,560 32,71,36,605 OTHER LOANS & ADVANCES (UNSECURED, CONSIDERED GOOD UNLESS OTHERWISE STATED) ADVANCES RECOVERABLE IN CASH OR IN KIND 15,09,250 2,33,18,972 LOAN TO EMPLOYEES 36,02,637 19,90,772 TRAVEL ADVANCE 4,05,159 2,41,495 TOTAL 229,49,37,716 179,88,55,612 ON PERUSAL OF ABOVE SCHEDULE, I HAVE NOTICED THAT F IRST TWO COLUMNS ARE IN THE NATURE OF HOUSING LOANS. THERE FORE, I FIND LOT OF MERIT IN THE ARGUMENTS OF THE LD.AR. IN THE CIRC UMSTANCES, I DIRECT THE AO TO INCLUDE CURRENT MATURITIES OF HOUS ING LOAN AND CURRENT MATURITIES OF MORTGAGE LOANS FOR THE PURPOS E OF ALLOWING DEDUCTION U/S.36(1)(VIII). 4.7. WITH REGARD TO OPERATE INCOME TAKEN BY THE AO AMOUNTING TO RS.92,71,93,360/-, AO IS DIRECTED TO VERIFY AS TO W HETHER OPERATE INCOME IS ONLY RS.92,71,93,360/- OR RS.115,60,73,77 2/-. AFTER VERIFICATION, WHICHEVER THE FIGURE IS FOUND CORRECT SAME MAY BE TAKEN FOR THE PURPOSE OF ALLOWING DEDUCTION U/S.36( 1)(VIII). 4.8. IN VIEW OF THE ABOVE DISCUSSION, AO IS DIRECTE D TO RE-COMPUTE DEDUCTION U/S.36(1)(VIII) AS PER THIS ORDER. THE GR OUNDS TAKEN BY THE APPELLANT ARE PARTLY ALLOWED. ITA NO.2885/CHNY/2017 :- 20 -: 8. THE REVENUE BEING AGGRIEVED BY APPELLATE ORDER D ATED 30.08.2017 PASSED BY LEARNED CIT(A) HAS FILED AN APPEAL WITH TRIBUNAL AND HAS RAISED GROUND NOS.3.1 TO 3.3 IN MEMO OF APPEAL FILE D WITH THE TRIBUNAL. THE ASSESSEE HAS NOT FILED AN APPEAL WITH TRIBUNAL AND SO FAR AS ASSESSEE IS CONCERNED , THE APPELLATE ORDER PASSED BY LEARNED CIT(A) HAS ATTAINED FINALITY. NOTHING CONTRARY TO THAT EFF ECT IS BROUGHT TO OUR NOTICE BY RIVAL PARTIES DURING THE COURSE OF HEARIN G BEFORE THE BENCH. 8.2 THE LD. D.R. AT THE OUTSET SUBMITTED BEFORE TH E BENCH THROUGH VIDEO CONFERRING THAT DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT CAN ONLY BY ALLOWED FROM PROFITS DERIVED FROM ELIGIBLE BUSIN ESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF H OUSES IN INDIA FOR RESIDENTIAL PURPOSES. IT WAS ALSO SUBMITTED BY LE ARNED DR THAT THE ASSESSEE HAS CLASSIFIED LOANS UNDER THE HEAD SHORT TERM LOANS AND ADVANCES, WHICH CANNOT BE CONSIDERED FOR CLAIMING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT . IT WAS ALSO SUBMITTED BY LEARNED DR BEFORE THE BENCH THAT MORTGAGE LOANS ARE NOT ELIGIB LE FOR CLAIMING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT AND ONLY HOUSING LOANS ARE TO BE CONSIDERED FOR COMPUTING DEDUCTION U/S 36(1)(VII I) OF THE 1961 ACT. IT WAS ALSO SUBMITTED BY LEARNED DR THAT PLOT LOANS ARE ALSO TO BE EXCLUDED WHILE COMPUTING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT. IT WAS ALSO SUBMITTED BY LEARNED DR THAT LATER ON PLOT LOANS WERE CONVERTED INTO COMMERCIAL LOANS AS THE PLOT OWNERS HAVE NOT ITA NO.2885/CHNY/2017 :- 21 -: CONSTRUCTED RESIDENTIAL HOUSE ON SAID PLOTS DURING THE STIPULATED PERIOD AND CONDITIONS STIPULATED U/S 36(1)(VIII) ARE NOT F ULFILLED . IT WAS SUBMITTED THAT ONUS IS ON THE ASSESSEE TO SEGREGATE AND EXCLUDE SUCH PLOTS LOANS WHICH WERE LATER CONVERTED INTO COMMERC IAL LOANS OWING TO THE FACT THAT THE OWNERS OF THE PLOT DID NOT CONSTR UCTED RESIDENTIAL HOUSES ON THE SAID PLOTS WITHIN PRESCRIBED STIPULAT ED PERIOD. THUS, IT WAS PRAYED BY LEARNED DR THAT PLOT LOANS ARE TO BE EXCLUDED WHILE ALLOWING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT. IT WAS ALSO SUBMITTED THAT MORTGAGE LOANS BE ALSO EXCLUDED WHIL E COMPUTING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT AS THESE LOANS WERE NOT GRANTED FOR CONSTRUCTION OR PURCHASE OF RESIDENTIAL HOUSE PROPERTY . IT WAS SUBMITTED THAT ALL THE LOANS GIVEN FOR COMMERCI AL PURPOSES BE EXCLUDED WHILE ALLOWING DEDUCTION U/S 36(1)(VIII) O F THE 1961 ACT . IT WAS PRAYED BY LEARNED DR THAT ONUS IS ON THE ASSESS EE TO PROVE THAT IT IS ELIGIBLE FOR DEDUCTION U/S 36(1)(VIII) OF THE 19 61 ACT AND PRAYERS WERE MADE TO SET ASIDE AND RESTORE THIS MATTER BACK TO THE FILE OF THE AO FOR RE-ADJUDICATION OF THE ISSUE. 8.3 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE THE BENCH THAT THE ASSESSEE HAS ALREADY AGREED BEFORE LEARNED CIT( A) THAT MORTGAGE LOANS AND COMMERCIAL LOANS ARE TO BE EXCLUDED WHILE COMPUTING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT, WHICH WA S DONE VOLUNTARILY BY THE ASSESSEE OF ITS OWN VOLITION . IT WAS ALSO S UBMITTED BY LD. A.R. ITA NO.2885/CHNY/2017 :- 22 -: THAT ALL THE LOANS, WHICH ARE GRANTED BY ASSESSEE, ARE LONG TERM LOANS RANGING FROM 120 TO 180 MONTHS. THE ASSESSEE COUNSE L ALSO SUBMITTED BEFORE THE BENCH THAT THE ASSESSEE HAS ALREADY EXCL UDED MORTGAGE LOANS AND COMMERCIAL LOANS , WHILE COMPUTING DEDUCT ION UNDER SECTION 36(1)(VIII) OF THE 1961 ACT. 9. WE HAVE HEARD RIVAL SUBMISSIONS THROUGH VIDEO C ONFERENCING AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE IS A HOUSING FINANCE COMPANY HOLDING REGIS TRATION CERTIFICATE GRANTED BY NATIONAL HOUSING BANK (NHB). IT IS AN A DMITTED POSITION BETWEEN BOTH THE RIVAL PARTIES THAT THE ASSESSEE IS AN SPECIFIED ENTITY BEING HOUSING FINANCE COMPANY MAINLY ENGAGED IN ELI GIBLE BUSINESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PUR CHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES AND THE ASSESSEE IS ADMITTEDLY ENTITLED FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. THE DISPUTE BETWEEN RIVAL PARTIES IS WITH RESPECT TO QUANTUM OF DEDUCTI ON WHICH THE ASSESSEE IS ENTITLED FOR WITHIN THE PROVISIONS OF S ECTION 36(1)(VIII) OF THE 1961 ACT , WHICH DISPUTE HAS MAINLY ARISEN WITH RESPECT TO SOME OF THE LOANS WHICH WERE CLASSIFIED BY ASSESSEE AS SHO RT TERM LOANS & ADVANCES IN ITS AUDITED FINANCIAL STATEMENTS AS AL SO CERTAIN CATEGORIES OF LOANS WHICH ASSESSEE HAS GRANTED WHICH REVENUE I S ALLEGING THAT THESE LOAN PRODUCTS GRANTED BY ASSESSEE DO NOT QUAL IFY TO BE HOUSING LOANS GRANTED FOR CONSTRUCTION OR PURCHASE OF HOUSE S IN INDIA FOR ITA NO.2885/CHNY/2017 :- 23 -: RESIDENTIAL PURPOSES. BEFORE WE PROCEED FURTHER , I T IS PERTINENT TO MENTION THAT THE ASSESSEE IS CLAIMING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT BEING 20% OF THE PROFITS DERIVED BY ASSESS EE FROM ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND SINCE THIS A DEDUCTION PROVISION, I T SHALL BE STRICTLY CONSTRUED AND ONUS IS SQUARELY ON THE ASSESSEE TO P ROVE THAT THE DEDUCTION CLAIMED FALLS WITHIN THE PARAMETERS OF SE CTION 36(1)(VIII) OF THE 1961 ACT AND THE ASSESSEE IS MEETING ALL THE RE QUIREMENTS OF THE PROVISIONS OF SECTION 36(1)(VIII) OF THE 1961 ACT A ND IS ELIGIBLE FOR SAID DEDUCTION . ANY AMBIGUITY IN THE PROVISION IS TO BE HELD IN FAVOUR OF REVENUE. REFERENCE IS DRAWN TO THE DECISION OF CONS TITUTION BENCH OF HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF CUSTOMS (IMPORTS) V. DILIP KUMAR & CO. REPORTED IN (2018) 9 SCC 1 AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF RA MNATH & CO. V. CIT REPORTED IN (2020) 116 TAXMANN.COM 885(SC)(REFE R PARA 17 TO 20). IT IS PROFITABLE AT THIS STAGE TO REFER TO STA TUTORY PROVISION AS ARE ENSHRINED IN SECTION 36(1)(VIII) OF THE ACT AS IT STOOD FOR RELEVANT AY VIZ. AY: 2013-14 , IS REPRODUCED HEREUNDER:- OTHER DEDUCTIONS. 36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREI N, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- ITA NO.2885/CHNY/2017 :- 24 -: (I) TO (VII) *** (VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINT AINED BY A SPECIFIED ENTITY, AN AMOUNT NOT EXCEEDING TWEN TY PER CENT OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CAR RIED TO SUCH RESERVE ACCOUNT : PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS CA RRIED TO SUCH RESERVE ACCOUNT FROM TIME TO TIME EXCEEDS TWICE THE AMOUNT OF THE PAID UP SHARE CAPITAL AND OF THE GENERAL RESERVES O F THE SPECIFIED ENTITY, NO ALLOWANCE UNDER THIS CLAUSE SHALL BE MAD E IN RESPECT OF SUCH EXCESS. EXPLANATION.- IN THIS CLAUSE, (A) ' SPECIFIED ENTITY' MEANS,- (I) A FINANCIAL CORPORATION SPECIFIED IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1956) ; (II) A FINANCIAL CORPORATION WHICH IS A PUBLIC SECT OR COMPANY ; (III) A BANKING COMPANY ; (IV) A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRIC ULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK ; (V) A HOUSING FINANCE COMPANY ; AND (VI) ANY OTHER FINANCIAL CORPORATION INCLUDING A PU BLIC COMPANY ; (B) ' ELIGIBLE BUSINESS' MEANS,- ITA NO.2885/CHNY/2017 :- 25 -: (I) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE (I) OR SUB-CLAUSE (II) OR SUB-CLAUSE (III) OR SUB-CLAUSE ( IV) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR- (A) INDUSTRIAL OR AGRICULTURAL DEVELOPMENT; (B) OR DEVELOPMENT OF INFRASTRUCTURE FACILITY IN I NDIA; OR (C) DEVELOPMENT OF HOUSING IN INDIA; (II) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE (V) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-T ERM FINANCE FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES ; AND (III) IN RESPECT OF THE SPECIFIED ENTITY REFERRED T O IN SUB-CLAUSE (VI) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FIN ANCE FOR DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA ; (C) 'BANKING COMPANY' MEANS A COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES AND INCLU DES ANY BANK OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF TH AT ACT ; (D) 'CO-OPERATIVE BANK', 'PRIMARY AGRICULTURAL CRED IT SOCIETY' AND 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELO PMENT BANK' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE EXPLANATION TO SUB-SECTION (4) OF SECTION 80P ; (E) 'HOUSING FINANCE COMPANY' MEANS A PUBLIC COMPAN Y FORMED OR REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG-TERM FIN ANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES ; (F) 'PUBLIC COMPANY' SHALL HAVE THE MEANING ASSIGNE D TO IT IN SECTION 3 OF THE COMPANIES ACT, 1956 (1 OF 1956) ; ITA NO.2885/CHNY/2017 :- 26 -: (G) 'INFRASTRUCTURE FACILITY' MEANS- (I) AN INFRASTRUCTURE FACILITY AS DEFINED IN THE EX PLANATION TO CLAUSE (I) OF SUB-SECTION (4) OF SECTION 80-IA, OR ANY OTH ER PUBLIC FACILITY OF A SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD IN THIS BEHALF IN THE OFFICIAL GAZETTE AND WHICH FULFILS THE CONDI TIONS AS MAY BE PRESCRIBED; (II) AN UNDERTAKING REFERRED TO IN CLAUSE (II) OR C LAUSE (III) OR CLAUSE (IV) OR CLAUSE (VI) OF SUB-SECTION (4) OF SECTION 8 0-IA ; AND (III) AN UNDERTAKING REFERRED TO IN SUB-SECTION (10 ) OF SECTION 80- IB; ( H) 'LONG-TERM FINANCE' MEANS ANY LOAN OR ADVANCE WH ERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF D URING A PERIOD OF NOT LESS THAN FIVE YEARS; THUS, AS CAN BE SEEN FROM THE STATUTORY PROVISIONS, UNDISPUTEDLY THE ASSESSEE IS AN HOUSING FINANCE COMPANY WHICH HOLDS REGISTRATION CERTIFICATE FROM NHB. THE ASSESSEE IS ENGAGED IN PR OVIDING HOUSING LOANS TO INDIVIDUAL. IT HAS SEVERAL PORTFOLIOS/HOUS E LOAN PRODUCTS WHICH HAS BEEN MODULATED BY ASSESSEE TO AND OFFERED TO BO RROWERS TO SUIT THEIR REQUIREMENTS. HOWEVER, THE DEDUCTION U/S 36(1 )(VIII) OF THE 1961 ACT WILL ONLY BE AVAILABLE TO THE ASSESSEE TO THE T UNE OF 20% OF THE PROFITS DERIVED FROM THE BUSINESS OF PROVIDING LONG TERM FINANCE ( REPAYABLE FOR A PERIOD OF NOT LESS THAN FIVE YEARS) FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURP OSES, COMPUTED ITA NO.2885/CHNY/2017 :- 27 -: UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION ( BEFORE MAKING ANY DEDUCTION U/S 36(1)(VIII) OF THE 1961 AC T) AND FOR WHICH THE ASSESSEE IS ALSO REQUIRED TO CREATE AND MAINTAI N SPECIAL RESERVES. THUS, IN NUT-SHELL THE ASSESSEE HAS TO MEET FULLY A LL THE REQUIREMENTS OF SECTION 36(1)(VIII) OF THE 1961 ACT, WHICH ARE T O BE STRICTLY CONSTRUED. THE HOUSING FINANCE COMPANY IS DEFINED I N EXPLANATION- (E) TO SECTION 36(1)(VIII) OF THE 1961 ACT, AS A PUBLI C COMPANY FORMED OR REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYI NG ON THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PUR CHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES. IT CAN BE SEEN THAT THE DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT IS TO BE ALLOWED FROM T HE PROFIT DERIVED FROM ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . THESE ARE DEDUCTION PROVI SION AND HENCE IT IS TO BE STRICTLY CONSTRUED AND ONUS IN ON THE ASSESSE E TO PROVE ITS ELIGIBILITY. ANY AMBIGUITY IS TO BE DECIDED IN FAVO UR OF REVENUE. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DI LIP KUMAR & CO.(SUPRA) AND RAMNATH AND COMPANY(SUPRA) ARE RELEV ANT TO THAT EFFECT TO SUPPORT THE SAID PROPOSITIONS OF LAW. TH E WORD USED IN THE STATUTE IS DERIVED FROM ELIGIBLE BUSINESS COMPUTE D UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND N OT PROFITS ATTRIBUTABLE TO THE ELIGIBLE BUSINESS. THE WORD DERIVED IS NARROWER IN ITS INTERPRETATION AND IT REQUIRED DIRECT AND IMMED IATE NEXUS OF ITA NO.2885/CHNY/2017 :- 28 -: PROFITS AND THE BUSINESS OF PROVIDING LONG TERM FIN ANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURP OSES , THAN WORD ATTRIBUTABLE TO PROFITS FROM BUSINESS OF PROVIDIN G LONG TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES WHICH IS WIDER IN ITS IMPORT AND WHICH COULD INCLUD E RECEIPTS OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS. THE DECISION( S) OF HONBLE SUPREME COURT IN THE CASE OF CIT V. STERLING FOODS REPORTED IN (1999) 237 ITR 579(SC) ; CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LIMITED V. CIT REPORTED IN (1978) 113 ITR 84(SC), PANDIAN C HEMICALS LIMITED V. CIT REPORTED IN (2003) 262 ITR 278(SC) AND MRS. BACHA F. GUZDAR V. CIT (1955) 27 ITR 1(SC) ARE RELEVANT TO SUPPORT THE AFORESAID PROPOSITION OF LAW. THE PROVISIONS OF SECTION 36(1) (VIII) OF THE 1961 ACT HAS ALSO REFERRED TO PROFITS DERIVED AND HENCE DI RECT AND IMMEDIATE NEXUS OF PROFITS AND THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSE IN INDIA FOR RESI DENTIAL PURPOSES IS TO BE SEEN. ON THIS THRESHOLD, THE DECISION OF LEARNED CIT(A) IN ALLOWING DEDUCTION WITH RESPECT TO MORTGAGE AND OTHER LOANS IS NOT CORRECT AND HENCE, WE REVERSE THE DECISION OF LEARNED CIT(A) IN ALLOWING DEDUCTION WITH RESPECT TO CURRENT MATURITIES OF MORTGAGE/OTHE R LOANS, AS THESE LOANS WERE NOT GRANTED FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES. WE ALSO HOLD THAT CLASSIF ICATION UNDERTAKEN BY ASSESSEE AS TO SHORT TERM LOANS AND ADVANCES TO I NCLUDE CURRENT ITA NO.2885/CHNY/2017 :- 29 -: MATURITIES IS TO MEET THE NEW REPORTING REQUIREMENT S AS PRESCRIBED AS PER THE GOVERNMENT NOTIFICATION NO. F.NO.2/6/2008-C .L-V DATED 30-3- 2011, WHEREIN REVISED SCHEDULE VI FOR THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT TO BE PREPARED FOR THE FINANCIAL Y EAR COMMENCING ON OR AFTER APRIL 1, 2011 WHICH PROVIDED CURRENT MATUR ITIES OF LONG TERM DEBTS FALLING DUE WITHIN NEXT ONE YEAR TO BE CLASSI FIED AS SHORT TERM LOANS AND ADVANCES AND ASSESSEE HAS RIGHTLY CLASSI FIED CURRENT MATURITIES OF LONG TERM DEBT UNDER THE HEAD SHORT TERM LOANS AND ADVANCES IN COMPLIANCE OF AFORESAID GOVERNMENT NO TIFICATION , THUS THESE LOANS WERE LONG TERM LOAN AND ONLY TO MEET RE QUIREMENT OF GOVERNMENT/ MCA , THESE LOANS WITH CURRENT MATURITI ES UPTO ONE YEAR WERE CLASSIFIED UNDER THE HEAD SHORT TERM LOANS AN D ADVANCES . THESE NEW GUIDELINES BECAME EFFECTIVE FROM THE FINA NCIAL YEAR STARTING FROM 01.04.2011 AND PRESENTLY WE ARE CONCERNED WITH AY: 2013-14. THERE IS NO ADVERSE MATERIAL ON RECORD TO HOLD THAT THESE LOANS WERE OTHERWISE GRANTED/SANCTIONED FOR A PERIOD OF LESS T HAN FICVE YEARS. THE ASSESSEE HAS BROUGHT ON RECORD SANCTION LETTERS AND STATED THAT LOANS WERE GRANTED FOR A PERIOD OF 120-180 MONTHS. THE RE VENUE COULD NOT CONTRADICT THE SAME BEFORE US. HOWEVER, ONLY AN AMO UNT OF RS. 183.29 CRORES BEING CURRENT MATURITIES OF HOUSING LOAN SHA LL BE INCLUDED FOR THE PURPOSES OF CLAIMING DEDUCTION U/S 36(1)(VIII) AND PROFITS DERIVED THEREOF SHALL BE INCLUDED TO COMPUTE DEDUCTION U/S 36(1)(VIII) OF THE ITA NO.2885/CHNY/2017 :- 30 -: 1961 ACT. THUS, THE CURRENT MATURITIES OF MORTGAGE/ OTHER LOANS WHICH WAS ALLOWED BY LEARNED CIT(A) SHALL NOT BE INCLUDED WHILE COMPUTING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT AND TO TH AT EFFECT THE APPELLATE ORDER OF LEARNED CIT(A) STAND REVERSED. FROM THE PERUSAL OF THE DETAILS SUBMITTED BY ASSESS EE BEFORE LEARNED CIT(A) WHICH IS NOT CONTRADICTED BY REVENUE, IT IS OBSERVED THAT IT HAS REVENUES FROM FOLLOWING PORTFOLIOS OF LOANS ARE AS UNDER:- S.NO. PURPOSE OF LOAN OPERATING INCOME RS. OTHER OPERATING INCOME RS. TOTAL REVENUE FROM OPERATIONS RS. A CONSTRUCTION 189,33,11,359 1,04,61,169 190,37,72,528 B PURCHASE 116,94,03,752 93,10,203 117,87,13,955 C PROSPERITY LOAN AGAINST MORTGAGE OF HOUSING PROPERTIES 49,67,31,193 36,97,789 50,04,28,982 D COMMERCIAL LOAN 25,23,18,670 9,64,431 25,32,83,101 E PLOT LOAN 19,35 ,14,433 19,09,930 19,54,24,363 F REPAIRS LOAN 2,54,18,073 78,800 2,54,96,876 TOTAL A + B + C + D + E + F 403,06,97,480 264,22,322 405,71,19,802 THE LEARNED COUNSEL FOR THE ASSESSEE HAS CLAIMED BE FORE US THAT THE ASSESSEE HAS ITSELF EXCLUDED PROSPERITY LOANS AND C OMMERCIAL LOANS AND HENCE DEDUCTION U/S 36(1)(VIII) AS UPHELD BY LEARNE D CIT(A) EXCLUDE PROFITS DERIVED FROM PROSPERITY LOANS AGAINST MORTG AGE OF HOUSING PROPERTIES AND COMMERCIAL LOANS, AND IN OUR CONSIDE RED VIEW THE ASSESSEE IS NOT ENTITLED FOR CLAIMING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT WITH RESPECT TO PROFITS DERIVED FROM THESE PROSPERITY LOANS ITA NO.2885/CHNY/2017 :- 31 -: AGAINST MORTGAGE OF PROPERTIES AS PROCEEDS OF THESE LOANS CAN BE UTILIZED FOR ANY PURPOSES AND IT WAS NOT FOR THE PU RPOSES OF CONSTRUCTION OR PURCHASE OF HOUSE IN INDIA FOR RESI DENTIAL PURPOSES. THE STAND OF ASSESSEE TO VOLUNTARILY DISALLOW DEDUC TION U/S 36(1)(VIII) IS CORRECT AND FURTHER THE ASSESSEE WILL NOT BE ENT ITLED FOR DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT ON PROFITS DERIVED FROM COMMERCIAL LOANS AS THESE LOANS WERE NOT GRANTED FOR CONSTRUCT ION OR PURCHASE OF RESIDENTIAL HOUSE IN INDIA. NOW , COMING TO PLOT LO ANS , THE ASSESSEE IS GRANTING THESE PLOT LOANS FOR BUYING PLOTS AND UNDE RTAKING IS TAKEN FROM THE BORROWER THAT HE/SHE WILL CONSTRUCT THE RE SIDENTIAL HOUSE ON THE SAID PLOT OF LAND WITHIN A PERIOD OF THREE YEAR S . THE NHB GUIDELINES PERMIT HOUSING FINANCE COMPANIES TO LEND FOR PURCHASE OF PLOT , VIDE DIRECTIONS NO. NHB(ND)/DRS/POL-NO. 41/2 011-12 DATED 26.09.2011 , BUT SO FAR AS DEDUCTION U/S 36(1)(VIII ) IS CONCERNED , IT IS DEDUCTION PROVISION AND IT IS TO BE STRICTLY CONSTR UED AND ONUS IS ON ASSESSEE TO PROVE THAT IT IS ENTITLED FOR CLAIM OF DEDUCTION. PERMISSION OF ACTIVITY BY NHB TO IS ONE THING , WHILE GRANT OF DEDUCTION UNDER PROVISION OF THE 1961 ACT IS ALTOGETHER DIFFERENT. NO DOUBT IT IS TRUE THAT THE HOUSE CANNOT BE CONSTRUCTED WITHOUT PLOT O F LAND BUT DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT CAN ONLY BE ALLOWED ON PROFITS DERIVED FROM LOANS GRANTED FOR A PERIOD OF NOT LESS THAN FIVE YEARS FOR CONSTRUCTION OR PURCHASE OF HOUSE IN INDIA FOR RESI DENTIAL PURPOSES. IT ITA NO.2885/CHNY/2017 :- 32 -: IS ALSO BROUGHT TO OUR NOTICE BY LEARNED COUNSEL FO R THE ASSESSEE THAT IN THOSE CASES, WHERE THE BORROWER FAILS TO CONSTRU CT THE PLOT OF LAND FOR RESIDENTIAL HOUSE WITHIN 3 YEARS, THE SAID LOAN IS CLASSIFIED AS COMMERCIAL LOAN BUT IT COULD NOT BE BROUGHT ON RECO RD BY LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAD FORE GONE DEDUCTION ON ALL SUCH PLOT LOANS WHICH WERE LATER CLASSIFIED AS COMMERCIAL LOANS . IN CASE THE BORROWER CONSTRUCTS RESIDENTIAL HOUSE ON P LOT OF LAND WITHIN THREE YEARS BY FURTHER BORROWING FOR CONSTRUCTION O R BY INVESTING IT OWN FUNDS, THEN DOCTRINE OF RELATION BACK HAS TO BE APP LIED AND THE ASSESSEE WILL BE ENTITLED FOR DEDUCTION U/S 36(1)(V III) OF THE 1961 ACT BUT IN CASE THE BORROWER WHO HAD BORROWED THE FUNDS FROM ASSESSEE TO BUY A PLOT OF LAND EITHER FAILS TO CONSTRUCT RE SIDENTIAL HOUSE WITHIN THREE YEARS OR CONSTRUCT COMMERCIAL PROPERTY ON SUC H PLOT OF LAND, NO SUCH DEDUCTION CAN BE ALLOWED TO THE ASSESSEE U/S 3 6(1)(VIII) OF THE 1961 ACT. THE ASSESSEE IS DIRECTED TO PRODUCE COMPL ETE DETAILS BEFORE THE AO WRT TO PLOT LOANS GRANTED BY IT , DEDUCTION CLAIMED U/S 36(1)(VIII) ON THESE PLOT LOANS AND WHETHER THE BOR ROWER CONSTRUCTED RESIDENTIAL HOUSE WITHIN THREE YEARS FROM THE DATE OF PURCHASE OF PLOT OR ELSE THESE LOANS WERE CLASSIFIED BY ASSESSEE AS COMMERCIAL LOANS. THUS, TO THIS EFFECT MATTER IS REMITTED BACK TO THE FILE OF AO FOR FRESH DETERMINATION OF DEDUCTION U/S 36(1)(VIII) ON PLOT LOANS AND THE ASSESSEE IS DIRECTED TO PRODUCE COMPLETE DETAILS BE FORE THE AO. THE ITA NO.2885/CHNY/2017 :- 33 -: AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E IN REMAD PROCEEDING SHALL GRANT DEDUCTION IN ACCORDANCE WITH OUR ABOVE DIRECTIONS/ORDERS. SIMILARLY, WITH RESPECT TO LOANS GRANTED FOR REPAIRS AND RENOVATION , ONLY DEDUCTION CAN BE GRANTED U/S 36(1)(VIII) OF THE 1961 ACT PROVIDED RENOVATION HAS LED TO CONSTRUCTIO N OF ADDITIONAL FLOORS /AREAS AND NO DEDUCTION U/S 36(1)(VIII) OF T HE 1961 ACT CAN BE GRANTED FOR NORMAL REPAIRS AND RENOVATION. THE ONUS IS ON THE ASSESSEE TO BRING ON RECORD DETAILS OF LOANS GRANTE D, CONSTRUCTION OF ADDITIONAL FLOOR/AREA IN THE EXISTING RESIDENTIAL P ROPERTIES , FRESH SANCTION PLANS ISSUED BY LOCAL MUNICIPAL AUTHORITIE S ETC. TO SUBSTANTIATE THAT THE LOANS WERE GRANTED/UTILISED FOR THE PURPOS ES OF CONSTRUCTION OF ADDITIONAL FLOORS ETC TO THE BORROWERS. THE MATTER IS REMITTED BACK TO AO AND THE ASSESSEE IS DIRECTED TO PRODUCE ALL DETA ILS BEFORE THE AO. THE AO SHALL IN REMAND PROCEEDINGS AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE SHALL GRANT DEDUCTION U/S 36(1)(VII I) IN ACCORDANCE WITH OUR AFORESAID DIRECTIONS/ORDERS. IT IS ALSO OBSERVE D THAT THE ASSESSEE IS CLAIMING OTHER OPERATING INCOME TO THE TUNE OF .2.64 CRORES WHICH WAS INCLUDED AS PART OF PROFITS FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT , THE DET AILS AS FURNISHED BY ASSESSEE BEFORE TRIBUNAL ARE AS UNDER:- FY 12-13 GL NAME BALANCE ITA NO.2885/CHNY/2017 :- 34 -: ADMIN FEES 1,22,72,626 OTHER CHARGES 61,63,645 PREPAYMENT CHARGES 27,79,854 RECOVERY IN BAD DEBTS 14,40,957 CERSAI CHARGES RECEIVED 12,57,894 NOTICE PERIOD SALARY 11,43,629 OTHER INCOME 8,41,955 INTEREST ON PERSONAL LOAN 4,50,469 INTEREST ON CAR LOAN 48,315 INTEREST ON CONVEYANCE LOAN 11,564 PEMI ON PERSONAL LOAN 11,297 PENAL INTEREST ON PERSONAL LOAN 117 TOTAL 2,64,22,322 ON CONSIDERATION OF THE ABOVE, WE OBSERVE THAT SOME OF THE INCOMES SUCH AS NOTICE PERIOD SALARY, OTHER INCOME, INTERE ST ON CAR/PERSONAL LOAN, INTEREST ON CONVEYANCE LOANS , PEMI ON PERSON AL LOANS , PENAL INTEREST ON PERSONAL LOANS HAVE NO DIRECT AND IMMED IATE NEXUS WITH PROFITS DERIVED FROM LOANS GRANTED FOR CONSTRUCTION OR PURCHASE OF HOUSE IN INDIA FOR RESIDENTIAL PURPOSES, WHILE FOR OTHER COMPONENTS OF INCOME, WE ARE REMITTING THE MATTER BACK TO AO TO D ECIDE THE ABOVE IN LIGHT OF HONBLE SUPREME COURT DECISIONS IN THE CAS E OF PANDIAN CHEMICALS(SUPRA), STERLING FOODS(SUPRA) , CAMBAY EL ECTRICITY(SUPRA) AND BACHA F GUZDAR(SUPRA) AND IF IT IS FOUND THAT T HERE IS DIRECT AND IMMEDIATE NEXUS OF THE SAID INCOME WITH GRANT OF LO ANS FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES, THE SAME SHALL BE INCLUDED FOR COMPUTING DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT. THE ONUS IS ON THE ASSESSEE TO PROVE THAT IT IS ELIGIBLE FOR ITA NO.2885/CHNY/2017 :- 35 -: DEDUCTION U/S 36(1)(VIII) OF THE 1961 ACT AND CLAIM OF THE ASSESSEE FOR GRANT OF DEDUCTION U/S 36(1)(VIII) IS TO BE STRICTL Y CONSTRUED. ETC.. WE ORDER ACCORDINGLY. 10. THE NEXT EFFECTIVE ISSUE, WHICH IS AGITATED BY REVENUE BEFORE TRIBUNAL , IS WITH RESPECT OF DISALLOWANCE OF RS. 6,31,788/- MADE UNDER SECTION 36(1)(VA) READ WITH SECTION 2(24)(X) BY A.O BEING EMPLOYEE CONTRIBUTION TO P.F. WHICH IS DEPOSITED BY ASSESSEE TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUND BEYOND THE TIME STIPULA TED UNDER THE RELEVANT P.F.ACT , BUT ADMITTEDLY THE SAID AMOUNT STOOD DEPOSITED BEFORE THE DUE DATE PRESCRIBED FOR FILING OF RETURN OF INCOME U/S 139(1) OF THE 1961 ACT , AGAINST WHICH THE ASSESSEE FILED FILES FIRST APPEAL WITH LEARNED CIT(A) WHO WAS PLEASED TO ALLOWED DEDUCTION U/S 36(1)(VA) READ WITH SECTION 2(24)(X) OF THE 1961 ACT, WHICH I SSUE IS RAISED BY THE REVENUE IN GROUND NOS.4.1. TO 4.5 IN MEMO OF APPEAL FILED WITH THE TRIBUNAL. ADMITTEDLY , THE ASSESSEE HAS NOT DEPOS ITED A SUM OF 6,31,788/- BEING EMPLOYEES CONTRIBUTION TOWARDS PF TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUND WITHIN DUE DATE AS WAS PRESCRIBED UNDER THE STATUTE GOVERNING PROVIDENT FUND , AS IS REQUIR ED UNDER SECTION 36(1)(VA) READ WITH EXPLANATION 1 AND SECTION 2(24 )(X) OF THE 1961 ACT, WHICH LED AO TO DISALLOW THE SAID AMOUNT BY I NVOKING EXPLANATION 1 TO SECTION 36(1)(VA) OF THE 1961 ACT BUT THE SAI D AMOUNT ADMITTEDLY STOOD DEPOSITED BY ASSESSEE TO THE CREDIT OF EMPLO YEE WITH RELEVANT ITA NO.2885/CHNY/2017 :- 36 -: FUND BEFORE THE TIME PRESCRIBED FOR FILING OF RETUR N OF INCOME U/S 139(1) OF THE 1961 ACT. AGGRIEVED BY AN ASSESSMENT FRAMED BY AO U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL WITH LEARNED CIT(A) WHO WAS PLEASED TO DELETE THE ADDITION TO TH E INCOME TO THE TUNE OF 6,31,788/- MADE BY AO ON ACCOUNT OF DELAYED REMISSI ON OF EMPLOYEES CONTRIBUTION TOWARDS EPF TO THE CREDIT O F EMPLOYEE WITH RELEVANT FUND BEYOND THE TIME PRESCRIBED UNDER RELE VANT PF STATUTE BUT ADMITTEDLY THE SAID AMOUNT STOOD DEPOSITED BY ASSES SEE TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUND BEFORE THE DUE DATE PRESCRIBED FOR FILING OF RETURN OF INCOME U/S 139(1) OF THE 1961 A CT , BY RELYING ON FOLLOWING JUDICIAL DECISION(S) AS STIPULATED HEREUN DER:- 1. CIT V. ALOM EXTRUSIONS LTD., IN 319 ITR 306(SC) 2. CIT V. INDUSTRIAL SECURITY AND INTELLIGENCE IND IA PVT. LTD., (MAD) TAX CASE APPEAL NOS.585 AND 586 OF 2015 AND M .P NO.1 OF 2015 , DATED 24.07.2015 3. ACIT V. M/S.EASUN PRODUCTS OF INDIA (P) LTD., IN I.T.A. NO. NO.182/MDS./2016 , VIDE ORDER OF CHENNAI TRIBUNAL D ATED 19.05.2016, FOR AY: 2012-13. 10.2 AGGRIEVED BY AN APPELLATE ORDER DATED 30.08.20 17 PASSED BY LEARNED CIT(A), THE REVENUE HAS NOW FILED AN APPEA L BEFORE THE TRIBUNAL AGITATING AGAINST THE DECISION OF LEARNED CIT(A) GRANTING RELIEF TO ASSESSEE DESPITE SPECIFIC PROVISION AS IS CONTAINED IN SECTION 36(1)(VA) READ WITH EXPLANATION 1 OF THE 19 61 ACT THAT ITA NO.2885/CHNY/2017 :- 37 -: DEDUCTION TOWARDS EMPLOYEES CONTRIBUTION TO PF CAN BE ALLOWED ONLY WHEN THE EMPLOYER REMITS THE SAID EMPLOYEE CON TRIBUTION TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUND ON OR BEF ORE THE DUE DATE SPECIFIED IN STATUTE GOVERNING PF, WHICH ADMITTEDLY WAS NOT COMPLIED BY THE ASSESSEE . BEFORE US, THE LD. D.R . SUBMITTED THAT SECTION 36(1)(VA) READ WITH EXPLANATION 1 OF THE 19 61 ACT CLEARLY PROVIDES THAT EMPLOYEE CONTRIBUTION TO PROVIDENT FU ND AMOUNT SHOULD HAVE BEEN DEPOSITED BEFORE THE DUE DATE AS PRESCRIB ED UNDER THE STATUTE GOVERNING PROVIDENT FUND. BY RELYING ON THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT SO FAR AS EMPLOYEES CO NTRIBUTION IS CONCERNED, THE LEARNED DR RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF THE PRINCIPAL C.I.T. V. M /S.ORCHID PHARMA LTD., IN TAX CASE APPEAL NOS.430 & 421 OF 2019 & CM P NO.13978 OF 2019 FOR AY:2013-14 AND 2014-15, JUDGMENT DATED 08 .07.2019 AND PRAYERS WERE MADE BY LD. D.R. TO RESTORE THE MATTER BACK TO THE FILE OF LEARNED CIT(A) FOR FRESH ADJUDICATION AFTER CONSIDE RING AFORESAID DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE O F ORCHID PHARMA(CITED SUPRA). THE LD. COUNSEL FOR THE ASSES SEE ON THE OTHER HAND SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. M/S.INDUSTRIAL SECURITY AND INTELLIGENCE IND IA PVT. LTD., (TAX CASE APPEAL NO. 585 AND 586 OF 2015 DATED 24.07.201 5, FOR AY: 2003-04 AND 2004-05) AND IT IS ALSO SUBMITTED BY LEARNED COUNSEL FOR THE ITA NO.2885/CHNY/2017 :- 38 -: ASSESSEE THAT THE CHENNAI TRIBUNAL IN I.T.A. NO. NO .3263/CHNY/2018 FOR AY: 2013-14 IN THE CASE OF THE ACIT V. M/S.SPEL SEMOCONDUCTOR LTD., VIDE ORDER DATED 23.07.2019 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE, TO WHICH ONE OF US NAMELY HONBLE JUD ICIAL MEMBER WAS PART OF DIVISION BENCH WHO PRONOUNCED THE SAID ORDE R IN ITA NO. 3263/CHNY/2018. 10.3 WE HAVE HEARD RIVAL CONTENTIONS THROUGH VIDEO CONFERENCING AND PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS. WE HAVE OBSERVED THAT THE ASSESSEE HAS DEPOSITED EMPLOYEES SHARE OF PROVIDENT FUND CONTRIBUTION AMOUNTING TO 6,31,788/- TO THE CREDIT OF EMPLOYEES WITH RESPECTIVE PF FUND BEYOND THE DUE DA TE PRESCRIBED UNDER THE RELEVANT STATUTE GOVERNING PROVIDENT FUN D , BUT THE SAME WAS ADMITTEDLY DEPOSITED BEFORE THE DUE DATE OF FIL ING OF RETURN OF INCOME AS IS PRESCRIBED U/S 139(1) OF THE 1961 ACT . BEFORE PROCEEDING FURTHER, IT WILL BE PROFITABLE TO REPRODUCE THE REL EVANT PROVISIONS OF THE 1961 ACT AS WERE APPLICABLE FOR AY: 2013-14, WHICH ARE REPRODUCED HEREUNDER: DEFINITIONS. 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES , *** *** (24) 'INCOME' INCLUDES *** ITA NO.2885/CHNY/2017 :- 39 -: *** (X) ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPL OYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FU ND SET UP UNDER THE PROVISIONS OF THE EMPLOYEES' STATE INSURANCE ACT, 1 948 (34 OF 1948), OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES ;] OTHER DEDUCTIONS. 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWIN G CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN CO MPUTING THE INCOME REFERRED TO IN SECTION 28 *** *** [(VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEE'S ACCOU NT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CR EDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEV ANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UN DER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE;] CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT. 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RES PECT OF *** (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUI TY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, *** *** SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ITA NO.2885/CHNY/2017 :- 40 -: ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN COMPU TING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM : [PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SH ALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BE FORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN . 10.3.2 IT IS BY VIRTUE OF FINANCE ACT, 1987 W.E.F. 01.04.1988 , THE PROVISIONS OF SECTION 36(1)(VA) READ WITH SECTION 2 (24)(X) OF THE 1961 ACT WERE INSERTED, WHICH CONSIDERED EMPLOYEE CONTRI BUTION TOWARDS PF/ESI AND OTHER EMPLOYEES WELFARE FUNDS RECEIVED B Y EMPLOYER AS INCOME OF THE ASSESSEE BY VIRTUE OF SECTION 2(24)(X ) OF THE 1961 ACT AND DEDUCTION THEREOF THE EMPLOYEE CONTRIBUTION SHA LL BE ALLOWED BY VIRTUE OF SECTION 36(1)(VA) OF THE 1961 ACT PROVIDE D THE SAID AMOUNT STOOD DEPOSITED BY EMPLOYER TO THE CREDIT OF EMPLOY EE WITH RELEVANT FUND ON OR BEFORE THE DUE DATE AS PRESCRIBED UNDER RELEVANT STATUTE GOVERNING PF/ESI AND OTHER EMPLOYEES WELFARE FUNDS. THE PROVISION OF SECTION 43B OF THE 1961 ACT WERE ALSO AMENDED BY FI NANCE ACT, 1987 W.E.F. 1.4.1988 AND AS IT STOOD AT THAT TIME IS REP RODUCED HEREUNDER: CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT. 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF ITA NO.2885/CHNY/2017 :- 41 -: (A) **** (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATIO N FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, [OR] [(C) *** SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSES SEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY H IM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. [PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SH ALL APPLY IN RELATION TO ANY SUM REFERRED TO IN CLAUSE (A) [OR C LAUSE (C)] WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PR EVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE AS SESSEE ALONG WITH SUCH RETURN: PROVIDED FURTHER THAT NO DEDUCTION SHALL, IN RESPEC T OF ANY SUM REFERRED TO IN CLAUSE (B), BE ALLOWED UNLESS SUCH S UM HAS ACTUALLY BEEN PAID DURING THE PREVIOUS YEAR ON OR B EFORE THE DUE DATE AS DEFINED IN THE EXPLANATION BELOW CLAUSE (VA ) OF SUB- SECTION (1) OF SECTION 36.] *** *** THUS, SECTION 43B OF THE 1961 ACT AS IT STOOD VIDE AMENDMENT MADE BY FINANCE ACT, 1987 W.E.F. 01.04.1988 , INTER-ALIA , PROVIDED THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THE 1961 ACT, A DEDUCTION WHICH IS OTHERWISE ALLOWABLE UNDER THE 1961 ACT SHALL BE ALLOWED OF ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY ITA NO.2885/CHNY/2017 :- 42 -: WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERA NNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES PROVIDED THE SAID SUM IS ACTUALLY PAID DURING THE PREVIOUS Y EAR ON OR BEFORE THE DUE DATE AS DEFINED IN THE EXPLANATION BELOW CLAUSE (VA) OF SUB- SECTION (1) OF SECTION 36 VIZ. THE DATE PRESCRIBED UNDER THE RELEVANT STATUTE GOVERNING PF/ESI AND OTHER EMPLOYEE WELFARE FUNDS FOR DEPOSIT OF THE CONTRIBUTION PAYABLE BY ASSESSEE AS AN EMPLO YER TO AN PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY F UND OR ANY OTHER FUND FOR WELFARE OF EMPLOYEES. 10.3.3. THEN CAME THE AMENDMENT BY FINANCE ACT, 200 3 W.E.F 01.04.2004, WHEREIN THE SECOND PROVISO TO SECTION 4 3B STOOD DELETED AND FIRST POVISO TO SECTION 43B WAS AMENDED SO THAT NOW EVEN ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY O F CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUI TY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES PROVIDED TH E SAID SUM IS ACTUALLY PAID DURING THE PREVIOUS YEAR ON OR BEFORE THE DUE DATE AS PRESCRIBED UNDER SECTION 139(1) FOR FILING OF RETUR N OF INCOME SHALL BE ALLOWED. THE AMENDED SECTION 43B , AS AMENDED BY FI NANCE ACT, 2003 WEF 01.04.2004 , IS REPRODUCED HERERUNDER: [CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT. ITA NO.2885/CHNY/2017 :- 43 -: 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RES PECT OF *** *** (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUI TY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, [OR] *** *** SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN COMPU TING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM : PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BE FORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN. *** *** 10.3.4 IT IS PERTINENT AT THIS STAGE TO REPRODUCE T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION S LIMITED(SUPRA) WHEREIN THE AMENDMENTS MADE BY FINAN CE ACT, 2003 W.E.F. 01.04.2004 WERE HELD TO BE CURATIVE IN NATURE AND APPLICABLE RETROSPECTIVELY EFFECTIVE FROM 01.04.198 8, WHICH DECISION OF HONBLE SUPREME COURT IS REPRODUCED HER EUNDER: 6. THE LEAD MATTER IN THIS BATCH OF CIVIL APPEALS I S CIT V. ALOM EXTRUSIONS LTD. [CIVIL APPEAL ARISING OUT OF S .L.P. (C) NO. 23851 OF 2007]. ITA NO.2885/CHNY/2017 :- 44 -: PRIOR TO THE AMENDMENT OF SECTION 43B OF THE ACT, V IDE FINANCE ACT, 2003, THE TWO PROVISOS TO SECTION 43B OF THE ACT READ AS UNDER : 'PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SH ALL APPLY IN RELATION TO ANY SUM REFERRED TO IN CLAUSE (A) OR CLAUSE (C) OR CLAUSE (D) OR CLAUSE (E ) OR CLAUSE ( F), WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN : PROVIDED FURTHER THAT NO DEDUCTION SHALL, IN RESPEC T OF ANY SUM REFERRED TO IN CLAUSE (B) , BE ALLOWED UNLE SS SUCH SUM HAS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE ON OR BEFORE THE DUE DATE AS DEFINED IN THE EXPLANATION BELOW CL AUSE (VA) OF SUB-SECTION (1) OF SECTION 36, AND WHERE SU CH PAYMENT HAS BEEN MADE OTHERWISE THAN IN CASH, THE SUM HAS BEEN REALIZED WITHIN FIFTEEN DAYS FROM THE DUE DATE.' 7. BY FINANCE ACT, 2003, THE SECOND PROVISO TO SECT ION 43B OF THE ACT NOT ONLY GOT DELETED BUT THE SAID FINANCE A CT, 2003, ALSO AMENDED THE FIRST PROVISO WITH EFFECT FROM ASS ESSMENT YEAR 2004-05. WE QUOTE HEREINBELOW THE FIRST PROVIS O TO SECTION 43B OF THE ACT AFTER ITS AMENDMENT BY FINAN CE ACT, 2003, WHICH READS AS UNDER: 'PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SH ALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE I N HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIO US YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INC URRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN.' TO ANSWER THE ABOVE CONTROVERSY, WE NEED TO UNDERST AND THE SCHEME OF THE INCOME-TAX ACT, 1961, AS IT EXISTED P RIOR TO 1ST APRIL, 1984, AND AS IT STOOD AFTER 1-4-1984. ITA NO.2885/CHNY/2017 :- 45 -: 'INCOME' HAS BEEN DEFINED UNDER SECTION 2(24) OF TH E ACT TO INCLUDE PROFITS AND GAINS. UNDER SECTION 2(2 4)( X), ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO PROVIDENT FUND/SUPERANNUATION FUND OR ANY FUND SET UP UNDER EMPLOYEES' STATE INSURANCE ACT, 1948, OR ANY OTHER FUND FOR WELFARE OF SUCH EMPLOYEES CONSTITUTED INCO ME. THIS IS THE REASON WHY EVERY ASSESSEE(S) [EMPLOYER( S)] WAS ENTITLED TO DEDUCTION EVEN PRIOR TO 1-4-1984, O N MERCANTILE SYSTEM OF ACCOUNTING AS A BUSINESS EXPENDITURE BY MAKING PROVISION IN HIS BOOKS OF ACCOUNT IN THAT REGARD. IN OTHER WORDS, IF AN ASSESSEE(S)-EMPLOYER(S) IS MAINTAINING HIS BOOKS ON ACCRUAL SYSTEM OF ACCOUNTING, EVEN AFTER COLLECTING THE CONTRIBUTION FROM HIS EMPLOYEE(S) AND EVEN WITHOUT REMITTING THE AMOUNT TO THE REGIONAL PROVIDENT FUND COMMISSIONER [R.P.F.C.], THE ASSESSEE(S) WOULD BE ENTITLED TO DEDUCTION AS BUSINESS EXPENSE BY MERELY MAKING A PROVISION TO THAT EFFECT IN HIS BOOKS OF ACCOUNT. THE SAME SITUATION AROSE PRIOR TO 1ST APRI L, 1984, IN THE CONTEXT OF ASSESSEES COLLECTING SALES TAX AND OTHER INDIRECT TAXES FROM THEIR RESPECTIVE CUSTOMERS AND CLAIMING DEDUCTION ONLY BY MAKING PROVISION IN THEIR BOOKS WITHOUT ACTUALLY REMITTING THE AMOUNT TO THE EXCHEQUER. TO CURB THIS PRACTICE, SEC TION 43B WAS INSERTED WITH EFFECT FROM 1-4-1984, BY WHIC H THE MERCANTILE SYSTEM OF ACCOUNTING WITH REGARD TO TAX, DUTY AND CONTRIBUTION TO WELFARE FUNDS STOOD DISCONTINUED AND, UNDER SECTION 43B, IT BECAME MANDATORY FOR THE ASSESSEE(S) TO ACCOUNT FOR THE AF ORE- STATED ITEMS NOT ON MERCANTILE BASIS BUT ON CASH BA SIS. THIS SITUATION CONTINUED BETWEEN 1-4-1984 AND 1-4- 1988, WHEN THE PARLIAMENT AMENDED SECTION 43B AND INSERTED FIRST PROVISO TO SECTION 43B. BY THIS FIRS T PROVISO, IT WAS, INTER ALIA, LAID DOWN, IN THE CONT EXT OF ANY SUM PAYABLE BY THE ASSESSEE(S) BY WAY OF TAX, DUTY, CESS OR FEE, THAT IF AN ASSESSEE(S) PAYS SUCH TAX, DUTY, CESS OR FEE EVEN AFTER THE CLOSING OF THE ACCOUNTING YEAR BUT BEFORE THE DATE OF FILING OF TH E RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT, T HE ASSESSEE(S) WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 43B ON ACTUAL PAYMENT BASIS AND SUCH DEDUCTION WOULD BE ADMISSIBLE FOR THE ACCOUNTING YE AR. THIS PROVISO, HOWEVER, DID NOT APPLY TO THE CONTRIB UTION MADE BY THE ASSESSEE(S) TO THE LABOUR WELFARE FUNDS . TO THIS EFFECT, FIRST PROVISO STOOD INTRODUCED WITH EFFECT FROM 1-4-1988. ITA NO.2885/CHNY/2017 :- 46 -: VIDE FINANCE ACT, 1988, THE SECOND PROVISO CAME TO BE INSERTED. IT READS AS FOLLOWS: 'PROVIDED FURTHER THAT NO DEDUCTION SHALL, IN RESPE CT OF ANY SUM REFERRED TO IN CLAUSE (B) , BE ALLOWED UNLE SS SUCH SUM HAS ACTUALLY BEEN PAID DURING THE PREVIOUS YEAR ON OR BEFORE THE DUE DATE AS DEFINED IN THE EXPLANATION BELOW CLAUSE (VA) OF SUB-SECTION (1) OF SECTION 36.' AT THIS STAGE, WE ALSO QUOTE HEREINBELOW THE EXPLAN ATION BELOW CLAUSE (VA) OF SUB-SECTION (1) OF SECTION 36: 'EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUI RED AS AN EMPLOYER TO CREDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER A NY ACT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVIC E OR OTHERWISE.' 7. HOWEVER, THE SECOND PROVISO STOOD FURTHER AMENDE D VIDE FINANCE ACT, 1989, WITH EFFECT FROM 1-4-1989, WHICH READS AS UNDER: 'PROVIDED FURTHER THAT NO DEDUCTION SHALL, IN RESPE CT OF ANY SUM REFERRED TO IN CLAUSE (B), BE ALLOWED UNLES S SUCH SUM HAS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE ON OR BEFORE THE DUE DATE AS DEFINED IN THE EXPLANATION BELOW CL AUSE (VA) OF SUB-SECTION (1) OF SECTION 36, AND WHERE SU CH PAYMENT HAS BEEN MADE OTHERWISE THAN IN CASH, THE SUM HAS BEEN REALISED WITHIN FIFTEEN DAYS FROM THE DUE DATE.' 8. ON READING THE ABOVE PROVISIONS, IT BECOMES CLEA R THAT THE ASSESSEE(S)-EMPLOYER(S) WOULD BE ENTITLED TO DEDUCT ION ONLY IF THE CONTRIBUTION STANDS CREDITED ON OR BEFORE TH E DUE DATE GIVEN IN THE PROVIDENT FUND ACT. HOWEVER, THE SECON D PROVISO ONCE AGAIN CREATED FURTHER DIFFICULTIES. IN MANY OF THE COMPANIES, FINANCIAL YEAR ENDED ON 31ST MARCH, WHIC H DID NOT COINCIDE WITH THE ACCOUNTING PERIOD OF R.P.F.C. FOR EXAMPLE, IN MANY CASES, THE TIME TO MAKE CONTRIBUTI ON TO R.P.F.C. ENDED AFTER DUE DATE FOR FILING OF RETURNS . THEREFORE, THE INDUSTRY ONCE AGAIN MADE REPRESENTATION TO THE MINISTRY OF FINANCE AND, TAKING COGNIZANCE OF THIS DIFFICULT Y, THE ITA NO.2885/CHNY/2017 :- 47 -: PARLIAMENT INSERTED ONE MORE AMENDMENT VIDE FINANCE ACT, 2003, WHICH, AS STATED ABOVE, CAME INTO FORCE WITH EFFECT FROM 1-4-2004. IN OTHER WORDS, AFTER 1-4-2004, TWO CHANGES WERE MADE, NAMELY, DELETION OF THE SECOND PROVISO A ND FURTHER AMENDMENT IN THE FIRST PROVISO, QUOTED ABOV E. BY THE FINANCE ACT, 2003, THE AMENDMENT MADE IN THE FIRST PROVISO EQUATED IN TERMS OF THE BENEFIT OF DEDUCTION OF TAX , DUTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTIONS TO EMPLOYEES' PROVIDENT FUND, SUPERANNUATION FUND AND OTHER WELFARE FUNDS ON THE OTHER. HOWEVER, THE FINANCE AC T, 2003, BRINGING ABOUT THIS UNIFORMITY CAME INTO FORCE WITH EFFECT FROM 1-4-2004. THEREFORE, THE ARGUMENT OF THE ASSES SEE(S) IS THAT THE FINANCE ACT, 2003, WAS CURATIVE IN NATU RE, IT WAS NOT AMENDATORY AND, THEREFORE, IT APPLIED RETROSPEC TIVELY FROM 1-4-1988, WHEREAS THE ARGUMENT OF THE DEPARTME NT WAS THAT FINANCE ACT, 2003, WAS AMENDATORY AND IT A PPLIED PROSPECTIVELY, PARTICULARLY WHEN THE PARLIAMENT HAD EXPRESSLY MADE THE FINANCE ACT, 2003, APPLICABLE ONLY WITH EF FECT FROM 1-4-2004. IT WAS ALSO ARGUED ON BEHALF OF THE DEPAR TMENT THAT EVEN BETWEEN 1-4-1988 AND 1-4-2004, PARLIAMENT HAD MAINTAINED A CLEAR DICHOTOMY BETWEEN PAYMENT OF TAX , DUTY, CESS OR FEE ON ONE HAND AND PAYMENT OF CONTRIBUTION S TO THE WELFARE FUNDS ON THE OTHER. ACCORDING TO THE DEPART MENT, THAT DICHOTOMY CONTINUED UP TO 1-4-2004, HENCE, LOO KING TO THIS ASPECT, THE PARLIAMENT CONSCIOUSLY KEPT THAT D ICHOTOMY ALIVE UP TO 1-4-2004, BY MAKING FINANCE ACT, 2003, COME INTO FORCE ONLY WITH EFFECT FROM 1-4-2004. HENCE, A CCORDING TO THE DEPARTMENT, FINANCE ACT, 2003 SHOULD BE READ AS AMENDATORY AND NOT AS CURATIVE [RETROSPECTIVE] WITH EFFECT FROM 1-4-1988. 9. WE FIND NO MERIT IN THESE CIVIL APPEALS FILED BY THE DEPARTMENT FOR THE FOLLOWING REASONS: FIRSTLY, AS S TATED ABOVE, SECTION 43B [MAIN SECTION], WHICH STOOD INSE RTED BY FINANCE ACT, 1983, WITH EFFECT FROM 1-4-1984, EXPRE SSLY COMMENCES WITH A NON OBSTANTE CLAUSE, THE UNDERLYIN G OBJECT BEING TO DISALLOW DEDUCTIONS CLAIMED MERELY BY MAKING A BOOK ENTRY BASED ON MERCANTILE SYSTEM OF ACCOUNTING. AT THE SAME TIME, SECTION 43B [MAIN SEC TION] MADE IT MANDATORY FOR THE DEPARTMENT TO GRANT DEDUC TION IN COMPUTING THE INCOME UNDER SECTION 28 IN THE YEAR I N WHICH TAX, DUTY, CESS, ETC., IS ACTUALLY PAID. HOWEVER, P ARLIAMENT TOOK COGNIZANCE OF THE FACT THAT ACCOUNTING YEAR OF A COMPANY DID NOT ALWAYS TALLY WITH THE DUE DATES UND ER THE PROVIDENT FUND ACT, MUNICIPAL CORPORATION ACT [OCTR OI] AND OTHER TAX LAWS. THEREFORE, BY WAY OF FIRST PROVISO, AN INCENTIVE/RELAXATION WAS SOUGHT TO BE GIVEN IN RESP ECT OF TAX, ITA NO.2885/CHNY/2017 :- 48 -: DUTY, CESS OR FEE BY EXPLICITLY STATING THAT IF SUC H TAX, DUTY, CESS OR FEE IS PAID BEFORE THE DATE OF FILING OF TH E RETURN UNDER THE INCOME-TAX ACT [DUE DATE], THE ASSESSEE(S ) THEN WOULD BE ENTITLED TO DEDUCTION. HOWEVER, THIS RELAXATION/INCENTIVE WAS RESTRICTED ONLY TO TAX, DU TY, CESS AND FEE. IT DID NOT APPLY TO CONTRIBUTIONS TO LABOU R 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 WELFA RE LEGISLATIONS BY DELAYING PAYMENT OF CONTRIBUTIONS T O THE WELFARE FUNDS. HOWEVER, AS STATED ABOVE, THE SECOND PROVISO RESULTED IN IMPLEMENTATION PROBLEMS, WHICH HAVE BEE N MENTIONED HEREINABOVE, AND WHICH RESULTED IN THE EN ACTMENT OF FINANCE ACT, 2003, DELETING THE SECOND PROVISO A ND BRINGING ABOUT UNIFORMITY IN THE FIRST PROVISO BY E QUATING TAX, DUTY, CESS AND FEE WITH CONTRIBUTIONS TO WELFARE FU NDS. ONCE THIS UNIFORMITY IS BROUGHT ABOUT IN THE FIRST PROVI SO, THEN, IN OUR VIEW, THE FINANCE ACT, 2003, WHICH IS MADE APPL ICABLE BY THE PARLIAMENT ONLY WITH EFFECT FROM 1-4-2004, WOUL D BECOME CURATIVE IN NATURE, HENCE, IT WOULD APPLY RETROSPECTIVELY WITH EFFECT FROM 1-4-1988. SECONDLY , IT MAY BE NOTED THAT, IN THE CASE OF ALLIED MOTORS (P.) LT D. V. CIT [1997] 224 ITR 677(SC), THE SCHEME OF SECTION 43B O F THE ACT CAME TO BE EXAMINED. IN THAT CASE, THE QUESTION WHICH AROSE FOR DETERMINATION WAS, WHETHER SALES TAX COLL ECTED 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 43B OF T HE ACT WHILE COMPUTING THE BUSINESS INCOME OF THE PREVIOUS YEAR? THAT WAS A CASE WHICH RELATED TO ASSESSMENT YEAR 19 84-85. THE RELEVANT ACCOUNTING PERIOD ENDED ON 30-6-1983. THE INCOME-TAX OFFICER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE WHICH WAS ON ACCOUNT OF SALES TAX COLLECTE D BY THE ASSESSEE FOR THE LAST QUARTER OF THE RELEVANT ACCOU NTING YEAR. THE DEDUCTION WAS DISALLOWED UNDER SECTION 43B WHIC H, AS STATED ABOVE, WAS INSERTED WITH EFFECT FROM 1-4-198 4. IT IS ALSO RELEVANT TO NOTE THAT THE FIRST PROVISO WHICH CAME INTO FORCE WITH EFFECT FROM 1-4-1988 WAS NOT ON THE STAT UTE BOOK WHEN THE ASSESSMENTS WERE MADE IN THE CASE OF ALLIE D MOTORS (P.) LTD. (SUPRA). HOWEVER, THE ASSESSEE CON TENDED THAT EVEN THOUGH THE FIRST PROVISO CAME TO BE INSER TED WITH EFFECT FROM 1-4-1988, IT WAS ENTITLED TO THE BENEFI T OF THAT PROVISO BECAUSE IT OPERATED RETROSPECTIVELY FROM 1- 4-1984, WHEN SECTION 43B STOOD INSERTED. THIS IS HOW THE QU ESTION OF RETROSPECTIVITY AROSE IN ALLIED MOTORS (P.) LTD.'S CASE (SUPRA). THIS COURT, IN ALLIED MOTORS (P.) LTD.'S CASE (SUPR A) HELD THAT, WHEN A PROVISO IS INSERTED TO REMEDY UNINTENDED ITA NO.2885/CHNY/2017 :- 49 -: CONSEQUENCES AND TO MAKE THE SECTION WORKABLE, A PR OVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN THE SECTION A ND WHICH PROVISO IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERPRETATION, IT COULD BE RE AD RETROSPECTIVE IN OPERATION, PARTICULARLY TO GIVE EF FECT TO THE SECTION AS A WHOLE. ACCORDINGLY, THIS COURT, IN ALL IED MOTORS (P.) LTD.'S CASE (SUPRA), HELD THAT THE FIRST PROVI SO WAS CURATIVE IN NATURE, HENCE, RETROSPECTIVE IN OPERATI ON WITH EFFECT FROM 1-4-1988. IT IS IMPORTANT TO NOTE ONCE AGAIN THAT, BY FINANCE ACT, 2003, NOT ONLY THE SECOND PROVISO I S 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 O F EMPLOYEE(S) ON THE OTHER. THIS IS ONE MORE REASON W HY WE HOLD THAT THE FINANCE ACT, 2003, IS RETROSPECTIVE I N OPERATION. MOREOVER, THE JUDGMENT IN ALLIED MOTORS (P.) LTD.'S CASE (SUPRA) IS DELIVERED BY A BENCH OF THREE LEARNED JU DGES, WHICH IS BINDING ON US. ACCORDINGLY, WE HOLD THAT F INANCE ACT, 2003, WILL OPERATE RETROSPECTIVELY WITH EFFECT FROM 1-4-1988 [WHEN THE FIRST PROVISO STOOD INSERTED]. LASTLY, WE MAY POINT OUT THE HARDSHIP AND THE INVIDIOUS DISCRIMINATION W HICH WOULD BE CAUSED TO THE ASSESSEE(S) IF THE CONTENTIO N OF THE DEPARTMENT IS TO BE ACCEPTED THAT FINANCE ACT, 2003 , TO THE ABOVE EXTENT, OPERATED PROSPECTIVELY. TAKE AN EXAMP LE - IN THE PRESENT CASE, THE RESPONDENTS HAVE DEPOSITED TH E CONTRIBUTIONS WITH THE R.P.F.C. AFTER 31ST MARCH [E ND OF ACCOUNTING YEAR] BUT BEFORE FILING OF THE RETURNS U NDER 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 SECO ND PROVISO, WHICH STOOD ON THE STATUTE BOOK AT THE RELEVANT TIM E, EACH OF SUCH ASSESSEE(S) WOULD NOT BE ENTITLED TO DEDUCTION UNDER SECTION 43B OF THE ACT FOR ALL TIMES. THEY WOULD LO SE THE BENEFIT OF DEDUCTION EVEN IN THE YEAR OF ACCOUNT IN WHICH THEY PAY THE CONTRIBUTIONS TO THE WELFARE FUNDS, WH EREAS A DEFAULTER, WHO FAILS TO PAY THE CONTRIBUTION TO THE WELFARE FUND RIGHT UP TO 1-4-2004, AND WHO PAYS THE CONTRIB UTION AFTER 1-4-2004, WOULD GET THE BENEFIT OF DEDUCTION UNDER SECTION 43B OF THE ACT. IN OUR VIEW, THEREFORE, FIN ANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, SHOULD BE READ AS RETROSPECTIVE. IT WOULD, THEREFORE, OPERATE FROM 1- 4-1988, WHEN THE FIRST PROVISO WAS INTRODUCED. IT IS TRUE T HAT THE PARLIAMENT HAS EXPLICITLY STATED THAT FINANCE ACT, 2003, WILL OPERATE WITH EFFECT FROM 1-4-2004. HOWEVER, THE MAT TER BEFORE US INVOLVES THE PRINCIPLE OF CONSTRUCTION TO BE PLACED ON THE PROVISIONS OF FINANCE ACT, 2003. ITA NO.2885/CHNY/2017 :- 50 -: 10. BEFORE CONCLUDING, WE EXTRACT HEREINBELOW THE R ELEVANT OBSERVATIONS OF THIS COURT IN THE CASE OF CIT V. J. H. GOTLA [1985] 156 ITR 323, WHICH READS AS UNDER: '...WE SHOULD FIND OUT THE INTENTION FROM THE LANGU AGE USED BY THE LEGISLATURE AND IF STRICT LITERAL CONST RUCTION LEADS TO AN ABSURD RESULT, I.E., A RESULT NOT INTEN DED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION FOUND IN THE MANNER INDICATED BEFORE, THEN IF ANOTHER CONSTRUCTION IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION, THEN THAT CONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCTION. THOUG H 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 PREFERR ED TO THE LITERAL CONSTRUCTION....' (P. 339) FOR THE AFORE-STATED REASONS, WE HOLD THAT FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, IS CURATIVE IN NATUR E, HENCE, IT IS RETROSPECTIVE AND IT WOULD OPERATE WITH EFFECT F ROM 1-4- 1988 [WHEN THE FIRST PROVISO CAME TO BE INSERTED]. FOR THE ABOVE REASONS, WE FIND NO MERIT IN THIS BATCH OF CI VIL APPEALS FILED BY THE DEPARTMENT WHICH ARE HEREBY DISMISSED WITH NO ORDER AS TO COSTS. CIVIL APPEAL NO. 7755/2009 @ S.L.P. (C) NO. 20581/2 008 AND CIVIL APPEAL NO. 7757/2009 @ S.L.P. (C) NO. 18380/2009: 11. LEAVE GRANTED. 12. IN VIEW OF OUR JUDGMENT IN THE CASE OF CIT V. A LOM EXTRUSIONS LTD. [CIVIL APPEAL ARISING OUT OF S.L.P. (C) NO. 23851 OF 2007], WE SET ASIDE THE IMPUGNED JUDGMENT AND ORDER OF THE BOMBAY HIGH COURT AND ALLOW THESE CIVI L APPEALS FILED BY THE ASSESSEES WITH NO ORDER AS TO COSTS. 10.3.5 IT IS ALSO PERTINENT TO REPRODUCE AT THIS ST AGE THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF AIMIL LIMITED(SUPRA) WHEREIN HONBLE DELHI HIGH COURT INTERPRETED THE DE CISION OF HONBLE SUPREME COURT TO BE APPLICABLE TO BOTH EMPL OYER AND EMPLOYEES CONTRIBUTION AND IN CASE THE SAID AMOUNTS WERE ITA NO.2885/CHNY/2017 :- 51 -: DEPOSITED BY EMPLOYER TO THE CREDIT OF EMPLOYEES WI TH THE RESPECTIVE FUNDS BEFORE THE DUE DATE AS PRESCRIBED U/S 139(1) OF THE 1961 ACT, THE DEDUCTION FROM THE INCOME SHALL B E ALLOWED , BY HOLDING AS UNDER: 4. IN SOME OTHER APPEALS PREFERRED BY THE ASSESSEE S, THE ITAT HAS TAKEN CONTRARY VIEW AND UPHELD THE ADDITIO N MADE BY THE ASSESSING OFFICERS. UNDER THESE CIRCUMSTANCE S, ALL THESE APPEALS WERE ADMITTED AND HEARD ON THE FOLLOW ING QUESTION OF LAW : 'WHETHER THE ITAT WAS CORRECT IN LAW IN DELETING TH E ADDITION RELATING TO EMPLOYEES' CONTRIBUTION TOWARD S PROVIDENT FUND AND ESI MADE BY THE ASSESSING OFFICE R UNDER SECTION 36(1)(VA) OF THE INCOME-TAX ACT, 1961 ?' 5. SECTION 36 OF THE ACT DEALS WITH CERTAIN DEDUCTI ONS WHICH SHALL BE ALLOWED IN RESPECT OF MATTERS DEALT WITH T HEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HE ACT. DIFFERENT TYPES OF DEDUCTIONS ARE PROVIDED THEREIN IN VARIOUS CLAUSES OF SECTION 36. CLAUSE (IV) OF SUB-SECTION ( 1) DEALS WITH DEDUCTIONS ON ACCOUNT OF CONTRIBUTION TOWARDS A RECOGNIZED PROVIDENT FUND OR AN APPROVED SUPERANNUA TION FUND MADE BY THE ASSESSEE AS AN EMPLOYER, SUBJECT T O CERTAIN LIMITS AND ALSO SUBJECT TO CERTAIN CONDITIO NS AS THE CBDT MAY THINK FIT TO SPECIFY. CLAUSE (V) OF SUB-SE CTION (1) OF SECTION 36 ENABLES THE ASSESSEE TO SEEK DEDUCTIO N IN RESPECT OF SUM PAID BY IT AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND CREA TED BY HIM FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDE R AN IRREVOCABLE TRUST. THEN COMES CLAUSE (VA) WHICH DEA LS ABOUT EMPLOYEES' CONTRIBUTION IN THE PROVIDENT FUND AND E SI AND READS AS UNDER : '(VA)ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF H IS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CRED ITED BY THE ASSESSEE TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. EXPLANATION - FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUI RED AS AN EMPLOYER TO CREDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER A NY ITA NO.2885/CHNY/2017 :- 52 -: ACT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OR SERVIC E OR OTHERWISE.' 6. IT WOULD ALSO BE APPROPRIATE TO TAKE NOTE OF SEC TION 43B OF THE ACT PRIMARILY FOR THE REASON THAT IN VINAY CEME NT LTD.'S CASE (SUPRA) IT WAS THIS PROVISION WHICH CAME UP FO R DISCUSSION BEFORE THE SUPREME COURT AND ALSO KEEPIN G IN VIEW THE CONTENTION OF LEARNED COUNSEL FOR THE REVE NUE THAT THIS JUDGMENT WOULD BE OF NO AVAIL TO THE ASSESSEE WHILE DISCUSSING THE MATTER UNDER SECTION 36(1)(VA) OF TH E ACT. SECTION 43B STIPULATES THAT CERTAIN DEDUCTIONS ARE TO BE GIVEN ONLY ON ACTUAL PAYMENT. CLAUSE (B) THEREOF TALKS AB OUT CONTRIBUTION BY THE ASSESSEE AS EMPLOYER TO ANY PRO VIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF THE EMPLOYEES. SINCE WE ARE CONCERNED ONLY WITH CLAUSE (B), WE REPRODUCE THE SA ME FOR CLEARER UNDERSTANDING : '43B. CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT.NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF ****** (B)ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER B Y WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER F UND FOR THE WELFARE OF EMPLOYEES, OR, ****** SHALL BE ALLOWED IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS Y EAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM : PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE I N HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIO US YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INC URRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS ITA NO.2885/CHNY/2017 :- 53 -: FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN.' [EMPHASIS SUPPLIED] 7. DURING THE PERIOD IN QUESTION WITH WHICH WE ARE CONCERNED, SECTION 43B CONTAINED SECOND PROVISO ALS O, WHICH STANDS OMITTED BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1- 4-2004. SINCE, THIS PROVISION EXISTED AT THE RELEVA NT TIME, IT ALSO NEEDS TO BE REPRODUCED : 'PROVIDED FURTHER THAT NO DEDUCTION SHALL, IN RESPE CT OF ANY SUM REFERRED TO IN CLAUSE (B), BE ALLOWED UNLES S SUCH SUM HAS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE ON OR BEFORE THE DUE DATE AS DEFINED IN THE EXPLANATION BELOW CL AUSE (VA) OF SUB-SECTION (1) OF SECTION 36, AND WHERE SU CH PAYMENT HAS BEEN MADE OTHERWISE THAN IN CASH, THE SUM HAS BEEN REALIZED WITHIN FIFTEEN DAYS FROM THE DUE DATE.' 8. AS PER THE FIRST PROVISO, IF THE PAYMENT IS ACTU ALLY MADE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR F ILING THE RETURN, IT WOULD BE ADMISSIBLE AS DEDUCTION. THUS, THE 'DUE DATE' IS THE DATE ON WHICH RETURN IS TO BE FILED. T HE CASE OF THE REVENUE IS THAT FOR EMPLOYEES' CONTRIBUTION, TH E 2ND PROVISO WAS SPECIFICALLY INCORPORATED AND IN THE PR ESENT CASE, AS WE ARE CONCERNED WITH NON-DEPOSIT OF THE EMPLOYE ES' CONTRIBUTION TOWARDS PROVIDENT FUND AS WELL AS ESI CONTRIBUTION BY THE EMPLOYER, ONLY 2ND PROVISO BE L OOKED INTO. 9. WHAT IS SOUGHT TO BE ARGUED IS THAT DISTINCTION IS TO BE MADE WHILE TREATING THE CASE RELATED TO EMPLOYERS' CONTRIBUTION ON THE ONE HAND AND EMPLOYEES' CONTRIB UTION ON THE OTHER HAND. IT WAS SUBMITTED THAT WHEN EMPLOYEE S' CONTRIBUTION IS RECOVERED FROM THEIR SALARIES/WAGES , THAT IS TRUST MONEY IN THE HANDS OF THE ASSESSEE. FOR THIS REASON, RIGOURS OF LAW ARE PROVIDED BY TREATING IT AS INCOM E WHEN THE ASSESSEE RECEIVES THE EMPLOYEES' CONTRIBUTION AND E NABLING THE ASSESSEE TO CLAIM DEDUCTION ONLY ON ACTUAL PAYM ENT BY DUE DATE SPECIFIED UNDER THE PROVISIONS. 10. MS. PREM LATA BANSAL, LEARNED COUNSEL FOR THE R EVENUE, THUS, ARGUED THAT THE SECOND PROVISO TO SECTION 43B , AS IT STOOD AT THE RELEVANT TIME, CLEARLY MENTIONED THAT DEDUCTION IN RESPECT OF ANY SUM REFERRED TO IN CLAUSE (B) SHA LL NOT BE ALLOWED UNLESS SUCH SUM HAS ACTUALLY BEEN PAID IN C ASH OR BY ISSUANCE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE ON OR ITA NO.2885/CHNY/2017 :- 54 -: BEFORE THE DUE DATE, AS DEFINED IN THE EXPLANATION BELOW CLAUSE (VA) OF SUB-SECTION (1) OF SECTION 36. THUS, THE ASSESSEE WOULD EARN THE ENTITLEMENT ONLY IF THE ACT UAL PAYMENT IS MADE BEFORE THE DUE DATE SPECIFIED IN EXPLANATION BELOW CLAUSE (VA) OF SUB-SECTION (1) OF SECTION 36 OF THE ACT. AS PER THE SAID EXPLANATION, 'DUE DA TE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED, AS AN E MPLOYER, TO CREDIT THE EMPLOYEES' CONTRIBUTION TO THE EMPLOY EES' ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULES, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STANDIN G ORDER AWARD CONTRACT OF SERVICE OR OTHERWISE. 11. BEFORE WE DELVE INTO THIS DISCUSSION, WE MAY TA KE NOTE OF SOME MORE PROVISIONS OF THE ACT. SECTION 2(24) OF T HE ACT ENUMERATES DIFFERENT COMPONENTS OF INCOME. IT, INTE R ALIA, STIPULATES THAT INCOME INCLUDES ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND S ET UP UNDER THE PROVISIONS OF THE EMPLOYEES' STATE INSURA NCE ACT, 1948 (34 OF 1948), OR ANY OTHER FUND FOR THE WELFAR E OF SUCH EMPLOYEES. IT IS CLEAR FROM THE ABOVE THAT AS SOON AS EMPLOYEES' CONTRIBUTION TOWARDS PROVIDENT FUND OR E SI IS RECEIVED BY THE ASSESSEE BY WAY OF DEDUCTION OR OTH ERWISE FROM THE SALARY/WAGES OF THE EMPLOYEES, IT WILL BE TREATED AS 'INCOME' AT THE HANDS OF THE ASSESSEE. IT CLEARLY F OLLOWS THEREFROM THAT IF THE ASSESSEE DOES NOT DEPOSIT THI S CONTRIBUTION WITH PROVIDENT FUND/ESI AUTHORITIES, I T WILL BE TAXED AS INCOME AT THE HANDS OF THE ASSESSEE. HOWEV ER, ON MAKING DEPOSIT WITH THE CONCERNED AUTHORITIES, THE ASSESSEE BECOMES ENTITLED TO DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT. SECTION 43B(B), HOWEVER, STIP ULATES THAT SUCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON AC TUAL PAYMENT. THIS IS THE SCHEME OF THE ACT FOR MAKING A N ASSESSEE ENTITLED TO GET DEDUCTION FROM INCOME INSO FAR AS EMPLOYEES' CONTRIBUTION IS CONCERNED. IT IS IN THIS BACKDROP WE HAVE TO DETERMINE AS TO AT WHAT POINT OF TIME TH IS PAYMENT IS TO BE ACTUALLY MADE. 12. SINCE THE ITAT WHILE HOLDING THAT THE AMOUNT WO ULD QUALIFY FOR DEDUCTION EVEN IF PAID AFTER THE DUE DA TES PRESCRIBED UNDER THE PROVIDENT FUND/ESI ACT BUT BEF ORE THE FILING OF THE INCOME-TAX RETURNS BY PLACING RELIANC E UPON THE SUPREME COURT JUDGMENT IN VINAY CEMENT LTD.'S CASE (SUPRA). AT THIS JUNCTURE WE TAKE NOTE OF THE DISCU SSION OF ITAT ON THIS ASPECT : ITA NO.2885/CHNY/2017 :- 55 -: '11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. IN THE ASSESSMENT ORDER LD. ASSESSING OFFICER HAS CATEGORICALLY STATED THAT WHAT THE AMOUNT DUE WAS F OR WHICH MONTH IN RESPECT OF EPF, FAMILY PENSION, PF INSPECTION CHARGES AND ESI DEPOSITS AND WHAT WERE T HE DUE DATES FOR THESE DEPOSITS AND ON WHICH DATE THES E DEPOSITS WERE MADE. THE DATES OF DEPOSITS ARE MENTIONED BETWEEN 23RD MAY, 2001 TO 23RD APRIL, 2002. THE LATEST PAYMENT IS MADE ON 23RD APRIL, 200 2 AND ASSESSEE BEING LIMITED COMPANY HAD FILED ITS RE TURN ON 20TH OCTOBER, 2002 WHICH IS A DATE NOT BEYOND TH E DUE DATE OF FILING OF THE RETURN. THUS, IT IS CLEAR BEYOND DOUBT THAT ALL THE PAYMENTS WHICH HAVE BEEN DISALLOWED WERE MADE MUCH EARLIER TO THE DUE DATE O F FILING OF THE RETURN. THE DISALLOWANCE IS NOT MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THERE IS N O PROOF OF MAKING SUCH PAYMENT BUT DISALLOWANCE IS MADE ONLY ON THE GROUND THAT THESE PAYMENTS HAVE BEEN MADE BEYOND THE DUE DATES OF MAKING THESE PAYMENTS UNDER THE RESPECTIVE STATUTE. THUS, IT WAS NOT AN ISSUE THAT THE PAYMENTS WERE NOT MADE BY THE ASSESSEE ON THE DATES WHICH HAVE BEEN STATED TO BE THE DATES OF DEPOSITS IN THE ASSESSMENT ORDER. IF S UCH IS A FACTUAL ASPECT THEN ACCORDING TO LATEST POSITI ON OF LAW CLARIFIED BY HON'BLE SUPREME COURT IN THE CASE OF CIT V. VINAY CEMENT LTD. THAT NO DISALLOWANCE COULD BE MADE IF THE PAYMENTS ARE MADE BEFORE THE DUE DATE O F FILING THE RETURN OF INCOME. THIS ISSUE CAME BEFORE HON'BLE SUPREME COURT IN THE CASE OF CIT V. VINAY CEMENT LTD. WHICH WAS A SPECIAL LEAVE PETITION FILE D BY THE DEPARTMENT AGAINST THE HIGH COURT ORDER OF 26TH JUNE, 2006 IN ITA NO. 2/05 AND ITA NO. 56/03 AND IT A NO. 80/03 OF THE HIGH COURT OF GUWAHATI, ASSAM AND IT IS ORDER DATED 7TH MARCH, 2007. A COPY OF THE SAID ORDER IS PLACED ON RECORD. THE OBSERVATIONS OF THEI R LORDSHIPS ON THE ISSUE ARE AS UNDER : 'IN THE PRESENT CASE WE ARE CONCERNED WITH THE LAW AS IT STOOD PRIOR TO THE AMENDMENT OF SECTION 43B. IN THE CIRCUMSTANCES THE ASSESSEE WAS ENTITLED TO CLAIM THE BENEFIT IN SECTION 43B FOR THAT PERIOD PARTICULARLY IN VIEW OF THE FACT THAT H E HAS CONTRIBUTED TO PROVIDENT FUND BEFORE FILING OF THE RETURN. THE SPECIAL LEAVE PETITION IS DISMISSED.' ITA NO.2885/CHNY/2017 :- 56 -: 13. IT IS CLEAR FROM THE ABOVE THAT IN VINAY CEMENT LTD.'S CASE (SUPRA), THE SLP PREFERRED BY THE REVEN UE AGAINST THE JUDGMENT OF THE GUWAHATI HIGH COURT WAS DISMISSED MAKING THE AFOREQUOTED OBSERVATIONS. THE REASONS ARE GIVEN AND, THUS, IT AMOUNTS TO AFFIRMAT ION OF THE VIEW TAKEN BY THE HIGH COURT OF GUWAHATI. 14. WHEN WE KEEP THAT PROPOSITION IN MIND AND ALSO TAKE INTO CONSIDERATION VARIOUS JUDGMENTS WHERE VIN AY CEMENT LTD.'S CASE (SUPRA) IS APPLIED AND FOLLOWED, IT WILL NOT BE POSSIBLE TO ACCEPT THE CONTENTION OF TH E REVENUE. 15. IN CIT V. DHARMENDRA SHARMA [2008] 297 ITR 320, THIS COURT SPECIFICALLY DEALT WITH THIS ISSUE AND R ELYING UPON THE AFORESAID JUDGMENT OF THE GUWAHATI HIGH COURT, AS AFFIRMED BY THE SUPREME COURT IN VINAY CEMENT LTD.'S CASE (SUPRA), THE APPEAL OF THE REVEN UE WAS DISMISSED. MORE DETAILED DISCUSSION IS CONTAINE D IN ANOTHER JUDGMENT OF THIS COURT IN CIT V. P.M. ELECTRONICS LTD. [2009] 177 TAXMAN 1 . SPECIFIC QUESTIONS OF LAW WHICH WERE PROPOSED BY THE REVENUE IN THAT CASE WERE AS UNDER : '(A)WHETHER AMOUNTS PAID ON ACCOUNT OF PF/ESI AFTER 'DUE DATE' ARE ALLOWABLE IN VIEW OF SECTION 43B, READ WITH SECTION 36(1)(VA) OF THE ACT? (B)WHETHER THE DELETION OF THE 2ND PROVISO TO SECTION 43B BY WAY OF AMENDMENT BY THE FINANCE ACT, 2003 IS RETROSPECTIVE IN NATURE' (P. 2) 16. THESE QUESTIONS WERE ANSWERED BY THE DIVISION BENCH IN THE FOLLOWING MANNER : '7. HAVING HEARD THE LEARNED COUNSEL FOR THE REVENUE, AS WELL AS, THE ASSESSEE, WE ARE OF THE VIEW THAT THE VIEW TAKEN BY THE TRIBUNAL DESERVES TO BE SUSTAINED AS IT IS NO LONGER RES INTEGRA IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. VINAY CEMENT LTD. 213 ITR 268 WHICH HAS BEEN FOLLOWED BY A DIVISION BENCH OF THIS COURT IN THE CASE OF CIT V. DHARMENDRA SHARMA [2008] 297 ITR 320. ITA NO.2885/CHNY/2017 :- 57 -: 8. DESPITE THE AFORESAID JUDGMENTS, THE LEARNED COUNSEL FOR THE TRIBUNAL HAS CONTENDED THAT IN VIEW OF THE JUDGMENT OF THE DIVISION BENCH OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. SYNERGY FINANCIAL EXCHANGE LTD. [2007] 288 ITR 366 AND THAT OF THE DIVISION BENCH OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. PAMWI TISSUES LTD. [2008] TAXINDIAONLINE.COM 104 (TIOL) THE ISSUE REQUIRES CONSIDERATION. ACCORDING TO US, IN VIEW OF THE DISMISSAL OF THE SPECIAL LEAVE PETITION IN THE CASE OF VINAY CEMENT LTD. (SUPRA) BY THE SUPREME COURT BY A SPEAKING ORDER, THE SUBMISSION OF THE LEARNED COUNSEL FOR THE REVENUE HAS TO BE REJECTED AT THE VERY THRESHOLD. THE REASON FOR THE SAME IS AS FOLLOWS: 9. THE GAUHATI HIGH COURT IN THE CASE OF CIT V. GEORGE WILLIAMSON (ASSAM) LTD. [2006] 284 ITR 619 DEALT WITH THE VERY SAME ISSUE. IN THE SAID JUDGMENT THE DIVISION BENCH OF THE GAUHATI HIGH COURT NOTED A CONTRARY VIEW TAKEN BY THE KERALA HIGH COURT IN THE CASE OF CIT V. SOUTH INDIA CORPORATION LTD. [2000] 242 ITR 114. AFTER NOTING THE SAID JUDGMENT THE FACT THAT THE AMENDMENTS HAD BEEN MADE TO THE PROVISIONS OF SECTION 43B OF THE ACT BY VIRTUE OF FINANCE ACT, 2003 WITH EFFECT FROM 1-4-2004 IT AGREED WITH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT BY VIRTUE OF THE OMISSION OF THE SECOND PROVISO AND THE OMISSION OF CLAUSES (A), (C), (D ), (E) AND (F) WITHOUT ANY SAVING CLAUSE WOULD MEAN THAT THE PROVISIONS WERE NEVER IN EXISTENCE. FOR THIS PURPOSE, IN THE SAID CASE THE ASSESSEE HAD PLACED RELIANCE ON THE JUDGMENT OF A CONSTITUTION BENCH OF THE SUPREME COURT IN THE CASE OF KOLHAPUR CANESUGAR WORKS LTD. V. UNION OF INDIA [2000] 2 SCC 536 AND RAYALA CORPORATION (P.) LTD. V. DIRECTOR OF ENFORCEMENT [1969] 2 SCC 412 AND GENERAL FINANCE CO. V. ASSTT. CIT [2002] 257 ITR 338 (SC). THE SAID SUBMISSIONS FOUND FAVOUR WITH THE DIVISION BENCH OF THE GUWAHATI HIGH COURT AND RELYING ON EARLIER DECISIONS OF ITS OWN COURT IN CIT V. ASSAM TRIBUNE [2002] 253 ITR 93 AND CIT V. BHARAT BAMBOO & TIMBER SUPPLIERS [1996] 219 ITR 212 THE DIVISION BENCH DISMISSED THE APPEAL OF THE REVENUE. IT TRANSPIRES THAT THE AFORESAID MATTER ITA NO.2885/CHNY/2017 :- 58 -: WAS TAKEN UP IN APPEAL ALONG WITH OTHER MATTERS INCLUDING VINAY CEMENT LTD.'S CASE (SUPRA). THE ORDER IN VINAY CEMENT LTD.'S CASE (SUPRA) WAS PASSED BY THE SUPREME COURT ON 7-3-2007 WHEREIN IT OBSERVED AS FOLLOWS:- 'DELAY CONDONED. IN THE PRESENT CASE WE ARE CONCERNED WITH THE LAW AS IT STOOD PRIOR TO THE AMENDMENT OF SECTION 43B. IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED TO CLAIM THE BENEFIT IN SECTION 43B FOR THAT PERIOD PARTICULARLY IN VIEW OF THE FACT THAT H E HAS CONTRIBUTED TO PROVIDENT FUND BEFORE FILING OF THE RETURN. SPECIAL LEAVE PETITION IS DISMISSED'. 10. IN VIEW OF THE ABOVE, IT IS QUITE EVIDENT THAT THE SPECIAL LEAVE PETITION WAS DISMISSED BY A SPEAKING ORDER AND WHILE DOING SO THE SUPREME COURT HAD NOTICED THE FACT THAT THE MATTER IN APPEAL BEFORE IT PERTAIN TO A PERIOD PRIOR TO THE AMENDMENT BROUGHT ABOUT IN SECTION 43B OF THE ACT. THE AFORESAID POSITION AS REGARDS THE STATE OF THE LAW FOR A PERIOD PRIOR TO THE AMENDMENT TO SECTION 43B HAS BEEN NOTICED BY A DIVISION BENCH OF THIS COURT IN DHARMENDRA SHARMA'S CASE (SUPRA). APPLYING THE RATIO OF THE DECISION OF THE SUPREME COURT IN VINAY CEMENT LTD.'S CASE (SUPRA) A DIVISION BENCH OF THIS COURT DISMISSED THE APPEALS OF THE REVENUE. IN THE PASSING WE MAY ALSO NOTE THAT A DIVISION BENCH OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. NEXUS COMPUTER (P.) LTD. BY A JUDGMENT DATED 18-8- 2008 PASSED IN TAX CASE (A) NO. 1192/2008 DISCUSSED THE IMPACT OF BOTH THE DISMISSAL OF THE SPECIAL LEAVE PETITION IN THE CASE OF GEORGE WILLIAMSON (ASSAM) LTD. (SUPRA) AND VINAY CEMENT LTD.'S CASE (SUPRA) AS WELL AS A CONTRARY VIEW OF THE DIVISION BENCH OF ITS OWN COURT IN SYNERGY FINANCIAL EXCHANGE'S CASE (SUPRA). THE DIVISION BENCH OF THE MADRAS HIGH COURT HAS EXPLAINED THE EFFECT OF THE DISMISSAL OF A SPECIAL LEAVE PETITION BY A SPEAKING ORDER BY RELYING UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF KUNHAYAMMED V. STATE OF KERALA 119 STC 505 AT PAGE 526 IN PARAGRAPH 40 AND NOTED THE FOLLOWING OBSERVATIONS: 'IF THE ORDER REFUSING LEAVE TO APPEAL IS A SPEAKING ORDER, I.E., GIVES REASONS FOR REFUSING ITA NO.2885/CHNY/2017 :- 59 -: THE GRANT OF LEAVE, THEN THE ORDER HAS TWO IMPLICATIONS. FIRSTLY, THE STATEMENT OF LAW CONTAINED IN THE ORDER IS A DECLARATION OF LAW BY THE SUPREME COURT WITHIN THE MEANING OF ARTICLE 141 OF THE CONSTITUTION. SECONDLY, OTHER THAN THE DECLARATION OF LAW, WHATEVER IS STATED IN THE ORDER ARE THE FINDINGS RECORDED BY THE SUPREME COURT WHICH WOULD BIND THE PARTIES THERETO AND ALSO THE COURT, TRIBUNAL OR AUTHORITY IN ANY PROCEEDINGS SUBSEQUENT THERETO BY WAY OF JUDICIAL DISCIPLINE, THE SUPREME COURT BEING THE APEX COURT OF THE COUNTRY. BUT, THIS DOES NOT AMOUNT TO SAYING THAT THE ORDER OF THE COURT. TRIBUNAL OR AUTHORITY BELOW HAS STOOD MERGED IN THE ORDER OF THE SUPREME COURT REJECTING SPECIAL LEAVE PETITION OR THAT THE ORDER OF THE SUPREME COURT IS THE ONLY ORDER BINDING AS RES JUDICATA IN SUBSEQUENT PROCEEDINGS BETWEEN THE PARTIES.' 11. UPON NOTING THE OBSERVATIONS OF THE SUPREME COURT IN KUNHAYAMMED'S CASE (SUPRA) THE DIVISION BENCH OF THE MADRAS HIGH COURT IN THE CASE OF NEXUS COMPUTER (P.) LTD. (SUPRA) CAME TO THE CONCLUSION THAT THE VIEW TAKEN BY THE SUPREME COURT IN VINAY CEMENT LTD.'S CASE (SUPRA) WOULD BIND THE HIGH COURT AS IT WAS NOT DECLARED BY THE SUPREME COURT UNDER ARTICLE 141 OF THE CONSTITUTION. 12. WE ARE IN RESPECTFUL AGREEMENT WITH THE REASONING OF THE MADRAS HIGH COURT IN NEXUS COMPUTER (P.) LTD.'S CASE (SUPRA). JUDICIAL DISCIPLINE REQUIRES US TO FOLLOW THE VIEW OF THE SUPREME COURT IN VINAY CEMENT LTD.'S CASE (SUPRA) AS ALSO THE VIEW OF THE DIVISION BENCH OF THIS COURT IN DHARMENDRA SHARMA'S CASE (SUPRA). 13. IN THESE CIRCUMSTANCES, WE RESPECTFULLY DISAGREE WITH THE APPROACH ADOPTED BY A DIVISION BENCH OF THE BOMBAY HIGH COURT IN PAMWI TISSUES LTD.'S CASE (SUPRA). 14. IN THESE CIRCUMSTANCES INDICATED ABOVE, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION IN THE PRESENT APPEAL. THE APPEAL IS, THUS, DISMISSED.' (P. 3) ITA NO.2885/CHNY/2017 :- 60 -: IT ALSO BECOMES CLEAR THAT DELETION OF THE 2ND PROV ISO IS TREATED AS RETROSPECTIVE IN NATURE AND WOULD NOT AP PLY AT ALL. THE CASE IS TO BE GOVERNED WITH THE APPLICA TION OF THE 1ST PROVISO. 17. WE MAY ONLY ADD THAT IF THE EMPLOYEES' CONTRIBUTION IS NOT DEPOSITED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYE D PAYMENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPE CIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WE LL AS THE ESI ACT. THEREFORE, THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES. INSOFAR AS T HE INCOME-TAX ACT IS CONCERNED, THE ASSESSEE CAN GET T HE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RE TURN IS FILED, AS PER THE PRINCIPLE LAID DOWN BY THE SUP REME COURT IN VINAY CEMENT LTD.'S CASE (SUPRA). 18. WE, THUS, ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. AS A CONSEQUENCE, THE APPEALS FILED BY THE ASSESSEES STAND ALLOWED AN D THOSE FILED BY THE REVENUE ARE DISMISSED. NO COSTS. 10.3.6 WE HAVE ALSO OBSERVED THAT HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. M/S.INDUSTRIAL SECURITY AND INTELLIG ENCE INDIA PVT. LTD.(CITED SUPRA), HAS DECIDED THIS ISSUE IN FAVOUR OF THE TAX-PAYER AND DEDUCTION TOWARDS EMPLOYEES CONTRIBUTION TO PF/ ESI WAS ALLOWED PROVIDED THE SAME IS DEPOSITED TO THE CREDI T OF EMPLOYEES WITH RESPECTIVE PF/ESI FUNDS BEFORE THE DUE DATE PR ESCRIBED U/S 139(1) OF THE 1961 ACT, ALBEIT THE SAME WAS DEPOSIT ED AFTER THE DUE DATE AS PRESCRIBED FOR PAYMENT UNDER STATUTE GO VERNING PF/ESI. THE HONBLE MADRAS HIGH COURT WHILE ADJUDIC ATING THE AFORESAID APPEAL IN THE CASE OF INDUSTRIAL SECURITY (SUPRA) IN FAVOUR ITA NO.2885/CHNY/2017 :- 61 -: OF TAX-PAYER REFERRED TO THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LIMITED REPORTED IN 319 ITR 306(SC) AND DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. AIMIL LIMITED REPORTED IN (2010) 321 ITR 508(DEL .) , AND HONBLE MADRAS HIGH COURT HELD AS UNDER : 5. WE FIND THAT THE TRIBUNAL HAS RIGHTLY RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ALOM EXT RUSION LTD. REPORTED IN 319 ITR 306, WHEREBY , THE SUPREME COURT HELD THAT OMISSION OF SECOND PROVISO TO SECTION 43B AND AMENDMENT TO FIRST PROVISO BY FINANCE ACT, 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY , I.E. , WITH EFFECT FROM 1.4.1988 I.E. THE DATE OF INSERTION OF FIRST P ROVISO . THE DELHI HIGH COURT IN THE CASE OF CIT V. AIMIL LTD. R EPORTED IN 321 ITR 508 HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT , BUT BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE I NCOME TAX ACT, NO DISALLOWANCE COULD BE MADE IN VIEW OF THE P ROVISIONS OF SECTION 43B AS AMENDED BY FINANCE ACT, 2003. 6. IN THE PRESENT CASE, THE ASSESSEE HAD REMITTED T HE EMPLOYEES CONTRIBUTION BEYOND THE DUE DATE FOR PAYM ENT, BUT WITHIN THE DUE DATE FOR FILING THE RETURN OF IN COME. HENCE, FOLLOWING THE ABOVE-SAID DECISION, WE FIND N O REASON TO DIFFER WITH THE FINDINGS OF THE TRIBUNAL. ACCORD INGLY, WE FIND NO QUESTION OF LAW MUCH LESS ANY SUBSTANTIAL Q UESTION OF LAW ARISES FOR CONSIDERATION IN THESE APPEALS. ACCO RDINGLY, BOTH THE TAX CASE(APPEALS) STAND DISMISSED. NO COST S. CONSEQUENTLY, M.P. N. 1 OF 2015 IS ALSO DISMISSED. 10.3.7 WE HAVE ALSO OBSERVED THAT CO-ORDINATE DIVIS ION BENCH OF CHENNAI TRIBUNAL IN ACIT V. SPEL SEMICONDUCTOR LIMI TED IN I.T.A. NO. 3263/CHNY/2018 FOR AY:2013-14 HAS DECIDED THIS ISSU E IN FAVOUR OF THE TAX-PAYER AS IN THAT CASE THE EMPLOYEE CONTRIBUTION OF THE PROVIDENT FUND WAS DEPOSITED BY EMPLOYER TO THE CREDIT OF EM PLOYEES WITH ITA NO.2885/CHNY/2017 :- 62 -: RESPECTIVE PF FUND AFTER THE DUE DATE AS PRESCRIBED IN THE APPLICABLE PF ACT, BUT WAS DEPOSITED BEFORE THE DUE DATE AS PR ESCRIBED FOR FILING OF RETURN OF INCOME UNDER SECTION 139(1) OF THE 196 1 ACT, BY RELYING ON DECISION OF HONBLE MADRAS HIGH COURT IN THE CAS E OF CIT V. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PRIVATE LI MITED(SUPRA) . ONE OF US NAMELY HONBLE JUDICIAL MEMBER WAS PART OF THE D IVISION BENCH WHO PRONOUNCED THE ORDER IN THE CASE OF SPEL SEMICONDUC TOR LIMITED(SUPRA). 10.3.8 WE HAVE OBSERVED THAT MOST OF THE HONBLE HI GH COURTS IN INDIA HAVE TAKEN A VIEW ON THIS ISSUE OF BELATED DE POSIT OF EMPLOYEE CONTRIBUTION TOWARDS PF/ESI AND OTHER EMPL OYEES WELFARE FUNDS BEYOND THE DATE PRESCRIBED UNDER STAT UTE GOVERNING PF/ESI AND OTHER EMPLOYEE WELFARE FUNDS BUR DEPOSIT ED PRIOR TO DUE DATE FOR FILING OF RETURN OF INCOME U/S 139(1) OF THE 1961 ACT, IN FAVOUR OF THE TAX-PAYER , WHILE WE HAVE ALSO OBS ERVED THAT HONBLE KERALA HIGH COURT AND HONBLE GUJARAT HIGH COURT HAS TAKEN A VIEW ON THIS ISSUE FAVORABLE TO REVENUE. O UR HONBLE JURISDICTIONAL HIGH COURT HAS TAKEN A VIEW IN FAVOU R OF THE TAX- PAYER AND JUDICIAL DISCIPLINE DEMANDS THAT WE FOLLO W THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT VIZ. IN THE CA SE OF CIT V. M/S.INDUSTRIAL SECURITY AND INTELLIGENCE INDIA PVT. LTD.(SUPRA), WHICH JUDGMENT IS BINDING ON US. AT THIS STAGE WE WOULD LIKE TO REFER TO ORDER IN WRIT PETITION PASSED BY SINGLE J UDGE OF HONBLE ITA NO.2885/CHNY/2017 :- 63 -: MADRAS HIGH COURT IN THE CASE OF UNIFAC MANAGEMENT SERVICES (INDIA) PRIVATE LIMITED V. DCIT IN WP NO. 5264 OF 2 020, WMP NO. 6461 OF 2018, VIDE ORDER DATED 23.10.2018 (REPORTE D IN (2018) 409 ITR 225(MAD.), WHEREIN SINGLE JUDGE OF HONBLE MADRAS HIGH COURT DECIDED THIS ISSUE IN FAVOUR OF REVENUE . HOW EVER, SUBSEQUENTLY, THE SAID DECISION OF SINGLE JUDGE OF HONBLE MADRAS HIGH COURT WAS CHALLENGED BY THE TAX-PAYER BEFORE T HE DIVISION BENCH OF HONBLE MADRAS HIGH COURT BY FILING WRIT APPEAL NO. 2854 OF 2018 AND CMP NO. 23727 OF 2018 AND THE DIVISION BENCH OF HONBLE MADRAS HIGH COURT WAS PLEASED TO GRANT PERM ISSION TO THE TAX-PAYER TO WITHDRAW THE ORIGINAL WRIT PETITION NA MELY WP NO. 5264 OF 2018 AS WELL WRIT APPEAL NO. 2854 OF 2018, VIDE ORDERS DATED 09.01.2019. THE REVENUE HAS REFERRED BEFORE U S DURING THE COURSE OF HEARING , DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF ORCHID PHARMA(SUPRA) , WHEREIN THE HONBLE MADRAS HIGH COURT HAD NOTED THAT THE ASSESSEE DID NOT APPEAR BE FORE TRIBUNAL AND ALSO IT IS AN ORDER PASSED BY HONBLE MADRAS HI GH COURT EX- PARTE IN THE ABSENCE OF THE TAX-PAYER, WHEREIN NO N OTICE WAS ISSUED TO THE TAX-PAYER AS PROCEEDINGS WERE PENDING AGAINST THE TAX-PAYER BEFORE NATIONAL COMPANY LAW TRIBUNAL AS T HE TAX-PAYER WAS IN LIQUIDATION. THE HONBLE MADRAS HIGH COURT O BSERVED IN THE CASE OF ORCHID PHARMA(SUPRA) THAT TRIBUNAL HAS DECI DED THE ISSUE IN FAVOUR OF TAX-PAYER BY RELYING ON DECISION OF HONB LE MADRAS HIGH COURT IN THE CASE OF INDUSTRIAL SECURITY AND INTELL IGENCE PRIVATE ITA NO.2885/CHNY/2017 :- 64 -: LIMITED(SUPRA). THE REVENUE BROUGHT TO THE NOTICE O F THE HONBLE MADRAS HIGH COURT , DECISION(S) OF HONBLE KERALA H IGH COURT IN THE CASE OF CIT V. MERCHEM LIMITED REPORTED IN (2015) 3 78 ITR 443(KER.) AND ALSO DECISION IN THE CASE OF POPULAR VEHICLES AND SERVICES PRIVATE LIMITED V. CIT REPORTED IN (2018) 96 TAXMANN.COM 13(KER.), WHEREIN THIS ISSUE IS DECIDED BY HONBLE KERALA HIGH COURT IN FAVOUR OF REVENUE AND WITH THIS BACKGROUN D, HONBLE MADRAS HIGH COURT REMANDED THE MATTER BACK TO THE F ILE OF LEARNED CIT(A) FOR FRESH ADJUDICATION OF THE ISSUE , AFTER CONSIDERING ENTIRE LAW IN STATUTE AND DECISIONS OF COURTS POST THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF AIMIL LIMITED(SUPRA ). WE HAVE OBSERVED THAT HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION(CITED SUPRA) WHILE ADJUDICATING ON APPLIC ABILITY OF AMENDED PROVISION OF SECTION 43B OF THE 1961 ACT BY VIRTUE OF DELETION OF SECOND PROVISO AND AMENDMENT OF FIRST P ROVISO BY FINANCE ACT, 2003 WHICH WAS APPLICABLE WEF 01.04.20 04 , HELD THE SAID AMENDMENTS TO BE CURATIVE IN NATURE AND TO APP LY RETROSPECTIVE WEF 01.04.1988. THE HONBLE SUPREME C OURT ALSO REFERRED TO LARGER BENCH DECISION IN THE CASE OF AL LIED MOTORS PRIVATE LIMITED (1997) 224 ITR 677(SC) TO HOLD AMEN DMENT MADE BY FINANCE ACT, 2003 TO BE RETROSPECTIVE . WHILE HO LDING THE SAME TO BE RETROSPECTIVE, THE HONBLE SUPREME COURT REFE RRED TO ITS DECISION IN THE CASE OF CIT V. J.H.GOTLA REPORTED I N (1985) 156 ITR 323(SC) WHEREIN IT HELD THAT IF STRICT INTERPRETATI ON LEADS TO ABSURD ITA NO.2885/CHNY/2017 :- 65 -: RESULTS WHICH ARE NOT INTENDED BY THE OBJECT OF THE LEGISLATION, AND IF OTHER CONSTRUCTION IS POSSIBLE , THEN THAT CONST RUCTION SHOULD BE PREFERRED TO THE STRICT LEGAL CONSTRUCTION. THE HON BLE SUPREME COURT OBSERVED THAT THOUGH EQUITY AND TAXATION ARE OFTEN STRANGERS, ATTEMPTS SHOULD BE MADE THAT THESE DO NO T REMAIN ALWAYS SO AND IF A CONSTRUCTION RESULTS IN EQUITY R ATHER THAN IN INJUSTICE, THEN SUCH CONSTRUCTION SHOULD BE PREFERR ED TO LITERAL CONSTRUCTION. WE HAVE OBSERVED THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GHATGE PATIL TRANSPORTS LIMIT ED REPORTED IN (2014) 368 ITR 749(BOM.) HELD THAT DECISION OF HON BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION(CITED SUPRA) SH ALL APPLY BOTH TO EMPLOYEES AS WELL EMPLOYERS CONTRIBUTION TO VARIOUS EMPLOYEES WELFARE FUNDS , AND IF THE AMOUNT TOWARDS EMPLOYEE S CONTRIBUTION TO EMPLOYEES WELFARE FUNDS IS DEPOSITED BEFORE THE DUE DATE PRESCRIBED FOR FILING OF RETURN OF INCOME U/S 139(1 ) OF THE 1961 ACT, THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION. THE A FORESAID DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GHATGE PATIL TRANSPORT (SUPRA) IS REPRODUCED HEREUNDER: 15. IN THIS MANNER, THE AMENDMENT PROVIDED BY FINA NCE ACT, 2003 PUT ON PAR THE BENEFIT OF DEDUCTIONS OF T AX, DUTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTIONS TO VARIOUS EMPLOYEES' WELFARE FUNDS ON THE OTHER. ALL THIS CAM E UP FOR CONSIDERATION BEFORE THE HON'BLE SUPREME COURT IN T HE CASE OF ALOM EXTRUSIONS LTD. (SUPRA). THE TRIBUNAL IN TH E CASE AT HAND RELIED UPON THE SAID JUDGMENT. THERE IS NO REA SON TO FAULT THE ORDER PASSED BY THE TRIBUNAL. WE ARE OF T HE VIEW THAT THE DECISION OF THE SUPREME COURT IN ALOM EXTR USIONS LTD. (SUPRA) APPLIES TO EMPLOYEES' CONTRIBUTION AS WELL AS EMPLOYERS' CONTRIBUTION. QUESTION NOS.2, 3 & 4 ARE ITA NO.2885/CHNY/2017 :- 66 -: ACCORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10.3.9 THE HONBLE BOMBAY HIGH COURT HAS CONSISTENT LY HELD THIS ISSUE IN FAVOUR OF THE TAX-PAYER IN ITS OTHER DECIS IONS ALSO SUCH AS GEEKAY SECURITY SERVICES PRIVATE LIMITED V. DCIT RE PORTED IN (2019) 101 TAXMANN.COM 192(BOM.) , CIT V. HINDUSTA N ORGANICS CHEMICALS LIMITED (2014) 366 ITR 1(BOM.). THE HONB LE DELHI HIGH COURT IN AIMIL LIMITED (SUPRA) HELD THAT IF EMPLOYE ES CONTRIBUTION IS NOT DEPOSITED BY THE DUE DATE PRESCRIBED UNDER T HE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS I NTEREST ON DELAYED PAYMENTS BUT CAN INCUR PENALTIES ALSO , FOR WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WE LL AS THE ESI ACT. IT FURTHER HELD THAT THE STATUTES GOVERNING PF /ESI PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS , SUB JECT TO THE AFORESAID CONSEQUENCES. INSOFAR AS THE 1961 ACT IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT MADE IS BEFORE THE RETURN OF INCOME IS FILED , AS PER THE PRINCIPL E LAID DOWN BY THE SUPREME COURT IN VINAY CEMENT LTD.S CASE(SUPRA). H OWEVER, HONBLE DELHI HIGH COURT HAS NOW DECIDED THIS ISSUE IN FAVOUR OF REVENUE IN THE CASE OF CIT V. BHARAT HOTELS LIMITED REPORTED IN (2019) 410 ITR 417(DEL.) , WHILE IMPLIEDLY REVERSIN G THE STAND TAKEN IN ITS EARLIER DECISION IN THE CASE OF AIMIL LIMITED(SUPRA). HOWEVER, THE DECISION IN THE CASE OF AIMIL LIMITED( SUPRA) WAS NOT BROUGHT TO THE NOTICE OF HONBLE JUDGES OF DELHI HI GH COURT WHILE ITA NO.2885/CHNY/2017 :- 67 -: ADJUDICATING IN THE CASE OF BHARAT HOTELS(SUPRA). THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS DECIDED THIS ISSU E IN FAVOUR OF THE TAX-PAYER IN THE CASE OF CIT V. RAI AGRO INDUST RIES LIMITED REPORTED IN (2011) 334 ITR 122( PUNJ & HAR.) ;CIT V . HEMLA EMBROIDERY MILLS PRIVATE LIMITED REPORTED IN (2014) 366 ITR 167( PUNJ. & HAR.). HONBLE RAJASTHAN HIGH COURT IN THE CASE(S) OF CIT V. STATE BANK OF BIKANER AND JAIPUR REPORTED IN (20 14) 43 TAXMANN.COM 411(RAJ.) AND IN CIT V. JAIPUR VIDYUT V ITRAN NIGAM LIMITED REPORTED IN (2014) 49 TAXMANN.COM 540(RAJ) HAS DECIDED THIS ISSUE IN FAVOUR OF THE TAX-PAYER. SIMILARLY, H ONBLE KARNATAKA HIGH COURT AND HONBLE HIMACHAL PRADESH HIGH COURT HAS DECIDED THIS ISSUE IN FAVOUR OF THE TAX-PAYER. HOWEVER, HON BLE GUJARAT HIGH COURT HAS DECIDED THIS ISSUE IN FAVOUR OF REVE NUE IN CIT V. GUJARAT STATE ROAD TRANSPORT CORPORATION REPORTED I N (2014) 366 ITR 170(GUJ.) ; CHECKMATE FACILITY & ELECTRONIC SOL UTIONS (P.) LTD. V. DY. CIT [TAX APPEAL NO. 1256 OF 2018, DATED 15-1 0-2018 AND PCIT V. SUZLON ENERGY LIMITED REPORTED IN (2020) 11 5 TAXMANN.COM 340(GUJ). THUS, HONBLE GUJARAT HIGH CO URT HELD THAT TO GET DEDUCTION TOWARDS EMPLOYEES CONTRIBUTION TOW ARDS PF/ESI AND OTHER WELFARE FUNDS, THE EMPLOYER OUGHT TO HAVE DEPOSITED THE SAID AMOUNT TO THE CREDIT OF EMPLOYEES WITH THE REL EVANT FUNDS ON OR BEFORE THE DUE DATE SPECIFIED IN PF/ESI ACT OR O THER WELFARE FUNDS , KEEPING IN VIEW PROVISIONS OF SECTION 36(1) (VA) READ WITH EXPLANATION 1 AND SECTION 2(24)(X) OF THE 1961 ACT. SIMILARLY, ITA NO.2885/CHNY/2017 :- 68 -: HONBLE KERALA HIGH COURT HAS ALSO DECIDED THIS IS SUE IN FAVOUR OF REVENUE IN THE CASE OF CIT V. MERCHEM LIMITED REPOR TED IN (2015) 378 ITR 443(KER. HC) AND ALSO IN POPULAR VEHICLES A ND SERVICES PRIVATE LIMITED V. CIT (2018) 406 ITR 150 (KER.HC). WHILE DECISING THE APPEAL IN THE CASE OF MERCHEM LIMITED(SUPRA) IN FAVOUR OF REVENUE ON THIS ISSUE, THE HONBLE KERALA HIGH COUR T HELD THAT DEDUCTION ON ACCOUNT OF EMPLOYEES CONTRIBUTION TOWA RDS PF/ESI CAN ONLY BE ALLOWED IF THE SAID AMOUNT IS DEPOSITED TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUNDS WITHIN THE DUE DATE AS PRESCRIBED UNDER THE STATUTE GOVERNING PF/ESI KEEPING IN VIEW PROVISIONS OF SECTION 36(1)(VA) READ WITH EXPLANATION 1 AND PROVI SIONS OF SECTION 2(24)(X) OF THE 1961 ACT, THUS APPLYING STR ICT INTERPRETATION AND HOLDING THAT OTHERWISE SECTION 36(1)(VA) READ W ITH EXPLANATION 1 WILL BECOME OTIOSE WHICH WAS NOT THE INTENTION OF LEGISLATURE. IT FURTHER WENT ON TO HOLD THAT THE ISSUE BEFORE HONB LE SUPREME COURT WHILE ADJUDICATING APPEAL IN THE CASE OF ALOM EXTRUSION(SUPRA) WAS NEVER WITH RESPECT OF EMPLOYEE S CONTRIBUTION TO PF/ESI AND IT WAS ONLY IN CONTEXT OF EMPLOYERS C ONTRIBUTION TO PF/ESI , WHEREIN AMENDMENTS BROUGHT IN BY FINANCE A CT, 2003 WERE HELD TO BE RETROSPECTIVE BY HONBLE SUPREME CO URT IN THE CASE OF ALOM EXTRUSION(SUPRA). THE DECISION OF HON BLE KERALA HIGH COURT IN THE CASE OF POPULAR VEHICLES (SUPRA) IS RE PRODUCED AS HEREUNDER: ITA NO.2885/CHNY/2017 :- 69 -: 7. WE WILL FIRST NOTICE THE PROVISIONS. 'S.2(24) 'INCOME' INCLUDES ** ** ** (X) ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLO YEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATI ON FUND OR ANY FUND SET UP UNDER THE PROVISIONS OF THE EMPL OYEES' STATE INSURANCE ACT, 1948 A(34 OF 1948), OR ANY OTH ER FUND FOR THE WELFARE OF SUCH EMPLOYEES'. 'S.36. OTHER DEDUCTIONS (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CL AUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THE REIN, IN COMPUTING THE INCOME REFERRED TO IN THE SECTION 28 ** ** ** (V) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND CREA TED BY HIM FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDE R AN IRREVOCABLE TRUST; (VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF H IS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. EXPLANATION.- FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEE'S CONTRIBUTION TO TH E EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER ANY A CT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER AN Y STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE'. 'S.43B. CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAY MENT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THI S ACT IN RESPECT OF ** ** ** (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUA TION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES'. ITA NO.2885/CHNY/2017 :- 70 -: 8. LOOKING AT THE PROVISIONS WE ARE DEFINITE THAT T HE ACT TREATS EMPLOYER'S AND EMPLOYEE'S CONTRIBUTION DISTI NCTLY. SUB-CLAUSE (V) OF SECTION 36(1) SPEAKS OF A GRATUIT Y FUND, WHEREIN THE EMPLOYEE DOES NOT CONTRIBUTE AT ALL. SE CTION 36(1)(VA) SPEAKS OF THE EMPLOYEE'S CONTRIBUTION TO A WELFARE FUND FOR THE BENEFIT OF EMPLOYEES ALONE, BY VIRTUE OF THE SPECIFIC REFERENCE TO SECTION 2 (24). SECTION 2 (24 ) INCLUDES AS INCOME, ANY CONTRIBUTION RECEIVED BY THE EMPLOYE R FROM THE EMPLOYEE FOR THE PURPOSE OF REMITTANCE TO A FUN D CREATED FOR THE WELFARE OF THE EMPLOYEES; INCLUDING INTER A LIA A PROVIDENT FUND AND THAT UNDER THE ESI ACT. WHEN THE SAME IS REMITTED ON THE DUE DATE AS PRESCRIBED IN THE STATU TE OR ORDER CREATING SUCH FUND, THEN IT IS ELIGIBLE FOR D EDUCTION UNDER SECTION 36. SECTION 43B(B) REFERS TO 'A SUM P AYABLE BY THE ASSESSEE AS AN EMPLOYER', TO AN EMPLOYEES WE LFARE FUND WHICH IS THE EMPLOYER'S CONTRIBUTION. 9. WE HAVE CAREFULLY GONE THROUGH THE DECISIONS OF THE HON'BLE SUPREME COURT AS ALSO OF THE DIVISION BENCH . THE PRIMARY QUESTION TO BE CONSIDERED IS WHETHER THERE SHOULD BE A RECONSIDERATION OF MERCHEM LTD.'S CASE (SUPRA). A LOM EXTRUSIONS LTD.'S CASE (SUPRA)AND MERCHEM LTD.'S CA SE (SUPRA)APPLIED IN TWO DIFFERENT FIELDS; THE FORMER WITH REFERENCE TO SECTION 43B(B), BEING EMPLOYER'S CONTR IBUTION AND THE LATTER DEALING WITH EMPLOYEE'S CONTRIBUTION AS COVERED BY SECTION 36(1)(VA). WE WOULD FIRST DEAL W ITH ALOM EXTRUSIONS LTD.'S CASE (SUPRA)WHICH HAS DILATED UPO N THE HISTORY OF THE LEGISLATION AND THE REASON FOR THE V ARIOUS AMENDMENTS BROUGHT IN. WE FIRST NOTICE THAT THE QUE STION WHICH AROSE FOR CONSIDERATION IN ALOM EXTRUSIONS LT D.'S CASE (SUPRA)WAS AS TO 'WHETHER OMISSION (DELETION) OF TH E SECOND PROVISO TO SECTION 43B OF THE INCOME-TAX ACT, 1961, BY THE FINANCE ACT, 2003, OPERATED WITH EFFECT FROM APRIL 1, 2004, OR WHETHER IT OPERATED RETROSPECTIVELY WITH EFFECT FROM APRIL 1, 1988' (SIC PARA 4). THE HON'BLE SUPREME COURT NO TICED THAT PRIOR TO FINANCE ACT, 2003, THE SECOND PROVISO TO SECTION 43B 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, UNLESS IT STOOD PAID WITHIN THE SPECI FIED DUE DATE. 10. HERE WE HAVE TO NOTICE THAT SUB-CLAUSE (B) OF S ECTION 43B SPEAKS OF SUM PAYABLE BY THE EMPLOYER WHICH IS THE 'EMPLOYER'S CONTRIBUTION', PAYABLE BY THE EMPLOYER WITHOUT DEDUCTION FROM THE SALARY OF THE EMPLOYEE. EMPLOYEE S ITA NO.2885/CHNY/2017 :- 71 -: CONTRIBUTION THOUGH REMITTED TO THE FUND BY THE EMP LOYER, IT IS DEDUCTED FROM THE EMPLOYEES SALARY, WHICH DEDUCT ION IS STATUTORILY ENABLED. DEDUCTION FROM THE SALARY OF T HE EMPLOYEE, OF COURSE, IS THE LIABILITY OF THE EMPLOY ER AND SO IS THE REMITTANCE TO THE FUND BUT IT DOES NOT CHANGE T HE ESSENTIAL NATURE OF THE CONTRIBUTION; WHICH IS OF T HE EMPLOYEE. A CONTRIBUTION DEDUCTED FROM THE EMPLOYEE 'S SALARY AND PAID BY THE EMPLOYER CANNOT, FOR A MOMEN T, BE TERMED AS THE EMPLOYER'S CONTRIBUTION. THERE IS A C LEAR DISTINCTION INSOFAR AS THE CONTRIBUTIONS PAYABLE UN DER THE EPF&MP ACT AS ALSO THE ESI ACT. THE EMPLOYER'S CONT RIBUTION HAS TO BE PAID BY THE EMPLOYER HIMSELF AND THERE IS POSSIBLE NO DEDUCTION FROM THE SALARY OF THE EMPLOYEE, WHERE AS WITH RESPECT TO THE EMPLOYEE'S CONTRIBUTION, IT HAS TO B E DEDUCTED FROM THE SALARY OF THE EMPLOYEE AND PAID TO THE REL EVANT FUND. 11. THE SUPREME COURT IN ALOM EXTRUSIONS LTD.'S CAS E (SUPRA) AS WAS NOTICED, WAS SPECIFICALLY CONSIDERIN G THE ISSUE WITH RESPECT TO THE EMPLOYER'S CONTRIBUTION. THE HO N'BLE SUPREME COURT NOTICED THAT PRIOR TO 1983 EVEN A BOO K ENTRY MADE WITH RESPECT TO AN ASSESSEE FOLLOWING THE MERC ANTILE SYSTEM OF ACCOUNTING, MAKING A PROVISION FOR THE PA YMENT OF CONTRIBUTIONS TOWARDS EPF AND ESI COULD BE CLAIMED AS A DEDUCTION. BY INTRODUCTION OF SECTION 43B IN THE FI NANCE ACT, 1983, THE OBJECT WAS TO 'DISALLOW DEDUCTIONS CLAIME D MERELY BY MAKING A BOOK ENTRY BASED ON THE MERCANTILE SYST EM OF ACCOUNTING' (SIC - PARA 16). SECTION 43B MADE IT MA NDATORY FOR THE DEPARTMENT TO GRANT DEDUCTION IN COMPUTING THE INCOME UNDER SECTION 28 IN THE YEAR IN WHICH THE TA X, DUTY, CESS, ETC. WERE PAID. HOWEVER, THE DUE DATES UNDER THE VARIOUS ENACTMENTS, IE; THE WELFARE AND TAX LEGISLA TION WOULD NOT HAVE THE DUE DATE BEFORE THE DATE OF FILING OF RETURN AS PROVIDED IN THE INCOME TAX ACT. ON ACCOUNT OF THIS THE FIRST PROVISO WAS INTRODUCED TO GRANT A RELIEF BY WAY OF DEDUCTION INSOFAR AS THE TAX, DUTIES, CESS OR FEE PAID BEFORE THE FILING OF THE RETURN UNDER THE IT ACT THOUGH AFTER THE PREVIO US YEAR; THE LIABILITIES HAVING ACCRUED IN THAT PREVIOUS YEA R. THIS RELAXATION, HOWEVER, WAS RESTRICTED TO TAX, DUTIES, CESS AND FEE AND NOT APPLIED TO CONTRIBUTIONS TO LABOUR WELF ARE FUNDS. THE REASON ALSO STATED BY THE HON'BLE SUPREME COURT 'TO BE THAT THE EMPLOYER(S) SHOULD NOT SIT ON THE COLLECTE D CONTRIBUTIONS AND DEPRIVE THE WORKMEN OF THE RIGHTF UL BENEFITS UNDER SOCIAL WELFARE LEGISLATIONS BY DELAY ING PAYMENT OF CONTRIBUTIONS TO THE WELFARE FUNDS' (SIC - PARA 16). IT IS THIS DECLARATION BY THE HON'BLE SUPREME COURT WHICH IS RELIED ON BY THE LEARNED COUNSEL FOR THE A PPELLANT TO ITA NO.2885/CHNY/2017 :- 72 -: CONTEND THAT THE HON'BLE SUPREME COURT WAS CONSIDER ING THE QUESTION OF EMPLOYEE'S CONTRIBUTION ALSO. OTHERWISE , THERE WOULD NOT HAVE BEEN A REFERENCE TO AN 'EMPLOYER SIT TING ON THE COLLECTED CONTRIBUTION', IS THE COMPELLING ARGU MENT. 12. WE HAVE TO UNDERSTAND THIS STATEMENT WITH REFER ENCE TO THE QUESTION FRAMED BY THE HON'BLE SUPREME COURT AT THE FIRST INSTANCE IN THE OPENING PARAGRAPH OF THE JUDG MENT. WE ALSO HAVE TO NOTICE THAT EVEN OTHERWISE THE EXPLANA TION TO SUB-CLAUSE (VA) OF SECTION 36(1) TOOK CARE OF THE E MPLOYEE'S CONTRIBUTIONS; WHICH WAS INTRODUCED BY THE FINANCE ACT, 1987 WITH EFFECT FROM 01.04.1988, FROM WHICH DATE THE ST ATUTE RECOGNISED THE DISTINCTION BETWEEN EMPLOYEE'S AND EMPLOYER'S CONTRIBUTION. IN THIS CONTEXT WE HAVE TO NECESSARILY DWELL UPON THE VARIOUS AMENDMENTS OVER THE YEARS AND LOOK AT THE SEQUENCE IN WHICH THEY WERE B ROUGHT IN. ONLY ON INTRODUCTION OF SECTION 43B WITH EFFECT FROM 01.04.1984, THERE WAS AN INSISTENCE THAT THERE SHOU LD BE ACTUAL PAYMENT OF AMOUNTS CLAIMED AS DEDUCTIONS, ENUMERATED UNDER THE PROVISION. SECTION 43B (B) SPO KE OF SUM PAYABLE BY THE EMPLOYER BY WAY OF CONTRIBUTION TO A WELFARE FUND. AT THAT POINT IT COULD BE UNDERSTOOD THAT THE SUB-CLAUSE TOOK IN BOTH EMPLOYEE'S AND EMPLOYER'S CONTRIBUTION. THE LEGISLATURE THEN TOOK NOTE OF THE CIRCUMSTANCE THAT MANY CLAIM THE DEDUCTION ON THE G ROUND OF MAINTAINING ACCOUNTS ON MERCANTILE OR ACCRUAL BASIS AND FAIL TO DISCHARGE THE LIABILITY. HENCE BY FINANCE ACT 19 87, CLAUSE (X) UNDER SECTION 2 (24) , SUB-CLAUSE (VA) OF SECTI ON 36 (1) AND THE 2ND PROVISO TO SECTION 43B WERE BROUGHT IN. FROM THAT DATE THE STATUTE TREATS THE EMPLOYEE'S AND EMP LOYER'S CONTRIBUTION DIFFERENTLY. 13. OTHERWISE THERE WAS NO REQUIREMENT FOR BRINGING IN A SUB-CLAUSE UNDER THE DEFINITION CLAUSE OF 'INCOME' INCLUDING THE EMPLOYEE'S CONTRIBUTION RECEIVED BY THE EMPLOYE R AND PROVIDING A DEDUCTION BY SUB-CLAUSE (VA) AND PERMIT TING THE DEDUCTION ONLY IF THAT CONTRIBUTION IS PAID IN ACCO RDANCE WITH THE STATUTE, WHICH CREATED THE FUND. THE 2ND PROVIS O TO SECTION 43B THEN UNDERWENT A COSMETIC CHANGE AND LA TER WAS DELETED. THERE WAS ALSO A NEW PROVISO ADDED UNDER S ECTION 43B FOR PERMITTING DEDUCTION ON CONTRIBUTIONS PAID BEFORE THE RETURNS ARE FILED. THIS TOOK IN ONLY THE EMPLOYER'S CONTRIBUTION ESPECIALLY SINCE SECTION 2(24) AND SUB -CLAUSE (VA) WERE RETAINED. THE EMPLOYEE'S CONTRIBUTIONS, A S MERCHEM LTD.'S CASE (SUPRA)NOTICED, STANDS ON A DIF FERENT FOOTING, SINCE IT IS COLLECTED FROM THE EMPLOYEE AS A DEDUCTION IN THEIR SALARY ITSELF. THIS WOULD IN EFF ECT BE INCOME ITA NO.2885/CHNY/2017 :- 73 -: OF THE ASSESSEE, AS HAS BEEN SPECIFICALLY INDICATED IN THE DEFINITION OF 'INCOME' UNDER SECTION 2(24)(X), WHIC H PROVISION WAS INTRODUCED W.E.F 01.04.1988 AS PER FI NANCE ACT, 1987. 14. WE ARE OF THE OPINION THAT THE QUESTION WITH RE SPECT TO EMPLOYEE'S CONTRIBUTION IS REGULATED BY CLAUSE (X) OF SECTION 2(24) AND SUB-CLAUSE (VA) OF SECTION 36(1) AND WOUL D NOT BE AFFECTED BY SECTION 43B. SECTION 43B THOUGH A NON-O BSTANTE CLAUSE, MAKES DEDUCTIONS TO BE ALLOWABLE ONLY ON AC TUAL PAYMENT; WHEN SUCH DEDUCTIONS ARE OTHERWISE ALLOWAB LE. PRIMARILY IT IS TO BE NOTICED THAT IT IS A RESTRICT IVE CLAUSE, THE AMENDMENTS TO WHICH OR THE DELETION OF A PROVISO IN WHICH CANNOT LEAD TO IT BEING CONVERTED AS AN ENABLING PR OVISION PERMITTING DEDUCTION EVEN WHEN THERE WAS NO DEDUCTI ON PERMISSIBLE BY THE OTHER PROVISIONS OF THE ACT. THE NON- OBSTANTE CLAUSE HAS NO EFFECT INSOFAR AS THE EMPLOY EE'S CONTRIBUTION WHICH IS SPECIFICALLY COVERED BY SUB-C LAUSE (VA) OF SECTION 36(1). BY VIRTUE OF THE EXPLANATION BELO W SUB- CLAUSE (VA), NO DEDUCTION COULD BE CLAIMED IF THE C ONTRIBUTION HAS NOT BEEN PAID, AFTER COLLECTION FROM THE EMPLOY EES BY WAY OF DEDUCTION FROM THEIR SALARIES, WITHIN THE DU E DATE UNDER THE EPF&MP ACT. THE DELETION OF A PROVISO UND ER SECTION 43B CANNOT RENDER OTIOSE THE EXPLANATION UN DER SECTION 36(1)(VA). 15. MERCHEM LTD.'S CASE (SUPRA), WE NOTICE, DEALT W ITH THE SPECIFIC QUESTION OF DISALLOWANCE OF EMPLOYEE'S CON TRIBUTION WHEN THE SAME WAS NOT PAID WITHIN THE TIME PROVIDED UNDER THE STATUTE UNDER WHICH THE WELFARE FUND WAS CREATE D AND HELD SO IN PARAGRAPH 19: '19. THEREFORE, INCOME OF THE ASSESSEE INCLUDES ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEE AS CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATIO N FUND OR FUNDS SET UP UNDER THE PROVISIONS OF THE EMPLOYEES' STATE INSURANCE ACT, 1948 (34 OF 1948) O R ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES. ACCORDING TO US, ON A READING OF SEC. 36(1)(VA) ALO NG WITH SEC. 2(24)(X), IT IS CATEGORIC AND CLEAR THAT THE CONTRIBUTION RECEIVED BY THE ASSESSEE FROM THE EMPLOYEE ALONE WAS TREATED AS INCOME FOR THE PURPOS E OF SEC. 36(1)(VA) OF THE ACT AND THEREFORE WE ARE O F THE CONSIDERED OPINION THAT THE ASSESSEE WAS ENTITL ED TO GET DEDUCTION FOR THE SUM RECEIVED BY THE ASSESS EE FROM HIS EMPLOYEES TOWARDS CONTRIBUTION TO THE FUND OR FUNDS SO MENTIONED ONLY IF, THE SAID AMOUNT WAS ITA NO.2885/CHNY/2017 :- 74 -: CREDITED BY THE ASSESSEE ON OR BEFORE THE DUE DATE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND AS PROVI DED UNDER EXPLANATION 1 TO SEC.36(1)(VA) OF THE ACT. ACCORDING TO US, SO FAR AS SEC. 43B(B) IS CONCERNED , IT TAKES CARE OF ONLY THE CONTRIBUTION PAYABLE BY THE EMPLOYER/ASSESSEE TO THE RESPECTIVE FUND. THEREFORE , IN THAT CIRCUMSTANCES, SEC. 36(1)(VA) AND SEC. 43B( B) OPERATE IN DIFFERENT FIELDS I.E. THE FORMER TAKES C ARE OF EMPLOYEE'S CONTRIBUTION AND THE LATTER EMPLOYER'S CONTRIBUTION. THE ASSESSEE WAS ENTITLED TO GET THE BENEFIT OF DEDUCTION UNDER SEC. 43B(B) AS PROVIDED UNDER THE PROVISO THERETO ONLY WITH REGARD TO THE PORTION OF THE AMOUNT PAID BY THE EMPLOYER TO THE CONTRIBUTORY FUND. SUCH AN UNDERSTANDING OF SEC. 43 B IS FURTHER EXEMPLIFIED BY THE PHRASEOLOGY USED IN T HE PROVISO, WHICH READS THUS: 'PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN.' FURTHER, IN EXPLANATION 1 TO SEC. 43B ALSO, THE PHRASEOLOGY USED PERSUADE US TO THINK THAT SEC. 43B CAN BE APPLIED TO THE CONTRIBUTION PAYABLE BY THE ASSESSEE AS AN EMPLOYER, WHICH READS THUS: 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT WHERE A DEDUCTION IN RESPECT OF ANY SUM REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF THIS SECTION IS ALLOWED IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THE PREVIOUS YEAR (BEING A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1983 OR ANY EARLIER ASSESSMENT YEAR) IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE, THE ASSESSEE SHALL NOT BE ENTITLED TO ANY DEDUCTION UNDER THIS SECTION IN RESPECT OF SUCH SUM IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH THE SUM IS ACTUALLY PAID BY HIM.' ITA NO.2885/CHNY/2017 :- 75 -: THEREFORE, ACCORDING TO US, SINCE THE RESPONDENT HA S ADMITTEDLY NOT PAID THE DEDUCTION SO MADE WITHIN TH E DUE DATE AS PROVIDED UNDER SEC. 36(1)(VA), THE RESPONDE NT WAS NOT ENTITLED TO GET DEDUCTION OF THE AMOUNTS DEDUCT ED THEREUNDER FOR AND ON BEHALF OF THE EMPLOYEES'. 16. THE LEARNED JUDGES HAD ELABORATELY CONSIDERED T HE DECISION IN ALOM EXTRUSIONS LTD.'S CASE (SUPRA)AND HAS FOUND THE PROVISIONS HAVING APPLICATION IN DIFFERENT FIEL DS. SECTION 43B(B) DEALT WITH THE EMPLOYER'S CONTRIBUTION AND S UB-CLAUSE (VA) OF SECTION 36(1) WAS CONCERNED WITH THE EMPLOY EES CONTRIBUTION AS RIGHTLY HELD. WE DO NOT FIND OURSEL VES PERSUADED TO TAKE A DIFFERENT VIEW WITH RESPECT TO EMPLOYEE'S CONTRIBUTION AND WE RESPECTFULLY FOLLOW THE DECISION OF THE DIVISION BENCH OF THIS COURT IN MER CHEM LTD.'S CASE (SUPRA). WE, HENCE, ANSWER THE SUBSTANTIAL QUE STION OF LAW RAISED WITH RESPECT TO RECONSIDERATION OF MERCH EM LTD.'S CASE (SUPRA)IN THE NEGATIVE, AGAINST THE ASSESSEE A ND IN FAVOUR OF THE REVENUE. 17. THE OTHER QUESTION OF LAW FRAMED REFER TO THE ' AMOUNTS PAYABLE', THE REFERENCE OBVIOUSLY IS TO 'ANY SUM PA YABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY F UND OR ANY OTHER FUNDS FOR THE WELFARE OF EMPLOYEES' AS FO UND IN SUB-CLAUSE (B) OF SECTION 43B, WHICH REFERS ONLY TO THE EMPLOYER'S CONTRIBUTION AND NOT THE EMPLOYEE'S CONT RIBUTION. EMPLOYEE'S CONTRIBUTION, AS HAS BEEN ALREADY HELD B Y US, IS COVERED BY CLAUSE (VA) OF SECTION 36(1) AND THE DED UCTION IS RESTRICTED BY THE EXPLANATION BELOW IT. WITH RESPEC T TO EMPLOYER'S CONTRIBUTION, THE DEDUCTION IS ALLOWABLE ONLY ON ACTUAL PAYMENT, AS PER SECTION 43B RESTRICTED ONLY BY THE PROVISO AS IS NOW AVAILABLE IN THE ACT, WHICH REQUI RES PAYMENT BEFORE THE FILING OF RETURN. ANY SUM PAID A S EMPLOYER'S CONTRIBUTION, WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HI S CASE FOR FURNISHING THE RETURN OF INCOME, UNDER SUB-SECTION (1) OF SECTION 139, THEN THE SAME WOULD BE ENABLED DEDUCTI ON. HENCE, IN THE PRESENT CASE IF THE EMPLOYER'S CONTRI BUTION UNDER THE EPF OR ESI FOR THE FINANCIAL YEAR 2007-08 IS PAID AFTER THE SAID YEAR BUT BEFORE THE DATE OF FILING O F THE RETURN FOR THAT YEAR, THEN NECESSARILY IT WOULD BE ALLOWAB LE AS A DEDUCTION IN THE ASSESSMENT YEAR, DE HORS THE FACT THAT IT WAS PAID IN THE SUBSEQUENT YEAR. ITA NO.2885/CHNY/2017 :- 76 -: 18. SUB-CLAUSE (VA) OF SECTION 36(1) TAKES CARE OF THE EMPLOYEE'S CONTRIBUTION, WHICH STANDS UNAFFECTED BY SECTION 43B AS THE RESTRICTION AVAILABLE IN SECTION 43B IS ALREADY AVAILABLE UNDER THE EXPLANATION TO THE SAID CLAUSE, WITH A QUALIFICATION OF THE PAYMENT BEING BEFORE THE DUE D ATE, AS STIPULATED BY THE STATUTE OR ORDER CREATING THE FUN D. WE WOULD ALSO OBSERVE THAT, AS THE HON'BLE SUPREME COU RT NOTICED, THE LEGISLATURE TOOK A DIFFERENT APPROACH WITH RESPECT TO THE CONTRIBUTIONS DEDUCTED FROM THE SALARY OF TH E EMPLOYEES WHICH HAD TO BE PAID TO THE WELFARE FUND WITHIN THE DUE DATE; AS PROVIDED UNDER THE STATUTE WHICH C REATED THE WELFARE FUND. THE CONTRIBUTIONS WHICH ARE DEDUC TED AT THE TIME OF PAYMENT OF SALARY IS RECEIVED BY THE EM PLOYER- COMPANY AND IS TREATED AS INCOME UNDER SECTION 2(24 ). ON REMITTANCE OF THIS CONTRIBUTION, WITHIN THE DUE DAT E, IT IS ALLOWED AS A DEDUCTION UNDER SECTION 36. IF IT IS N OT PAID TO THE WELFARE FUND WITHIN THE DUE DATE PROVIDED UNDER THE RELEVANT STATUTE, IT REMAINS AS AN INCOME IN THE BO OKS OF ACCOUNTS OF THE ASSESSEE/EMPLOYER COMPANY. THE SAID CONTRIBUTION HAVING NOT BEEN PAID TO THE APPLICABLE WELFARE FUND WITHIN THE DUE DATE PROVIDED, THE ASSESSEE FOR ALL TIME IS DEPRIVED OF CLAIMING SUCH A REMITTANCE, MADE SUBSEQUENTLY, AS DEDUCTION FROM THE INCOME. THIS, A S THE HON'BLE SUPREME COURT NOTICED, IS LOOKING AT THE SP IRIT BEHIND THE LABOUR WELFARE LEGISLATION AND THE NEED FOR THE EMPLOYER TO SATISFY THE REMITTANCE WITHIN THE TIME PROVIDED UNDER THE STATUTE CREATING THE WELFARE FUND. AT LEAST WITH RE SPECT TO THE EMPLOYEE'S CONTRIBUTIONS, WHICH THE EMPLOYER DEDUCT S FROM THE SALARY OF THE EMPLOYEES, IF IT IS NOT REMITTED INTO THE FUND WITHIN THE DUE DATE, THE EMPLOYER NOT ONLY HAS DEFA ULTED THE STIPULATION IN THE LABOUR LEGISLATION BUT HAS RECEI VED AN INCOME; ALBEIT AN ILLEGAL ENRICHMENT. SUB-SECTION ( V) IS WITH RESPECT TO AND CONFINED TO A GRATUITY FUND AND DOES NOT HAVE ANY RELEVANCE HERE. WE, HENCE, ANSWER THE OTHER QUE STIONS OF LAW FRAMED, ALSO AGAINST THE ASSESSEE AND IN FAV OUR OF THE REVENUE. WE DISMISS THE APPEAL, LEAVING THE PARTIES TO SUFFE R THEIR RESPECTIVE COSTS. 10.3.10 THUS, IT CAN BE CLEARLY SEEN THAT THE HONB LE HIGH COURTS IN INDIA HAVE TAKEN A DIFFERENT VIEWS SO FAR AS TO ALL OWABILITY OF EMPLOYEE CONTRIBUTION TO PF/ESI AND OTHER WELFARE F UNDS WHICH IS ITA NO.2885/CHNY/2017 :- 77 -: DEPOSITED TO THE CREDIT OF EMPLOYEE WITH REVENANT F UNDS BEYOND THE TIME STIPULATED UNDER THE RELEVANT STATUTE APPL ICABLE TO PF/ESI AND OTHER FUNDS FOR WELFARE OF EMPLOYEES, BUT DEPOS ITED PRIOR TO DUE DATE OF FILING OF RETURN OF INCOME U/S 139(1) O F THE 1961 ACT. IF WE APPLY STRICT INTERPRETATION AS IS NORMALLY APPLI ED AS THERE IS NO EQUITY IN TAX LAWS, WE HAVE OBSERVED THAT THE EMPLO YEE CONTRIBUTION RECEIVED BY AN EMPLOYER IS TREATED AS INCOME UNDER THE PROVISIONS OF SECTION 2(24)(X) OF THE 1961 ACT , WHILE DEDUCTION IS ALLOWED U/S 36(1)(VA) READ WITH EXPLANATION OF T HE AMOUNT RECEIVED BY AN EMPLOYER FROM EMPLOYEES AS THEIR CON TRIBUTION WHICH STOOD DEPOSITED BY EMPLOYER TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUND ON OR BEFORE THE DUE DATE AS IS PRESC RIBED UNDER RELEVANT STATUTE GOVERNING PF/ESI AND OTHER EMPLOYE ES WELFARE FUNDS. THE PROVISIONS OF SECTION 43B OF THE 1961 AC T HAS A HEADING THAT CERTAIN DEDUCTIONS TO BE ALLOWED ONLY ON ACTUA L PAYMENT BASIS AND IT STARTS WITH A NON OBSTANTE CLAUSE THAT NOTW ITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF. THUS, IT STIPULATES THAT DEDUCTION SHALL BE ALLOWED ONLY ON ACTUAL PAYMENT BASIS IN THE YEAR OF PAYMENT OF DEDUCTION WHICH OTH ERWISE IS ALLOWABLE UNDER THE 1961 ACT. THUS, IF THE DEDUCTIO N IS NOT OTHERWISE ALLOWABLE UNDER THE 1961 ACT OWING TO PRO VISION IN STATUTE, THEN RECOURSE TO SECTION 43B OF THE 1961 A CT CANNOT BE MADE AT THRESHOLD. SECTION 43B OF THE 1961 ACT CREA TES FURTHER ITA NO.2885/CHNY/2017 :- 78 -: EMBARGO ON DEDUCTIONS WHICH ARE OTHERWISE ALLOWABLE UNDER THE PROVISION OF THE 1961 ACT, BUT OWING TO SECTION 43B IT CAN ONLY BE ALLOWED ONLY ON ACTUAL PAYMENT BASIS AND NOT OTHERW ISE . THEN SECTION 43B OF THE 1961 ACT , BY A PROVISO STIPULAT ES THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION T O ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME U/S 139(1) OF THE 1961 ACT . SO , WHAT IS IMPORTANT FOR ENTERING INT O PROVISIONS OF SECTION 43B OF THE 1961 ACT IS THAT THE DEDUCTION O UGHT TO BE FIRSTLY ALLOWABLE UNDER THE PROVISION OF THE 1961 ACT BEFORE RECOURSE TO SECTION 43B OF THE 1961 ACT CAN BE TAKE N. PROVISIONS OF SECTION 36(1)(VA) ALLOWS DEDUCTION TOWARDS EMPLOYEE S CONTRIBUTION TO PF/ESI AND OTHER WELFARE FUNDS OF EMPLOYEES WHIC H IS REQUIRED TO BE DEPOSITED BY EMPLOYER TO THE CREDIT OF EMPLOY EE WITH RELEVANT FUND ON OR BEFORE THE DUE DATE AS IS PRESC RIBED UNDER THE RELEVANT STATUTE APPLICABLE FOR PF/ESI AND OTHER WE LFARE FUNDS OF EMPLOYEES , OTHERWISE DEDUCTION U/S 36(1)(VA) OF TH E 1961 ACT IS NOT ALLOWABLE AND EMPLOYEE CONTRIBUTION TOWARDS PF/ ESI AND OTHER EMPLOYEES WELFARE FUNDS RECEIVED BY EMPLOYER SHALL BE DEEMED TO BE INCOME OF THE ASSESSEE U/S 2(24)(X) OF THE 1961 ACT. THUS, FIRSTLY TO GET DEDUCTION U/S 36(1)(VA) OF THE 1961 ACT OF THE EMPLOYEE CONTRIBUTION RECEIVED BY EMPLOYERS TOWARDS PF/ESI WHICH CONSTITUTE INCOME IN THE HANDS OF EMPLOYER BY VIRTUE OF SECTION 2(24)(X) OF THE 1961 ACT, THE EMPLOYERS IS REQUIRED TO ITA NO.2885/CHNY/2017 :- 79 -: DEPOSIT THE EMPLOYEES CONTRIBUTION TO THE CREDIT OF EMPLOYEES WITH RELEVANT FUNDS ON OR BEFORE THE DUE DATE PRESCRIBED UNDER THE STATUTE GOVERNING PF/ESI AND OTHER EMPLOYEES WELFAR E FUNDS. BUT ONCE AT THRESHOLD STAGE OF SECTION 36(1)(VA) READ W ITH EXPLANATION 1 AND SECTION 2(24)(X) OF THE 1961 ACT , INFRINGEME NT TOOK PLACE VIZ. THE EMPLOYER FAIL TO DEPOSIT THE EMPLOYEE CONT RIBUTION TOWARDS PF/ESI AND OTHER EMPLOYEES WELFARE FUNDS TO THE CRE DIT OF EMPLOYEE WITH RELEVANT FUND BEFORE DUE DATE AS PRES CRIBED UNDER RELEVANT STATUTE GOVERNING PF/ESI AND OTHER EMPLOYE ES WELFARE FUND, THEN AT THRESHOLD ITSELF NO DEDUCTION U/S 36( 1)(VA) READ WITH EXPLANATION 1 AND SECTION 2(24)(X) OF THE 1961 ACT CAN BE ALLOWED AND CONSEQUENTLY THERE CANNOT BE ANY QUESTION OF EN TERING FURTHER INTO SECTION 43B OF THE 1961 ACT AS THE DEDUCTION A T THRESHOLD LEVEL OF SECTION 36(1)(VA) OF THE 1961 ACT IS ITSEL F NOT AVAILABLE. THIS ARE THE LITERAL AND STRICT INTERPRETATION OF P ROVISIONS OF SECTION 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE 1961 AC T . THE DEDUCTION PROVISIONS ARE TO BE STRICTLY CONSTRUED A ND ONUS IS ON THE ASSESSEE TO PROVE THAT IT IS ENTITLED FOR DEDUCTION / EXEMPTION AS IT FALLS WITHIN FOUR CORNERS OF THE STATUTE. THERE IS NO EQUITY IN TAX LAWS AND EXEMPTION/DEDUCTION PROVISIONS ARE TO BE S TRICTLY CONSTRUED. THE DECISION OF CONSTITUTION BENCH OF HO NBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF CUSTOMS (IMPOR TS) V. DILIP KUMAR & CO. REPORTED IN (2018) 9 SCC 1 AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAMNATH & CO. V. CIT R EPORTED IN ITA NO.2885/CHNY/2017 :- 80 -: (2020) 116 TAXMANN.COM 885(SC)(REFER PARA 17 TO 20) ARE RELAVANT . ADMITTEDLY , IN THE INSTANT CASE THE AFO RESAID SUM OF RS. 6,31,788/- BEING EMPLOYEE CONTRIBUTION TOWARDS PF W AS NOT DEPOSITED BY ASSESSEE TO THE CREDIT OF EMPLOYEES WI TH PF FUNDS WITHIN DUE DATE PRESCRIBED UNDER STATUTE GOVERNING PF WHICH AT THRESHOLD WAS HIT BY PROVISIONS OF SECTION 36(1)(VA ) READ WITH EXPLANATION 1 AND SECTION 2(24)(X) OF THE 1961 ACT AND DEDUCTION IS NOT ALLOWABLE GOING BY STRICT AND LITERAL INTERP RETATION OF PROVISIONS OF THE STATUTE. THUS, ONCE THE DEDUCTION IS FOUND TO BE NOT ALLOWABLE OTHERWISE UNDER THE 1961 ACT BEING HI T BY INFRINGEMENT OF SECTION 36(1)(VA) OF THE 1961 ACT O N ACCOUNT OF EMPLOYEES SHARE OF PF CONTRIBUTION BEING DEPOSITED TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUND BY ASSESSEE-EMPLOYER BE YOND THE TIME STIPULATED AS DUE DATE UNDER PF ACT , THERE IS NO QUESTION OF ENTERING INTO PROVISIONS OF SECTION 43B OF THE 1961 ACT WHICH DEALS WITH ALLOWING DEDUCTION ON PAYMENT BASIS PROVIDED T HE DEDUCTION IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF THE 1961 ACT. SECTION 36(1)(VA) OF THE 1961 ACT IS A PROVISION WH ICH ENTITLES TAX- PAYER TO CLAIM DEDUCTION FROM THE INCOME AND HENCE THE PROVISION IS TO BE STRICTLY CONSTRUED AND THE ONUS IS ON THE ASSESSEE TO PROVE THAT IT FULFILLS ALL THE CONDITIONS AS STIPULATED U NDER SECTION 36(1)(VA) READ WITH EXPLANATION BEFORE CLAIMING DED UCTION FROM ITS INCOME. THE DECISION OF CONSTITUTION BENCH OF HONB LE SUPREME COURT IN THE CASE OF COMMISSIONER OF CUSTOMS (IMPOR TS) V. DILIP ITA NO.2885/CHNY/2017 :- 81 -: KUMAR & CO. REPORTED IN (2018) 9 SCC 1 IS RELEVANT . THE RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF R AMNATH & CO. V. CIT REPORTED IN (2020) 116 TAXMANN.COM 885(SC) I S RELEVANT (REFER PARA 17 TO 20) , WHICH IS REPRODUCED HEREUND ER: DILIP KUMAR & CO. 17. THE CORE QUESTION REFERRED FOR AUTHORITATIVE PRONO UNCEMENT TO THE CONSTITUTION BENCH IN THE CASE OF DILIP KUMAR & CO. ( SUPRA ) WAS AS TO WHAT INTERPRETATIVE RULE SHOULD BE APPLIED WHILE INTERPR ETING A TAX EXEMPTION PROVISION/NOTIFICATION WHEN THERE IS AN AMBIGUITY A S TO ITS APPLICABILITY WITH REFERENCE TO THE ENTITLEMENT OF THE ASSESSEE OR THE RATE OF TAX? THE REFERENCE TO THE CONSTITUTION BENCH WAS NECESSITATED ESSENTIA LLY FOR THE REASON THAT IN A FEW DECISIONS, ONE OF THEM BY A 3-JUDGE BENCH OF TH IS COURT IN THE CASE OF SUN EXPORT CORPN. V. COLLECTOR OF CUSTOMS : [1997] 6 SCC 564, THE PROPOSITION CAME TO BE STATED THAT ANY AMBIGUITY IN A TAX PROVISION/NOTIFICATION MUST BE INTERPRETED IN FAVOU R OF THE ASSESSEE WHO IS CLAIMING BENEFIT THEREUNDER. 14 17.1 . IN DILIP KUMAR & CO., THE CONSTITUTION BENCH OF T HIS COURT EXAMINED SEVERAL OF THE PAST DECISIONS INCLUDING THAT BY ANO THER CONSTITUTION BENCH IN CCE V. HARI CHAND SHRI GOPAL : [2011] 1 SCC 236 AS ALSO THAT BY A DIVISION BENCH OF THIS COURT IN THE CASE OF UOI V. WOOD PAPERS LTD. : [1990] 4 SCC 256 WHEREIN, THE PRINCIPLES WERE STATED IN CL EAR TERMS THAT THE QUESTION AS TO WHETHER A SUBJECT FALLS IN THE NOTIFICATION O R IN THE EXEMPTION CLAUSE HAS TO BE STRICTLY CONSTRUED; AND ONCE THE AMBIGUITY OR DOUBT IS RESOLVED BY INTERPRETING THE APPLICABILITY OF EXEMPTION CLAUSE STRICTLY, THE COURT MAY CONSTRUE THE EXEMPTION CLAUSE LIBERALLY. THIS COURT FOUND THAT IN WOOD PAPERS LTD. ( SUPRA ), SOME OF THE OBSERVATIONS IN AN EARLIER DECISION IN THE CASE OF CCE V. PARLE EXPORTS (P) LTD. : [1989] 1 SCC 345 WERE ALSO EXPLAINED WITH ALL CLARITY. THIS COURT NOTED THE EN UNCIATIONS IN WOOD PAPER LTD. WITH TOTAL APPROVAL AS COULD BE NOTICED IN THE FOLLOWING:- '46. IN THE JUDGMENT OF THE TWO LEARNED JUDGES IN UNION OF INDIA V. WOOD PAPERS LTD.: [1990] 4 SCC 256 (HEREINAFTER REFERRED TO AS 'WOOD PAPERS LTD. CASE', FOR BREVITY), A DISTINCTION BETWEEN STA GE OF FINDING OUT THE ELIGIBILITY TO SEEK EXEMPTION AND STAGE OF APPLYING THE NATURE OF EXEMPTION WAS MADE. RELYING ON THE DECISION IN CCE V. PARLE EXPORTS (P) LTD. : [1989] 1 SCC 345, IT WAS HELD: (WOOD PAPERS LTD. CA SE, SCC P. 262, PARA 6) '6. ... DO NOT EXTEND OR WIDEN THE AMBIT AT THE STA GE OF APPLICABILITY. BUT ONCE THAT HURDLE IS CROSSED, CONSTRUE IT LIBERALLY. ' THE REASONING FOR ARRIVING AT SUCH CONCLUSION IS FO UND IN PARA 4 OF WOOD PAPERS LTD. CASE, WHICH READS: (SCC P. 260) '4. ... LITERALLY EXEMPTION IS FREEDOM FROM LIABILI TY, TAX OR DUTY. FISCALLY, IT MAY ASSUME VARYING SHAPES, SPECIALLY, IN A GROWING ECONOMY. FOR INSTANCE ITA NO.2885/CHNY/2017 :- 82 -: TAX HOLIDAY TO NEW UNITS, CONCESSIONAL RATE OF TAX TO GOODS OR PERSONS FOR LIMITED PERIOD OR WITH THE SPECIFIC OBJECTIVE, ETC. THAT IS WHY ITS CONSTRUCTION, UNLIKE CHARGING PROVISION, HAS TO BE TESTED ON DIFF ERENT TOUCHSTONE. IN FACT, AN EXEMPTION PROVISION IS LIKE AN EXCEPTION AND ON NOR MAL PRINCIPLE OF CONSTRUCTION OR INTERPRETATION OF STATUTES IT IS CO NSTRUED STRICTLY EITHER BECAUSE OF LEGISLATIVE INTENTION OR ON ECONOMIC JUSTIFICATI ON OF INEQUITABLE BURDEN OR PROGRESSIVE APPROACH OF FISCAL PROVISIONS INTENDED TO AUGMENT STATE REVENUE. BUT ONCE EXCEPTION OR EXEMPTION BECOMES APPLICABLE NO RULE OR PRINCIPLE REQUIRES IT TO BE CONSTRUED STRICTLY. TRULY SPEAKIN G LIBERAL AND STRICT CONSTRUCTION OF AN EXEMPTION PROVISION ARE TO BE IN VOKED AT DIFFERENT STAGES OF INTERPRETING IT. WHEN THE QUESTION IS WHETHER A SUBJECT FALLS IN THE NOTIFICATION OR IN THE EXEMPTION CLAUSE THEN IT BEI NG IN NATURE OF EXCEPTION IS TO BE CONSTRUED STRICTLY AND AGAINST THE SUBJECT, B UT ONCE AMBIGUITY OR DOUBT ABOUT APPLICABILITY IS LIFTED AND THE SUBJECT FALLS IN THE NOTIFICATION THEN FULL PLAY SHOULD BE GIVEN TO IT AND IT CALLS FOR A WIDER AND LIBERAL CONSTRUCTION.' (EMPHASIS SUPPLIED) ** ** ** 58. IN THE ABOVE PASSAGE, NO DOUBT THIS COURT OBSER VED THAT: (PARLE EXPORTS CASE, SCC P. 357, PARA 17) '17. WHEN TWO VIEWS OF A NOTIFICATION ARE POSSIBLE, IT SHOULD BE CONSTRUED IN FAVOUR OF THE SUBJECT AS NOTIFICATION IS PART OF A FISCAL ENACTMENT.' THIS OBSERVATION MAY APPEAR TO SUPPORT THE VIEW THA T AMBIGUITY IN A NOTIFICATION FOR EXEMPTION MUST BE INTERPRETED TO B ENEFIT THE SUBJECT/ASSESSEE. A CAREFUL READING OF THE ENTIRE PARA, AS EXTRACTED HEREINABOVE WOULD, HOWEVER, SUGGEST THAT AN EXCEPTION TO THE GENERAL R ULE OF TAX HAS TO BE CONSTRUED STRICTLY AGAINST THOSE WHO INVOKE FOR THE IR BENEFIT. THIS WAS EXPLAINED IN A SUBSEQUENT DECISION IN WOOD PAPERS L TD. CASE. IN PARA 6, IT WAS OBSERVED AS FOLLOWS: (SCC P. 262) '6. ... IN CCE V. PARLE EXPORTS (P) LTD ., THIS COURT WHILE ACCEPTING THAT EXEMPTION CLAUSE SHOULD BE CONSTRUED LIBERALLY APPL IED RIGOROUS TEST FOR DETERMINING IF EXPENSIVE ITEMS LIKE GOLD SPOT BASE OR LIMCA BASE OR THUMS UP BASE WERE COVERED IN THE EXPRESSION FOOD PRODUCT S AND FOOD PREPARATIONS USED IN ITEM NO. 68 OF FIRST SCHEDULE OF CENTRAL EX CISES AND SALT ACT AND HELD 'THAT IT SHOULD NOT BE IN CONSONANCE WITH SPIR IT AND THE REASON OF LAW TO GIVE EXEMPTION FOR NON-ALCOHOLIC BEVERAGE BASIS UND ER THE NOTIFICATION IN QUESTION'. RATIONALE OR RATIO IS SAME. DO NOT EXTEN D OR WIDEN THE AMBIT AT STAGE OF APPLICABILITY. BUT ONCE THAT HURDLE IS CRO SSED CONSTRUE IT LIBERALLY. SINCE THE RESPONDENT DID NOT FALL IN THE FIRST CLAU SE OF THE NOTIFICATION THERE WAS NO QUESTION OF GIVING THE CLAUSE A LIBERAL CONS TRUCTION AND HOLD THAT PRODUCTION OF GOODS BY RESPONDENT MENTIONED IN THE NOTIFICATION WERE ENTITLED TO BENEFIT.' 59. THE ABOVE DECISION, WHICH IS ALSO A DECISION OF A TWO- JUDGE BENCH OF THIS COURT, FOR THE FIRST TIME TOOK A VIEW THAT LIB ERAL AND STRICT CONSTRUCTION OF EXEMPTION PROVISIONS ARE TO BE INVOKED AT DIFFERENT STAGES OF INTERPRETING IT. THE QUESTION WHETHER A SUBJECT FALLS IN THE NOTIFIC ATION OR IN THE EXEMPTION ITA NO.2885/CHNY/2017 :- 83 -: CLAUSE, HAS TO BE STRICTLY CONSTRUED. WHEN ONCE THE AMBIGUITY OR DOUBT IS RESOLVED BY INTERPRETING THE APPLICABILITY OF EXEMP TION CLAUSE STRICTLY, THE COURT MAY CONSTRUE THE NOTIFICATION BY GIVING FULL PLAY BESTOWING WIDER AND LIBERAL CONSTRUCTION. THE RATIO OF PARLE EXPORTS CA SE DEDUCED AS FOLLOWS: (WOOD PAPERS LTD. CASE, SCC P. 262, PARA 6) '6. ... DO NOT EXTEND OR WIDEN THE AMBIT AT STAGE O F APPLICABILITY. BUT ONCE THAT HURDLE IS CROSSED, CONSTRUE IT LIBERALLY.' 60. WE DO NOT FIND ANY STRONG AND COMPELLING REASON S TO DIFFER, TAKING A CONTRA VIEW, FROM THIS. WE RESPECTFULLY RECORD OUR CONCURRENCE TO THIS VIEW WHICH HAS BEEN SUBSEQUENTLY, ELABORATED BY THE CONS TITUTION BENCH IN HARI CHAND CASE ' (EMPHASIS IN BOLD SUPPLIED) 17.2 . THE CONSTITUTION BENCH DECISION IN HARI CHAND SHRI GOPAL ( SUPRA ) WAS ALSO TAKEN NOTE OF, INTER ALIA, IN THE FOLLOWING:- '50. WE WILL NOW CONSIDER ANOTHER CONSTITUTION BENC H DECISION IN CCE V. HARI CHAND SHRI GOPAL (HEREINAFTER REFERRED AS 'HARI CHAND CASE', FOR BREVITY). WE NEED NOT REFER TO THE FACTS OF THE CASE WHICH GAVE RISE TO THE QUESTIONS FOR CONSIDERATION BEFORE THE CONSTITUTION AL BENCH. K.S. RADHAKRISHNAN, J., WHO WROTE THE UNANIMOUS OPINION FOR THE CONSTITUTION BENCH, FRAMED THE QUESTION VIZ. WHETHER MANUFACTURE R OF A SPECIFIED FINAL PRODUCT FALLING UNDER THE SCHEDULE TO THE CENTRAL E XCISE TARIFF ACT, 1985 IS ELIGIBLE TO GET THE BENEFIT OF EXEMPTION OF REMISSI ON OF EXCISE DUTY ON SPECIFIED INTERMEDIATE GOODS AS PER THE CENTRAL GOV ERNMENT NOTIFICATION DATED 11-8-1994, IF CAPTIVELY CONSUMED FOR THE MANU FACTURE OF FINAL PRODUCT ON THE GROUND THAT THE RECORDS KEPT BY IT AT THE RE CIPIENT END WOULD INDICATE ITS 'INTENDED USE' AND 'SUBSTANTIAL COMPLIANCE' WIT H PROCEDURE SET OUT IN CHAPTER 10 OF THE CENTRAL EXCISE RULES, 1994, FOR C ONSIDERATION? THE CONSTITUTION BENCH ANSWERING THE SAID QUESTION CONC LUDED THAT A MANUFACTURER QUALIFIED TO SEEK EXEMPTION WAS REQUIR ED TO COMPLY WITH THE PRECONDITIONS FOR CLAIMING EXEMPTION AND THEREFORE IS NOT EXEMPT OR ABSOLVED FROM FOLLOWING THE STATUTORY REQUIREMENTS AS CONTAINED IN THE RULES. THE CONSTITUTION BENCH THEN CONSIDERED AND REITERAT ED THE SETTLED PRINCIPLES QUA THE TEST OF CONSTRUCTION OF EXEMPTION CLAUSE, T HE MANDATORY REQUIREMENTS TO BE COMPLIED WITH AND THE DISTINCTION BETWEEN THE ELIGIBILITY CRITERIA WITH REFERENCE TO THE CONDITIONS WHICH NEED TO BE STRICT LY COMPLIED WITH AND THE CONDITIONS WHICH NEED TO BE SUBSTANTIALLY COMPLIED WITH. THE CONSTITUTION BENCH FOLLOWED THE RATIO IN HANSRAJ GORDHANDAS CASE , TO REITERATE THE LAW ON THE ASPECT OF INTERPRETATION OF EXEMPTION CLAUSE IN PARA 29 AS FOLLOWS: (HARI CHAND CASE, SCC P. 247)'29. THE LAW IS WELL SETTLED THAT A PERSON WHO CLAIMS EXEMPTION OR CONCESSION HAS TO ESTABLISH THA T HE IS ENTITLED TO THAT EXEMPTION OR CONCESSION. A PROVISION PROVIDING FOR AN EXEMPTION, CONCESSION OR EXCEPTION, AS THE CASE MAY BE, HAS TO BE CONSTRUED STRICTLY WITH CERTAIN EXCEPTIONS DEPENDING UPON THE SETTINGS ON W HICH THE PROVISION HAS BEEN PLACED IN THE STATUTE AND THE OBJECT AND PURPO SE TO BE ACHIEVED. IF EXEMPTION IS AVAILABLE ON COMPLYING WITH CERTAIN CO NDITIONS, THE CONDITIONS HAVE TO BE COMPLIED WITH. THE MANDATORY REQUIREMENT S OF THOSE CONDITIONS MUST BE OBEYED OR FULFILLED EXACTLY, THOUGH AT TIME S, SOME LATITUDE CAN BE ITA NO.2885/CHNY/2017 :- 84 -: SHOWN, IF THERE IS FAILURE TO COMPLY WITH SOME REQU IREMENTS WHICH ARE DIRECTORY IN NATURE, THE NON-COMPLIANCE OF WHICH WO ULD NOT AFFECT THE ESSENCE OR SUBSTANCE OF THE NOTIFICATION GRANTING E XEMPTION. ** ** **' (EMPHASIS IN BOLD SUPPLIED) 17.3 . IN VIEW OF ABOVE AND WITH REFERENCE TO SEVERAL OT HER DECISIONS, IN DILIP KUMAR & CO., THE CONSTITUTION BENCH SUMMED UP THE P RINCIPLES AS FOLLOWS:- '66. TO SUM UP, WE ANSWER THE REFERENCE HOLDING AS UNDER: 66.1. EXEMPTION NOTIFICATION SHOULD BE INTERPRETED STRICTLY; THE BURDEN OF PROVING APPLICABILITY WOULD BE ON THE ASSESSEE TO S HOW THAT HIS CASE COMES WITHIN THE PARAMETERS OF THE EXEMPTION CLAUSE OR EX EMPTION NOTIFICATION. 66.2. WHEN THERE IS AMBIGUITY IN EXEMPTION NOTIFICA TION WHICH IS SUBJECT TO STRICT INTERPRETATION, THE BENEFIT OF SUCH AMBIGUIT Y CANNOT BE CLAIMED BY THE SUBJECT/ASSESSEE AND IT MUST BE INTERPRETED IN FAVO UR OF THE REVENUE. 66.3. THE RATIO IN SUN EXPORT CASE IS NOT CORRECT A ND ALL THE DECISIONS WHICH TOOK SIMILAR VIEW AS IN SUN EXPORT CASE STAND OVERR ULED.' (EMPHASIS IN BOLD SUPPLIED) 17.4 . OBVIOUSLY, THE GENERALISED, RATHER SWEEPING, PROP OSITION STATED IN THE CASE OF SUN EXPORT CORPORATION ( SUPRA ) AS ALSO IN OTHER CASES THAT IN THE MATTERS OF TAXATION, WHEN TWO VIEWS ARE POSSIBLE, THE ONE F AVOURABLE TO ASSESSEE HAS TO BE PREFERRED, STANDS SPECIFICALLY DISAPPROVED BY TH E CONSTITUTION BENCH IN DILIP KUMAR & CO. ( SUPRA ). IT HAS BEEN LAID DOWN BY THE CONSTITUTION BENCH IN NO UNCERTAIN TERMS THAT EXEMPTION NOTIFICATION HAS TO BE INTERPRETED STRICTLY; THE BURDEN OF PROVING ITS APPLICABILITY IS ON THE ASSES SEE; AND IN CASE OF ANY AMBIGUITY, THE BENEFIT THEREOF CANNOT BE CLAIMED BY THE SUBJECT/ASSESSEE, RATHER IT WOULD BE INTERPRETED IN FAVOUR OF THE REVENUE. 18. IT HAS BEEN REPEATEDLY EMPHASISED ON BEHALF OF THE APPELLANT THAT SECTION 80- O OF THE ACT IS ESSENTIALLY AN INCENTIVE PROVISION AND, THEREFORE, NEEDS TO BE INTERPRETED AND APPLIED LIBERALLY. IN THIS REGARD, WE MAY OBSERVE THAT DEDUCTIONS, EXEMPTIONS, REBATES ET CETERA ARE THE DIFFERENT SPE CIES OF INCENTIVES EXTENDED BY THE ACT OF 1961 15 . IN OTHER WORDS, INCENTIVE IS A GENERIC TERM AND ' DEDUCTION' IS ONE OF ITS SPECIES; 'EXEMPTION' IS ANOTHER. FURTHER MORE, SECTION 80-O IS ONLY ONE OF THE PROVISIONS IN THE ACT OF 1961 DEALING WITH I NCENTIVE; AND EVEN AS REGARDS THE INCENTIVE FOR EARNING OR SAVING FOREIGN EXCHANG E, THERE ARE OTHER PROVISIONS IN THE ACT, INCLUDING SECTION 80HHC, WHEREUNDER THE APPELLANT WAS INDEED TAKING BENEFIT BEFORE THE ASSESSMENT YEAR 1993-94. 19 . WITHOUT EXPANDING UNNECESSARILY ON VARIEGATED PRO VISIONS DEALING WITH DIFFERENT INCENTIVES, SUFFICE WOULD BE TO NOTICE TH AT THE PROPOSITION THAT INCENTIVE PROVISIONS MUST RECEIVE 'LIBERAL INTERPRE TATION' OR TO SAY, LEANING IN FAVOUR OF GRANT OF RELIEF TO THE ASSESSEE IS NOT AN APPROACH COUNTENANCED BY THIS COURT. THE LAW DECLARED BY THE CONSTITUTION BENCH I N RELATION TO EXEMPTION NOTIFICATION, PROPRIO VIGORE, WOULD APPLY TO THE IN TERPRETATION AND APPLICATION OF ANY AKIN PROPOSITION IN THE TAXING STATUTES FOR EXE MPTION, DEDUCTION, REBATE ET ITA NO.2885/CHNY/2017 :- 85 -: AL., WHICH ALL ARE ESSENTIALLY THE FORM OF TAX INCE NTIVES GIVEN BY THE GOVERNMENT TO INCITE OR ENCOURAGE OR SUPPORT ANY PARTICULAR AC TIVITY 16 . 20. THE PRINCIPLES LAID DOWN BY THE CONSTITUTION BE NCH, WHEN APPLIED TO INCENTIVE PROVISIONS LIKE THOSE FOR DEDUCTION, WOUL D ALSO BE THAT THE BURDEN LIES ON THE ASSESSEE TO PROVE ITS APPLICABILITY TO HIS CASE; AND IF THERE BE ANY AMBIGUITY IN THE DEDUCTION CLAUSE, THE SAME IS SUBJ ECT TO STRICT INTERPRETATION WITH THE RESULT THAT THE BENEFIT OF SUCH AMBIGUITY CANNOT BE CLAIMED BY THE ASSESSEE, RATHER IT WOULD BE INTERPR ETED IN FAVOUR OF THE REVENUE. IN VIEW OF THE CONSTITUTION BENCH DECISION IN DILIP KUMAR & CO. ( SUPRA ), THE GENERALISED OBSERVATIONS IN BABY MARINE EXPORTS ( SUPRA ) WITH REFERENCE TO A FEW OTHER DECISIONS, THAT A TAX INCE NTIVE PROVISION MUST RECEIVE LIBERAL INTERPRETATION, CANNOT BE CONSIDERED TO BE A SOUND STATEMENT OF LAW; RATHER THE APPLICABLE PRINCIPLES WOULD BE THOSE ENU NCIATED IN WOOD PAPERS LTD. ( SUPRA ), WHICH HAVE BEEN PRECISELY APPROVED BY THE CONSTI TUTION BENCH. THUS, AT AND UNTIL THE STAGE OF FINDING OUT ELIGIBI LITY TO CLAIM DEDUCTION, THE AMBIT AND SCOPE OF THE PROVISION FOR THE PURPOSE OF ITS APPLICABILITY CANNOT BE EXPANDED OR WIDENED AND REMAINS SUBJECT TO STRICT I NTERPRETATION BUT, ONCE ELIGIBILITY IS DECIDED IN FAVOUR OF THE PERSON CLAI MING SUCH DEDUCTION, IT COULD BE CONSTRUED LIBERALLY IN REGARD TO OTHER REQUIREME NTS, WHICH MAY BE FORMAL OR DIRECTORY IN NATURE. 10.3.11 THUS, KEEPING IN VIEW STRICT AND LITERAL IN TERPRETATION OF PROVISIONS OF SECTION 36(1)(VA) OF THE 1961 ACT REA D WITH EXPLANATION 1 AND SECTION 2(24)(X) OF THE 1961 ACT , THE ASSESSEE WILL NOT BE ENTITLED FOR DEDUCTION AS THE EMPLOYEE CONTRIBUTION TOWARDS PF RECEIVED BY ASSESSEE WAS DEPOSITED LATE BEYOND THE TIME STIPULA TED UNDER THE RELEVANT STATUTE GOVERNING PF. BUT, IT IS EQUALLY T RUE THAT THE CONSTITUTIONAL COURTS VIZ. HONBE HIGH COURTS AND H ONBLE SUPREME COURT IN INDIA HAVE POWERS TO READ DOWN THE PROVISI ONS OF THE 1961 ACT TO MAKE IT WORKABLE AND TO AVOID ABSURDITY. ON PERUSAL OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AL OM EXTRUSION(SUPRA) , IT IS OBSERVED THAT HONBLE SUPR EME COURT HAS ELABORATELY DISCUSSED PROVISIONS OF SECTION 36(1)(V A) ,2(24)(X) AND AMENDMENTS MADE BY FINANCE ACT, 2003 TO SECTION 43B OF THE 1961 ITA NO.2885/CHNY/2017 :- 86 -: ACT, WHICH AMENDMENTS TO SECTION 43B OF THE 1961 A CT WERE HELD TO BE RETROSPECTIVE IN NATURE. THE HONBLE SUPREME COU RT ALSO REFERRED IN ITS DECISION IN ALOM EXTRUSION (SUPRA) TO ITS EARLI ER DECISION IN CIT V. J.H. GOTLA [1985] 156 ITR 323(SC) , PARA 10 THAT IN TENTION OF THE LEGISLATURE IS TO BE FOUND OUT FROM THE LANGUAGE US ED AND IF STRICT LITERAL CONSTRUCTION LEADS TO AN ABSURD RESULT I.E. RESULT NOT INTENDED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION FO UND IN THE MANNER INDICATED BEFORE, THEN IF ANOTHER CONSTRUCTI ON IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION, THEN THAT C ONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCTION. TH OUGH EQUITY AND TAXATION ARE OFTEN STRANGERS, ATTEMPTS SHOULD BE MA DE THAT THESE DO NOT REMAIN ALWAYS SO AND IF A CONSTRUCTION RESUL TS IN EQUITY RATHER THAN IN INJUSTICE, THEN SUCH CONSTRUCTION SH OULD BE PREFERRED TO THE LITERAL CONSTRUCTION. THE HONBLE DELHI HIGH COURT AND HONBLE BOMBAY HIGH COURT AFTER CONSIDERING, ANALYZING AND INTERPRETING THE DECISION IN THE CASE OF ALOM EXTRUSION (SUPRA) HAS HELD THAT IT WILL APPLY BOTH TO EMPLOYERS AND EMPLOYEE CONTRIBUTION A ND IF THE SAME IS DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN O F INCOME U/S 139(1) OF THE 1961 ACT, THE DEDUCTION SHALL BE ALLOWED , E VEN IF THE SAME IS DEPOSITED BEYOND THE TIME STIPULATED AS DUE DATE AS PRESCRIBED UNDER THE PROVISIONS OF STATUTE GOVERNING PF/ESI ACT. THU S, THE APPLICABLE PROVISION AS IS CONTAINED IN SECTION 36(1)(VA) IS R EAD DOWN BY MOST OF THE CONSTITUTIONAL COURTS INCLUDING OUR JURISDICTIO NAL HIGH COURT ITA NO.2885/CHNY/2017 :- 87 -: (BARRING HONBLE GUJARAT HIGH COURT AND HONBLE KER ALA HIGH COURT) TO MAKE IT WORKABLE AS OTHERWISE THE TAX-PAYER WILL LO SE THE DEDUCTION FOR EVER IF THE EMPLOYEE CONTRIBUTION IS NOT DEPOSITED WITHIN DUE DATE AS PRESCRIBED UNDER RELEVANT STATUTE , ALTHOUGH THE SA ID CONTRIBUTION STOOD DEPOSITED BY EMPLOYER BELATEDLY BEFORE THE DU E DATE FOR FILING OF RETURN OF INCOME U/S 139(1) OF THE 1961 ACT AND THE AMOUNT WILL STOOD BROUGHT TO TAX AS INCOME KEEPING IN VIEW PROVISIONS OF SECTION 2(24)(X) OF THE 1961 ACT SO FAR EMPLOYEE SHARE OF C ONTRIBUTION TOWARDS PF ,ESI AND OTHER EMPLOYEES WELFARE FUNDS IS CONCER NED. NO DOUBT IT IS WELL CHERISHED OBJECTIVE THAT THERE SHOULD NOT B E AN UNJUST ENRICHMENT OF THE EMPLOYER OF THE AMOUNT WHICH IT C OLLECTS FROM ITS EMPLOYEES TOWARDS EMPLOYEES SHARE OF PF , ESI AND O THER EMPLOYEES WELFARE FUNDS AND IN THE IDEAL SITUATION , THE SAID AMOUNTS OUGHT TO HAVE BEEN DEPOSITED BY EMPLOYER WHICH IT COLLECTED FROM ITS EMPLOYEES, TO THE CREDIT OF EMPLOYEE WITH RELEVANT FUNDS WITHIN TIME STIPULATED AS DUE DATE BY RESPECTIVE STATUTE GOVERN ING PF/ESI ETC. BUT AT THE SAME TIME IF THE EMPLOYER DOES NOT DEPOSIT T HE CONTRIBUTION TOWARDS PF/ESI ETC WITHIN DUE DATE AS PRESCRIBED UN DER RELEVANT STATUTE GOVERNING PF/ESI ETC, THE EMPLOYERS ARE VIS ITED WITH INTEREST FOR DELAYED DEPOSIT OF PF/ESI AS WELL PENALTIES FOR LATE DEPOSIT BEYOND THE TIME STIPULATED UNDER THE RELEVANT STATUTE GOVE RNING PF/ESI AND OTHER EMPLOYEES WELFARE FUNDS. REFERENCE IS DRAWN T O SECTION 7Q AND ITA NO.2885/CHNY/2017 :- 88 -: 14 OF THE EMPLOYEES PROVIDENT FUNDS AND MISCELLANE OUS PROVISIONS ACT, 1952 . SIMILARLY, HONBLE MADRAS HIGH COURT IN THE CASE OF INDUSTRIAL SECURITY AND INTELLIGENCE INDIA PRIVATE LIMITED (SUPRA) AFTER CONSIDERING AND INTERPRETING THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF ALOM EXTRUSION (SUPRA) AND HONBLE DELH I HIGH COURT IN THE CASE OF AIMIL LIMITED(SUPRA) HELD THAT DEDUCTION IS TO BE ALLOWED FOR BELATED PAYMENT OF EMPLOYEE CONTRIBUTION TO PF/ESI WHICH IS DEPOSITED BEYOND THE DUE DATE STIPULATED UNDER THE RELEVANT STATUTES GOVERNING PF/ESI , BUT THE SAME STOOD DEPOSITED B EFORE THE DUE DATE FOR FILING OF RETURN OF INCOME AS IS PRESCRIBED U/S 139(1) OF THE 1961 ACT. WE AT TRIBUNAL BEING INFERIOR JUDICIAL BODY TO HONBLE MADRAS HIGH COURT , ARE BOUND BY DECISION OF HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF INDUSTRIAL SECURITY(SUPRA) AS A CARDIN AL PRINCIPLES OF JUDICIAL DISCIPLINE AND TO INSTILL CERTAINTY AMONG TAX-PAYERS, THUS, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE MADR AS HIGH COURT IN THE CASE OF INDUSTRIAL SECURITY AND INTELLIGENCE(SUPRA) , WE ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS. 6,31,788/- TOW ARDS EMPLOYEES CONTRIBUTION TO PF WHICH WAS DEPOSITED LATE BEYOND DUE DATE AS PRESCRIBED UNDER RELEVANT STATUTE GOVERNING PF , BU T THE SAME STOOD DEPOSITED TO THE CREDIT OF EMPLOYEES WITH RELEVANT FUND BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME AS PRESCRIBED U /S 139(1) OF THE 1961 ITA NO.2885/CHNY/2017 :- 89 -: ACT. THE REVENUE FAILS ON THIS ISSUE FOR THE REASON S CITED ABOVE . WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO. 2885/CHNY/2017 FOR AY: 2013-14 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES, AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT THROUGH VIDEOCON FERENCING ON 17 TH JUNE, 2020, AT CHENNAI. SD/- SD/- ( ) ( ) (GEORGE MATHAN) !' / JUDICIAL MEMBER (RAMIT KOCHAR) /ACCOUNTANT MEMBER * / CHENNAI - / DATED: 17 TH JUNE, 2020. K S SUNDARAM . % ' / 0/# / COPY TO: 1 . $ / APPELLANT 3. ) 1 ( ) / CIT(A) 5. /45 ' 6! / DR 2. '( $ / RESPONDENT 4. ) 1 / CIT 6. 57 8* / GF