JT COMMISSIONER OF INCOME TAX(OSD) IN CHARGE OF DCIT-13(2)(2) , MUMBAI V. SCNS PRIVATE LTD, MUMBAI

MA 114/MUM/2023

AI Insights

The case revolves around a Miscellaneous Application filed by the Revenue under section 254(2) of the Income Tax Act, 1961, seeking rectification of a Tribunal order that allowed the assessee's claim for delayed deposit of employees' contributions to the Provident Fund (PF) and Employee State Insurance Scheme (ESIS). The Revenue argued that the Tribunal's decision was contrary to the Supreme Court's ruling in Checkmate Services Pvt. Ltd. vs. CIT, which clarified that deductions under section 36(1)(va) for delayed employee contributions are not permissible. The assessee opposed the rectification, arguing that the Tribunal's original decision was in line with the law as it stood at the time and that the Supreme Court's decision should apply prospectively. The Tribunal, after considering the arguments and relevant legal precedents, found a mistake apparent in the original order and allowed the Revenue's application.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136061 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 26-06-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-04-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 30-01-2023
• Other Referred Cases: Checkmate Services Pvt. Ltd. vs. CIT, Salasar Balaji Ship Breakers Pvt. Ltd. vs. ACIT, CIT vs. Reliance Telecom Ltd., I.C. Golaknath & Another vs. State of Punjab, Baburam vs. C.C. Jacob & Others, ACIT vs. Saurashtra Kutch Stock Exchange Ltd., Lakshmi Sugar Mills Company Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S ANADI VERMA
• Section: 6; 43B; 254(2); 22

Judgement Text

म ु ंबई ठ “ एस एम स ”, म ु ंबई स , स ए ं एस. !" हम न, ेख स े सम' IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “ SMC”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20] Jt. Commissioner of Income Tax (OSD), Mumbai In charge of Dy. Commissioner of- Income Tax – 13(2)(2), Mumbai – 400 020 ..... ( ) /Applicant बन म Vs. M/s. SCNS Pvt. Ltd. 21A, Chapel Road, Bandra (West), Mumbai 400 050. PAN: AAZCS-2004-A ..... ( + /Respondent ( ) , / Applicant by : Shri Manoj Kumar Sinha, Sr. A.R ( + , /Respondent by : S/Shri Anadi Verma & Manoj Mundra. स ु न ई - + / Date of hearing : 21/04/2023 ./0 - + / Date of pronouncement : 27/06/2023 ेश/ ORDER PER VIKAS AWASTHY, JM: This Miscellaneous Application has been filed by the Revenue u/s. 254(2) of the Income Tax Act, 1961 [in short ‘the Act’] seeking rectification of the order dated 18/05/2022 passed by the Tribunal in ITA No.2170/Mum/2021. 2. Shri Manoj Kumar Sinha representing the Department submitted that the Tribunal vide order dated 18/05/2022 has allowed assessee’s claim of delayed deposit of employees contribution to the Provident Fund (PF) and 2 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 Employee State Insurance Scheme (ESIS) under the respective Acts. He submitted that the Hon'ble Supreme Court of India in the case of Checkmate Services Pvt. Ltd. vs. CIT, 448 ITR 518 has clarified that the assessee would not be entitled for deduction u/s. 36(1)(va) of the Act in respect of delay in deposit of employees contribution towards PF and ESIS under the relevant Acts. The ld. Departmental Representative submitted that in the light of law explained by Hon'ble Apex Court, there is a mistake apparent in the order of Tribunal dated 18/05/2022 that needs to be rectified. To further support his submissions, he placed reliance on the decision of Tribunal in the case of Salasar Balaji Ship Breakers Pvt. Ltd. vs. ACIT, in ITA No. 1947/Mum/2021 decided on 12/04/2023. 3. Per contra, Shri Anadi Verma appearing on behalf of the assessee vehemently opposed the Miscellaneous Application. The ld.Counsel for the assessee submits that there is no mistake apparent on record as alleged by the Revenue in the Tribunal order, hence, no rectification is required. The ld.Counsel for the assessee pointed that the decision of Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra) was passed on 12/10/2022, whereas the Tribunal order is dated 18/05/2022. The order of Tribunal is prior to decision of Hon'ble Apex Court. It is not a case where at the time of passing of the Tribunal order any decision passed by Hon'ble Apex Court was ignored or over looked. The order of Tribunal is in complete sync with law prevalent at that time. He further argued that even otherwise the rectification which the Revenue is seeking is beyond the purview of provisions of section 254(2) of the Act. The Tribunal has no power to recall its order. In support of 3 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 his arguments the ld. Counsel for the assessee placed reliance on the decision in the case of CIT vs. Reliance Telecom Ltd., 400 ITR 1(SC). 3.1 The ld.Counsel for the assessee submitted that the decision rendered in the case of Checkmate Services Pvt. Ltd. (supra) would apply prospectively. On the basis of said decision the assessment that have been finalized after the order of Tribunal cannot be disturbed. In support of “doctrine of prospective overruling” the ld.Counsel for the assessee placed reliance on the decision rendered in the case of I.C. Golaknath & Another vs. State of Punjab, 1967 AIR 1643 (SC). He submitted that the doctrine of prospective overruling suggests that the Court announces a “new and better” rule in place of an old unscientific or condemned rule, however, the doctrine also states that the new would not affect any past judgment. He submits that doctrine of prospective overruling is essentially meant to protect the interest of litigants when judicial overruling of precedent entails a change in the law. He further pointed that there has been an amendment to the provisions of section 36(1)(va) of the Act by Finance Act 01/04/2021 by way of insertion of Explanation -1 and Explanation -2. The said amendment is w.e.f. 01/04/2021. The Revenue in the garb of the decision in the case of Checkmate Services Pvt. Ltd. (supra) is trying to unsettle the matters contrary to its own arguments in the case of Checkmate Services Pvt. Ltd. (supra) with regard to Alom Extrusions Ltd., 319 ITR 306(SC). 3.2 The ld.Counsel for the assessee, without prejudice to his primary submissions made an alternate plea that the decision in the case of Checkmate Services Pvt. Ltd. (supra) has to be read in context of “doctrine of Stare Decisis. To further buttress his arguments on prospective application of 4 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 judgment, the ld.Counsel for the assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Baburam vs. C.C. Jacob& Others in Civil Appeal No.10658/96 decided on 18/03/1999. He submitted that in the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd., 305 ITR 277, the Hon'ble Apex Court has reiterated philosophy of doctrine of prospective overruling expounded in the case of I.C Golaknath & Another (supra). 4. We have heard the submissions made by rival sides. The Revenue by way of this Miscellaneous Application is seeking rectification/recalling of the Tribunal order dated 18/05/2022. The Revenue is seeking rectification in the decision of Tribunal whereby assessee’s claim of deduction u/s. 36(1)(va) in respect of Employees contribution towards PF and ESIS beyond “due date” under the relevant Acts, i.e. Provident Fund Act and Employees State Insurance Act, respectively has been allowed. 4.1 After passing of the aforesaid order, the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra) held as under:- “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 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, 5 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 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 is to 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 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 6 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.” The Hon'ble Apex Court in an unambiguous manner explained the legal position that to be eligible to claim deduction u/s. 36(1)(va) of the Act, the employer is under obligation to deposit Employees share of contribution towards PF and ESIS before the “due date” under the respective laws. 5. Now, the next issue is: Whether the aforesaid decision rendered by Hon'ble Supreme Court of India would apply prospectively or it has any impact on the decisions that have already been rendered prior to the date of decision in the case of Checkmate Services Pvt. Ltd. (supra). In other words, the decision would apply retrospectively? 6. This doctrine of prospective overruling was first introduced to the Indian jurisprudence in Golaknath’s case (supra). The said doctrine was drawn from American jurisprudence. The Indian legal system has always been following Blackstonian theory i.e. duty of the Court was “ not to pronounce a new rule but to maintain and expand the old one”. In other words, it was always said that the Judges does not make the law but only discovers or find the true law. The law has always been the same. If subsequent decision changes the earlier one, the later decision does not make law but only discover the correct principle of law. In contrast to the old school Blackstonian theory, 7 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 the doctrine of “prospective overruling” expounded by American Jurists suggested, a Court should recognize a duty to announce a new and better rule for future transactions whenever the Court has reached the conviction that an old rule (as established by the precedence) is unsound even though the feeling compelled by stare decisis to apply the old and condemned rule to the instant case and to transactions which had already taken place. The Hon'ble Apex Court in Golaknath’s case for the first time applied doctrine of prospective overruling. To synchronize the doctrine with Indian Laws and Constitution, the Hon'ble Apex Court laid down certain conditions under which the said doctrine would apply. The Hon’ble Court thus held: “ 52. As this Court for the first time has been called upon to apply the doctrine evolved in a different country under different circumstances, we would like to move warily in the beginning. We would lay down the following propositions: (1) The doctrine of prospective overruling can be invoked only in matters arising under our Constitution; (2) it can be applied only by the highest Court of the country i.e the Supreme Court as it has the constitutional jurisdiction to declare law binding on all the courts in India; (3) the scope of the retroactive operation of the law declared by the Supreme Court superseding its “earlier decisions is left to its discretion to be moulded in accordance with the justice of the cause or matter before it.” [Emphasized by us] The judgment rendered in the case of I.C. Golaknath was reversed in a landmark decision in the case of His Holiness Kesavananda Bharti vs. State of Kerala (1973) 4 SCC 225/ 1973 AIR SC 1461. However, the doctrine of prospective overruling introduced in Golaknath’s case was not invalidated. Over the period of time, doctrine of prospective overruling was applied, by the Hon'ble Apex Court, and wherever the said principle was to be applied the Hon'ble Apex Court made it explicitly clear in the judgment itself. Some of the 8 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 decisions, wherein the Hon'ble Apex Court applied the doctrine of prospective overruling are: (i) Indira Sahini vs. Union of India, AIR 1993 SC 477. (ii) Sahara India (Firm) vs. CIT, 300 ITR 403(SC). (iii) Somaiya Organics (India) Ltd. vs. State of Uttar Pradesh, 2001 taxamann.com 1952(SC) (iv) New Noble Educational Society vs. CCIT, 143 taxmann.com 276(SC) To illustrate, let us take a recent decision rendered in the case of New Noble Educational Society vs. CCIT(supra). The Hon'ble Apex Court while concluding the judgment clarified that the said decision would operate prospectively. For the sake of ready reference the relevant extract of the decision reads as under: “ 78. In the light of the foregoing discussion, the assessees' appeals fail. It is however clarified that their claim for approval or registration would have to be considered in the light of subsequent events, if any, disclosed in fresh applications made in that regard. This court is further of the opinion that since the present judgment has departed from the previous rulings regarding the meaning of the term 'solely', in order to avoid disruption, and to give time to institutions likely to be affected to make appropriate changes and adjustments, it would be in the larger interests of society that the present judgment operates hereafter. As a result, it is hereby directed that the law declared in the present judgment shall operate prospectively. The appeals are hereby dismissed, without order on costs” Thus, from the decisions rendered by Hon'ble Apex Court, where the doctrine of prospective overruling was put into operation, it can be deduced that retrospective application of the decision rendered by Hon'ble Apex Court is a rule and prospective overruling is an exception. Wherever, the Hon'ble Court intended that the law explained by it would apply prospectively, it specifically states so in the judgment. 9 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 7. In the case of Checkmate Services Pvt. Ltd. (supra), we find that Hon'ble Apex Court in para 52 of the judgment (reproduced above) has in an unambiguous manner has explained the law as it has always been. That mean that at no point of time there has been any change in the legal position or the intent of the Legislature to equate Employees contribution and the employers contribution under EPF Scheme and Regulation under ESI Act on same footing. The Hon'ble Supreme Court held that the decision rendered by the other High Courts, holding to the contrary, do not laid down correct law. The Hon'ble Apex Court while rendering the said judgment did not mention at all that the law explained would apply prospectively. Hence, it is evident that doctrine of prospective overruling was never ignited in the case. 8. The Hon'ble Delhi High Court in the case of Lakshmi Sugar Mills Company Ltd. vs. CIT, 22 taxman.com 300 has held that where the Tribunal has passed decision following a decision rendered by Hon'ble Apex Court that has been subsequently overruled by a Larger Bench, the subsequent decision of Hon'ble Supreme Court operate retrospectively, the Tribunal can ractify the mistake in order if the Miscellaneous Application u/s.254(2) of the Act is filed within the limitation seeking rectification of the order as it is a mistake apparent from record. For the sake of completeness, the relevant extract of the judgment is reproduced herein below: “ 9. The argument advanced by the learned counsel for the petitioners seems attractive at first blush. How can a decision of the Tribunal be said to be a mistake when, at the point of time it was delivered, the Tribunal had followed a decision of the Supreme Court? And, how can the fact that the Supreme Court decision was subsequently overruled by a larger Bench of the Supreme Court, render the said decision of the Tribunal to be regarded as a 'mistake apparent from the record'? But, these questions, raised by the learned counsel for the petitioners, have been fully answered by the Supreme Court in its decision in Saurashtra Kutch Stock Exchange 10 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 Ltd. (supra). The Supreme Court held that a judicial decision acts retrospectively. Judges do not make law they only discover or find the law. Thus, where a decision of the Supreme Court overrules an earlier decision, the views expressed in the later decision would have to be regarded as having always been the law. 10. The overruling is, therefore, retrospective. If that be the case, the decision of the Tribunal which merely followed the earlier decision of the Supreme Court in Virtual Soft Systems Ltd. (supra), which has been overruled in Gold Coin Health Food (P.) Ltd. (supra), would be contrary to the law declared by the Supreme Court. Now, the question is whether, in the context of a matter which has attained 'finality', it would entail re-opening of those cases. Clearly, where there is no pending proceeding and the matter has 'truly' attained finality, re-opening is not contemplated. Therefore, the question of retrospective overruling would have to be considered in the light of the fact as to where a matter has or has not attained finality.” 9. In the light of various decisions discussed above, we find no merit in the arguments raised by the ld. Counsel for the assessee questioning retrospective applicability of decision in the case of Checkmate Services Pvt. Ltd.(supra). 10. We find that there is a mistake apparent in the order of Tribunal dated 18/05/2022 that warrants rectification in light of the decision rendered in the case of Checkmate Services Pvt. Ltd. (supra). Consequently, the Tribunal order dated 18/05/2022 is recalled and appeal is restored to its original number. The Registry is directed to fix the appeal for hearing in due course after notice to both sides. 11. In the result, the Miscellaneous Application by the Revenue is allowed. Order pronounced in the open Court on Tuesday the 27 th day of June, 2023 Sd/- Sd/- (S.RIFAUR RAHMAN) (VIKAS AWASTHY) %& /ACCOUNTANT MEMBER /JUDICIAL MEMBER म ु ंबई/ Mumbai, 2 $ ं /Dated 27/06/2023 Vm, Sr. PS(O/S) 11 MA NO.114/MUM/2023 [Arising out of ITA No.2170/Mum/2021, A.Y.2019-20 त ल प अ े षतCopy of the Order forwarded to : 1. )/The Appellant , 2. ( + / The Respondent. 3. ु 3+ CIT 4. 4 5 ( + $ , . . ., म ु बंई/DR, ITAT, Mumbai 5. 5 78 ! 9 /Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai