NIMBUS PIPES LIMITED, JAIPUR V. ACIT CIRCLE-4, JAIPUR

ITA 384/JPR/2022

AI Insights

Nimbus Pipes Limited appealed against the order of the National Faceless Appeal Centre (NFAC), which confirmed the disallowance of Rs. 2,54,004/- for late deposit of employees' contributions to Provident Fund and ESI. The Tribunal examined the case in light of the Supreme Court's decision in Checkmate Services P. Ltd. vs. CIT, which established that deductions for employees' contributions are only permissible if the amounts are deposited by the due date specified under the respective welfare Acts. The Tribunal found that the contributions in question were not deposited by the required due dates, leading to the dismissal of the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132248 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-11-2022
• Assessment Year: 2019-2020
• Appeal Filed On: 24-10-2022
• Other Referred Cases: Checkmate Services P. Ltd. vs. CIT, CIT Jaipur vs M/S State Bank of Bikaner, CIT vs. AIMIL Ltd, CIT vs. Vinay Cements, CIT vs. Ghatge Patil Transports Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Rectification of order; Retrospective amendment
• Section: 28; 154; 2; 43B; 139(1); 64; 43

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR MkWa- ,l-lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 384/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2019-20 Nimbus Pipes Limited E-35, RIICO Industrial Area Ext Bagru, Jaipur-303007. cuke Vs. ACIT, Circle-4, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCN 1836 F vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rohit Badaya (C.A.) jktLo dh vksj ls@ Revenue by : Shri R.S. Meel (JCIT) lquokbZ dh rkjh[k@ Date of Hearing 28/11/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 16/02/2023 vkns'k@ ORDER PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as “NFAC”], ld. CIT(A) dated 25.08.2022 for the assessment years 2019-20. 2. The assessee has raised the following grounds:- “1. On the facts and in the circumstances of the case and in law, ld. CIT(A) erred both in fact and law by confirming the order passed by Ld. ITA No. 384/JP/2022 Nimbus Pipes Limited 2 AO for disallowance of employee contribution of PF and ESI of Rs. 254004/-.” 3. The brief facts of the case are that assessee is a comnay and filed its return of income for the A.Y. 2019-20 on 30.10.2019 declaring total income of Rs. 2,81,35,200/-. The assessee received rectification order u/s 154 considering total income of Rs. 2,83,89,200/- wherein ADIT CPC, Bangaore has made addition of Rs. 2,54,004/- on account of late deposit of employees contribution towards Provident Fund and ESI. Being aggrieved by the order, the assessee is in appeal against the said order u/s 154 of the Act. 4. Being aggrieved by the order issued U/s 154 of the IT Act, the assessee preferred an appeal before the ld. CIT(A). The assessee filed complete details of the entire payments i.e. employee’s PF & ESI contribution paid before the due date of filing of return of income which are produced in CIT(A) order at pages 3. 5. In first appeal the assessee carried the matter before the CIT(A) who confirmed the disallowance made by AO by observing as under:- “ 6.22 From above observations of the Apex Court, it is clear that if a statute is curative in nature or merely declaratory of the previous law, retrospective operation is generally intended. If the objective of the amendment is to clear ITA No. 384/JP/2022 Nimbus Pipes Limited 3 the meaning of the principal act, which was already implicit, such amendment will necessarily have retrospective effect because it would be without object unless construed retrospectively. If the amendments in Sec. 36(1)(va) are viewed from this perspective, there will not be any room for doubt about its nature being clarificatory. This matter has been clarified in the amendment i.e. the true import of 'due date 'was very much implicit in the existing explanation 1 of Sec 36(1)(va) even prior to the amendment. More clarity has been brought about and the existing interpretation is reconfirmed through this amendment by way of insertion of explanation 2. A harmonious construction will not emerge if these amendments were to be construed as prospective. Therefore, relying on the principles of interpretation of statutes as has been adumbrated by Hon'ble Apex Court supra, it is to be held that the clarification brought out by explanation 2 to Sec. 36(1)(va) will equally hold good for the AYS prior to 2021-22. 6.23 Thus, the aforesaid Explanations inserted by Finance Act, 2021 have clarified that definition of 'due date' as per Sec 43B is deemed never to have been applied for the purpose of employee's contribution. As discussed above, the said amendments are clarificatory in nature and are retrospective in operation. Therefore, the payment of employee's contribution made after the due date, by which the appellant is required as an employer to credit an employee's contribution to the employee's account in the relevant fund as per the Employee Provident Fund Scheme/ ESI Act, is liable to be added to the income of appellant. 6.24 Accordingly, disallowance of Rs. 2,54,004/- made by the AO is confirmed. This ground of appeal is dismissed.” 6. Being aggrieved by the CIT(A) order the assessee preferred an appeal before us. The ld. AR for assessee submitted a detailed written submissions which are as under:- ITA No. 384/JP/2022 Nimbus Pipes Limited 4 “ That Appellant has filed e-return on 30.10.2019 declaring taxable income of Rs. 2,81,35,200/- for the assessment year 2019-20. The Appellant has deposited, employee contribution of PF and ESI of Rs. 2,54,004/- before the due date of filing of Income Tax return. CPC cell has passed order u/s 154 and made addition of Rs. 2,54,004/- by disallowing employee contribution of PF and employee contribution of ESI of Rs. 2,54,004/-, deposited after the due date prescribed under respective Acts and not considered the due date of filing of Income Tax return for payment of said amount. Assessee aggrieved with the disputed demand raised by the assessing officer, therefore he has filed an appeal before CIT(Appeals), CIT Appeals has uphold the demand. Now the assessee is before this Hon'ble Bench, SUBMISSIONS:- Ground No 1: On the facts and in the circumstances of the case and in law. Ld. Cit (a) erred both in facts and law by confirming the order passed by Ld. AO for disallowance of employee contribution of PF and ESI of Rs. 254004/- In this regard, our submission is as under: It is submitted that Learned AO, CPC cell has passed order u/s 154 by disallowing Employee's contribution to PF and ESI to the tune of Rs. 2,54,004/-u/s 36(1)(va), on account of delay payment of PF and ESI, paid after due date in respective act. In this connection, the appellant would like to submit that he has made payment of Employee's contribution to PF and ESI before due date of filing of return. The appellant has given below the details of employee's contribution of PF and ESI for your reference. SN Nature of fund Employer's Share Contribution received from employees Due date for payment The actual amount paid The actual date of payment to the concerned authorities. 1 Provident Fund 2,180 22,249 15-05-2018 24,429 04-06-2018 2 Provident Fund 9,416 52,770 15-06-2018 62,186 16-06-2018 ITA No. 384/JP/2022 Nimbus Pipes Limited 5 3 Provident Fund 243 225 15-11-2018 468 30-01-2019 4 Provident Fund 890 820 15-12-2018 1.710 30-01-2019 5 Provident Fund 93 86 15-12-2018 179 20-03-2019 6 Provident Fund 538 497 15-01-2019 1,035 20-03-2019 7 Provident Fund 161 149 15-02-2019 310 20-03-2019 8 Provident Fund 13,784 70,539 15-03-2019 84,323 20-03-2019 9 Provident Fund 17,256 70,214 15-04-2018 87,470 15-04-2019 10 ES! 11,402 3,817 15-05-2018 15,219 16-05-2018 11 ESI 19,229 6,445 15-05-2018 25,674 20-06-2018 12 ES! 35,106 11.777 15-06-2018 46.883 18-06-2018 13 ESI 41,031 13,767 15-08-2018 54,798 16-08-2018 14 ES! 1,759 649 15-01-2019 2,408 18-01-2019 1,53,088 2,54,004 4,07,092 As stated in above table, all the payments are made before due date of filing of return. Copy of PF and ESI challan is enclosed herewith for your reference. "It is submitted that the assessing officer disallowed the payment of Employees Contribution deducted for PF & ESI, considering that the said payment was not made before the due date prescribed in the respective laws. It is further submitted that the assessee has made payment in the said fund before the due date of filing of the return of income and accordingly as per provisions of Section 43B of the IT Act, therefore the claim of assessee is allowable. (Copy of Challan annexed on Page no 04 To 17). ITA No. 384/JP/2022 Nimbus Pipes Limited 6 The case of the Appellant covered by the judgments of Hon'ble Rajasthan High Court, which is jurisdictional High Court of the appellant. Further the Appellant has relied on following Judgments:- 1. Hon'ble Rajasthan High Court in the case of CIT Jaipur vs M/S State Bank of Bikaner And.....[2014 (5) TMI 222] Held that: Thus, we are of the view that where the PF and/or EPF, CPF. GPF etc., if paid after the due date under respective Act but before filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act. 2. The Hon'ble jurisdiction High Court in the case of CIT vs. AIMIL Ltd, (321 ITR 508 (Del.), Held that: We may only add that if the employee's contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. In so far as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra). 3. Hon'ble Supreme Court in the case of CIT vs. Vinay Cements 213 CTR 286 (SC). In view of the above decision, the deduction of payment of employees' contribution towards provident fund and ESI cannot be disallowed under section 43 B. if paid before the due date of filling the return. Relevant case laws in favour of appellant are:-  M/s EssaeTeraoka Pvt Ltd Vs DCIT (366 ITR 408) [2014] (Karnataka); CIT VsSabari Enterprises (298 ITR 141) [2008] (Karnataka),  CIT Vs Jaipur Vidyut Vitran Nigam Ltd and Rajasthan Rajya Vidut Utpadan  Nigam Ltd (363 ITR 307) [2014] (Rajasthan):  CIT VS Rajasthan State Beverages Corporation Ltd 84 taxmann.com 173 [2017] (Rajasthan) ITA No. 384/JP/2022 Nimbus Pipes Limited 7  CIT Vs Vijay Shree Ltd (43 taxmann.com 396) [2014] (Calcutta).  CIT VS Ghatge Patil Transports Ltd (368 ITR 749) [2014] (Bombay),  CIT Vs Almil Ltd; Nirmala Swami; Spearhead Digital Studio; M/S NET 4 INDIA Ltd: Modipon Ltd; and M/s Ekta Agro Industries Ltd (321 ITR 508)[2010](Delhi).  CIT VS George Williamson (Assam) Ltd 284 ITR 619[2006] (Gauhati).  Sagun Foundry Pvt Ltd Vs CIT 78 Taxmann 47[2017] (Allahabad).  M/s Bihar State Warehousing Corporation Ltd Vs CIT (393 ITR 386) [2017](Patna);  CIT VS Alken Laboratories Ltd (Patna), CIT VS M/s Lakhani Rubber Udyog Pvt Ltd (P&H),  Geekay Security Services Pvt Ltd Vs DCIT (101 taxmann.com 192][2019] In the various judgments it was held that the assessee can claim deduction of employee's contribution to PF and ESI u/s 36(10)(va) if the payments are made after due date under respective act but before due date of the filing of return. The due for Income tax return filling for the was 30.09.2019 which was extended till 31.10.2019 for the AY 2019-20. The Appellant has made payment before due date of return filling under Income Tax Act. Hence the deduction u/s 36(1)(va) is allowable. n view of the above decision, the deduction of payment of employees' contribution towards provident fund and ESI also cannot be disallowed under section 43B, if paid before the due date of filling the return. Hence the assessing officer has not justified in disallowing the payment PF & ESI Contribution of Rs. 2,54,004/- and based on circumstances of the case, Ld. CIT(A) has erred in law and on facts, in confirming the action of Ld. AO in making addition by disallowing the contribution received from employees towards PF & ESI Contribution to Rs.2,54,004/- Both Assessing officer and CIT(Appeals) have ignored the judicial pronouncement of Jurisdictional High Court, therefore the order passed by assessing officer is bad in law. It is therefore prayed to allow the appeal.” ITA No. 384/JP/2022 Nimbus Pipes Limited 8 7. Per contra, the ld. DR relied on the order of the lower authorities. 8. We find that now this issue has been decided by Hon’ble Supreme Court in favor of revenue in its recent decision in bunch of appeals titled as Checkmate Services P. Ltd. vs. CIT (Civil Appeal No.2833 of 2016 dated 12.10.2022). In this decision, it was noted by Hon’ble Court that there was divergent of opinion amongst various Hon’ble High Courts viz. High Courts of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favoring the interpretation beneficial to the assessee on one hand whereas High Courts of Kerala and Gujarat favoring interpretation in favour of the Revenue on the other hand. Taking note of legislative history, the matter has finally been put to rest by Hon’ble Court in revenue’s favor as under: - “30. The factual narration reveals two diametrically opposed views in regard to the interpretation of Section 36(1)(va) on the one hand and proviso to Section 43(b) on the other. If one goes by the legislative history of these provisions, what is discernible is that Parliament’s endeavour in introducing Section 43B [which opens with its non-obstante clause] was to primarily ensure that deductions otherwise permissible and hitherto claimed on mercantile basis, were expressly conditioned, in certain cases upon payment. In other words, a mere claim of expenditure in the books was insufficient to entitle deduction. The assessee had to, before the prescribed date, actually pay the amounts – be it towards tax liability, interest or other similar liability spelt out by the provision. ITA No. 384/JP/2022 Nimbus Pipes Limited 9 31. Section 43B falls in Part-V of the IT Act. What is apparent is that the scheme of the Act is such that Sections 28 to 38 deal with different kinds of deductions, whereas Sections 40 to 43B spell out special provisions, laying out the mechanism for assessments and expressly prescribing conditions for disallowances. In terms of this scheme, Section 40 (which too starts with a non obstante clause overriding Sections 30-38), deals with what cannot be deducted in computing income under the head “Profits and Gains of Business and Profession”. Likewise, Section 40A(2) opens with a non-obstante clause and spells out what expenses and payments are not deductible in certain circumstances. Section 41 elaborates conditions which apply with respect to certain deductions which are otherwise allowed in respect of loss, expenditure or trading liability etc. If we consider this scheme, Sections 40- 43B, are concerned with and enact different conditions, that the tax adjudicator has to enforce, and the assessee has to comply with, to secure a valid deduction. 32. The scheme of the provisions relating to deductions, such as Sections 32- 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section 3(b), Section 2(24) – which defines various kinds of “income” – inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, were to be ITA No. 384/JP/2022 Nimbus Pipes Limited 10 treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee’s income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression “due date” was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer’s contribution (i.e., Section 36(1)(iv)). 33. The significance of this is that Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter (hereinafter, “employers’ contribution”) is described as “sum paid by the assessee as an employer by way of contribution towards a recognized provident fund”. However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that “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 account in the relevant fund or funds on or before the due date.” The essential character of an employees’ contribution, i.e., that it is part of the employees’ income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. 34. It is therefore, manifest that the definition of contribution in Section 2 (c) is used in entirely different senses, in the relevant deduction clauses. The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish that Parliament, while introducing Section 36(1)(va) along with Section ITA No. 384/JP/2022 Nimbus Pipes Limited 11 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification, under the IT Act, between the two. 35. It is instructive in this context to note that the Finance Act, 1987, introduced to Section 2(24), the definition clause (x), with effect from 1 April 1988; it also brought in Section 36(1)(va). The memorandum explaining these provisions, in the Finance Bill, 1987, presented to the Parliament, is extracted below: “Measures of penalising employers mis-utilising contributions to the provident fund or any funds set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of employees – 12.1. The existing provisions provide for a deduction in respect of any payment by way of contribution to the provident fund or a superannuation fund or any other fund for welfare of employees in the year in which the liabilities are actually discharged (Section 43B). The effect of the amendment brought about by the Finance act, is that no deduction will be allowed in the assessment of the employer, unless such contribution is paid into the fund on or before the due date. “Due date” means the date by which an employer is required to credit the contribution to the employees account in the relevant fund or under the relevant provisions of any law or term of the contract of service or otherwise. (Explanation to Section 36 (1) of the Finance Act) 12.2. In addition, contribution of the employees to the various funds which are deducted by the employer from the salaries and wages of the employees will be taxed as income within brackets insertion of new [clause (x) in clause (24) of Section 2] of the employer, if such contribution is not credited by the employer in the account of the employee in the relevant fund by the due date. Where such income is not chargeable to tax under the head “profits and gains of business or profession” it will be assessed under the head “income from other sources.” ITA No. 384/JP/2022 Nimbus Pipes Limited 12 36. Significantly, the same Finance Act, 1987 also introduced provisos to Section 43B, through amendment (clause 10 of the Finance Bill). The memorandum explaining the Bill, pertinently states, in relation to second proviso to Section 43B that: “...The second proviso seeks to provide that no deduction shall be allowed in regard to the sum referred to in clause (b) unless such sum has actually been paid during the previous year on or before the due date. The due date for the purposes of this proviso shall be the due date as under Explanation to clause (va) of sub-section (1) of Section 36.” 37. It is evident that the intent of the lawmakers was clear that sums referred to in clause (b) of Section 43B, i.e., “sum payable as an employer, by way of contribution” refers to the contribution by the employer. The reference to “due date” in the second proviso to Section 43B was to have the same meaning as provided in the explanation to Section 36(1)(va). Parliament therefore, through this amendment, sought to provide for identity in treatment of the two kinds of payments: those made as contributions, by the employers, and those amounts credited by the employers, into the provident fund account of employees, received from the latter, as their contribution. Both these contributions had to necessarily be made on or before the due date. 38. This court had occasion to consider the object of introducing Section 43B, in Allied Motors. The court held, after setting out extracts of the Budget speech of the Finance Minister, for 1983-84, that: "Section 43B was, therefore, clearly aimed at curbing the activities of those tax-payers, who did not discharge their statutory liability of payment of excise duty, employer’s contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that Section 43B was inserted.” 39. Original Section 43B(b) enabled the assessee/employer to claim deduction towards contribution as an employer, “by way of contribution to any ITA No. 384/JP/2022 Nimbus Pipes Limited 13 provident fund”. The second proviso was substituted by Finance Act, 1989 with effect from 01.04.1989 and read as under: “...Provided further that no deduction shall in respect of any sum referred to in clause (b) be allowed unless such sum has actually been paid in cash or to by issue of a cheque or draft or by any other mode on or before the due date as defined in the explanation below Clause (va) of sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the same has been realised within 15 days from the due date." 40. The position in law remained unchanged for 14 years. The Central Government then constituted the Kelkar Committee, to suggest tax reforms. The report suggested amendments inter alia, to Section 43B. The relevant extract of the report is as follows: "In terms of the provisions of section 43B of the Income-tax Act, deduction for statutory payments relating to labour, taxes and State and public financial institutions are allowed as deductions, if they are paid during the financial year. However, under the provisions payment of taxes and interest to State and public financial institution are deemed to have been paid during the financial year even if they are paid by the due date of filing of return. Further if the liability is discharged in the subsequent year after the due date of filing of return, the payment is allowed as a deduction in the subsequent year. In the case of statutory payment relating to labour, the deduction for the payment is disallowed if such payment is made any time after the last date of payment of the about related liability. Trade and industry across the country represented that the delayed payment of statutory liability related to labour should be accorded the same treatment as delayed payment of taxes and interest, i.e. they should be allowed in the year of account. Since the objective of the provision is to ensure that a tax-payer does not avail of any statutory liability without actually making a payment for the same, we are of the view that these objectives would be served if the deduction for the statutory liability relating to labour are allowed in the year of payment. The complete disallowance of such payments is too harsh a punishment for delayed payments. Therefore, we recommend that the deduction for delayed payment of statutory liability ITA No. 384/JP/2022 Nimbus Pipes Limited 14 relating to labour should be allowed in the year of payment like delayed taxes and interest." Based on the report, the Union introduced amendments to the IT Act, including an amendment to Section 43B; the memorandum explaining the provisions in the Finance Bill, 2003 in the matter of Section 43B. inter alia, reads thus: "The Bill also proposes to provide that in case of deduction of payments made by the assessee as an employer by way of contribution to any provident fund or superannuation fund or any other fund for the welfare of the employees shall be allowed in computing the income of the year in which such sum is actually paid. In case the same is paid before the due date of filing the return of income for the previous year, the allowance will be made in the year in which the liability was incurred. These amendments will take effect from 1st April, 2004 and will accordingly apply in relation to the assessment year 2004- 05 and subsequent years.” 41. The Notes on Clauses inter alia, reads as follows: "It is also proposed to amend the first proviso to the said section so as to omit the references of clause (a), clause (c), clause (d), clause (e) and clause (f) which is consequential in nature. It is also proposed to omit the second proviso to the said section. These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-2005 and subsequent years." 42. The rationale for introduction of Section 43B was explained by this court in M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi: “19. The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non obstante Clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the Assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only "actual ITA No. 384/JP/2022 Nimbus Pipes Limited 15 payment", as contrasted with incurring of a liability, can allow for a deduction.” 43. This condition, i.e., of payment of actual amount on or before the due date to enable deduction, continued for 14 years. By the amendment of 2003, the second proviso was deleted. This court interpreted the law, in the light of these developments, in Alom Extrusions. The court considered the effect of omission of the second proviso, and observed as follows: “10. “Income” has been defined under Section 2(24) of the Act to include profits and gains. Under Section 2(24)(x), any sum received by the assessee from his employees as contributions to any provident fund/superannuation fund or any fund set up under the Employees’ State Insurance Act, 1948, or any other fund for the welfare of such employees constituted income. This is the reason why every assessee(s) was entitled to deduction even prior to 1-4- 1984, on mercantile system of accounting as a business expenditure by making provision in his books of accounts 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 (RPFC), the assessee(s) would be entitled to deduction as business expense by merely making a provision to that effect in his books of accounts. The same situation arose prior to 1-4-1984, 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, Section 43-B was inserted with effect from 1-4-1984, by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and, under Section 43-B, it became mandatory for the assessee(s) to account for the aforestated items not on mercantile basis but on cash basis. This situation continued between 1-4-1984 and 1-4-1988, when Parliament amended Section 43-B and inserted the first proviso to Section 43- B. ITA No. 384/JP/2022 Nimbus Pipes Limited 16 11. By this first proviso, it was, inter alia, laid down, in the context 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 the return of income under Section 139(1) of the Act, the assessee(s) would be entitled to deduction under Section 43-B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, did not apply to the contribution made by the assessee(s) to the labour welfare funds. To this effect, the first proviso stood introduced with effect from 1-4-1988. *** 15. 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 the Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1-4-2004. Therefore, the argument of the assessee(s) is that the Finance Act, 2003, was curative in nature, it was not amendatory and, therefore, it applied retrospectively from 1-4-1988, whereas the argument of the Department was that the Finance Act, 2003, was amendatory and it applied prospectively, particularly when Parliament had expressly made the Finance Act, 2003 applicable only with effect from 1-4-2004. *** 18. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting 25 the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by Parliament only with effect from 1-4- 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1-4- 1988. 19. Secondly, it may be noted that, in Allied Motors (P) Ltd. v. CIT [(1997) 3 SCC 472 : (1997) 224 ITR 677] , the scheme of Section 43-B of the Act came ITA No. 384/JP/2022 Nimbus Pipes Limited 17 to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on 30-6- 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, as stated above, was inserted with effect from 1-4- 1984 *** 22. It is important to note once again that, by the Finance Act, 2003, not only is the second proviso deleted but even the first proviso is sought to be amended by bringing about a uniformity in tax, duty, cess and fee on the one hand vis-à-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003 is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. [(1997) 3 SCC 472 : (1997) 224 ITR 677] was delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that the Finance Act, 2003 will operate retrospectively with effect from 1-4-1988 (when the first proviso stood inserted). 23. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example, in the present case, the respondents have deposited the contributions with RPFC after 31st March (end of accounting year) but before filing of the returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. ITA No. 384/JP/2022 Nimbus Pipes Limited 18 They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to 1-4-2004, and who pays the contribution after 1-4-2004, would get the benefit of deduction under Section 43-B of the Act.” 44. There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers’ contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. 45. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va). Furthermore, the separate provisions in Section 36(1) for employers’ contribution and employees’ contribution, too went unnoticed. The court observed inter alia, that: “15. ...It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgement in Allied Motors (P) Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003 will operate retrospectively with effect from 1st April, 1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be ITA No. 384/JP/2022 Nimbus Pipes Limited 19 denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003”. 46. A discussion on the Principles of interpretation of tax statutes is warranted. In Ajmera Housing Corporation & Ors. vs. Commissioner of Income17 this court held as follows: “27. It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce and Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC 550. In interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see: Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar Mills Ltd. 1961 (2) SCR 189.)” 47. Likewise, this court underlined the rule, regarding interpretation of taxing statutes, in Commissioner of Income Tax-III v Calcutta Knitwears, Ludhiana. 18 Recently, in Union of India & Ors. vs. Exide Industries Limited & Ors, this court examined, and repelled a challenge to the constitutionality of Section 43B, especially ITA No. 384/JP/2022 Nimbus Pipes Limited 20 the provision requiring actual payment, in respect of leave encashment benefit of employees. The court observations in this regard are relevant: *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** 48. One of the rules of interpretation of a tax statute is that if a deduction or exemption is available on compliance with certain conditions, the conditions are to be strictly complied with. 20 This rule is in line with the general principle that taxing statutes are to be construed strictly, and that there is no room for equitable considerations. 49. That deductions are to be granted only when the conditions which govern them are strictly complied with. This has been laid down in State of Jharkhand v Ambay Cements 21 as follows: 23.... In our view, the provisions of exemption clause should be strictly construed and if the condition under which the exemption was granted stood changed on account of any subsequent event the exemption would not operate. 24. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and the exemption notifications. 25. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. 26. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance with the same must result in cancelling the concession made in favour of the grantee, the respondent herein.” 20 See ITA No. 384/JP/2022 Nimbus Pipes Limited 21 for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004 Supp (4) SCR 35. 21 State of Jharkhand v Ambay Cements, (2005) 1 SCC 368. 30 This was also reaffirmed in a number of judgments, such as Commissioner Income Tax v. Ace Multi Axes Systems Ltd. 50. The Constitution Bench, in Commissioner. of Customs v. Dilip Kumar & Co. 23 endorsed as following: “24. In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution [ “265. Taxes not to be imposed save by authority of law.—No tax shall be levied or collected except by authority of law.”] prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words, when the competent legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the legislature. *** 34. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi & Sons Ltd. [CIT v. Kasturi & Sons Ltd., (1999) 3 SCC 346] and State of W.B. v. Kesoram Industries Ltd. [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201] (hereinafter referred to as “Kesoram Industries case [State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]”, for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: ‘(i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly ITA No. 384/JP/2022 Nimbus Pipes Limited 22 expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly.’” 51. The analysis of the various judgments cited on behalf of the assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. 24; Commissioner of Income-Tax and another v. Sabari Enterprises25; Commissioner of Income Tax v. Pamwi Tissues Ltd. 26; Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. 27 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of ITA No. 384/JP/2022 Nimbus Pipes Limited 23 these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund isto be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. 53. The distinction between an employer’s contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This ITA No. 384/JP/2022 Nimbus Pipes Limited 24 marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non- obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such 34 interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.” ITA No. 384/JP/2022 Nimbus Pipes Limited 25 It has finally been held by Hon’ble Court that there is clear distinction between employer’s contribution which is its primary liability under law [in terms of Section 36(1)(iv)] and its liability to deposit amounts received by it or deducted by it from its employees’ [in terms of Sec. 36(1)(va)]. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) and therefore, subjected to conditions spelt out by Explanation to Section 36(1)(va) i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two contributions – the employer’s liability is to be paid out of its income whereas the second is deemed to be an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. If the same is not deposited as per mandate of Sec.36(1)(va), the deduction of the same would not be available to the assessee. Thus, this issue stands in favor of revenue and we respectfully follow the same. 9. At the same time, we are of the considered opinion that this decision of Hon’ble Court would relate back to the date of consequential ITA No. 384/JP/2022 Nimbus Pipes Limited 26 amendment brought in by legislatures in respective provisions of the act and it was to be presumed that the legal position was always like that i.e., both the contributions were to be treated differently since inception and the Employee’s contribution was always subjected to rigors of Sec.36(1)(va). If the assessee complies with the same only then the deduction would be allowed to the assessee otherwise the same would continue to form the income of the assessee. The said decision, in our opinion, is to be given full consequential effect. 10. Respectfully following the recent decision of Hon’ble Supreme Court in case of Checkmate Services P. Ltd Vs. CIT (Civil appeal No. 2833 of 2016 dated 12.10.2022) and considering our findings and adjudication in preceding paragraphs, the impugned disallowances stand confirmed. In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on 16/02/2023. Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼ MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 16/02/2023. *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: ITA No. 384/JP/2022 Nimbus Pipes Limited 27 1. vihykFkhZ@The Appellant- Nimbus Pipes Limited, Jaipur. 2. izR;FkhZ@ The Respondent- ACIT, Circle-4, Jaipur. 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File { ITA No. 384/JP/2022} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar