Summary
Assessees had deducted their employees' EPF and ESI contributions from wages and deposited them after the due dates under those enactments but before filing their returns. They claimed deduction relying on Section 43B and on Alom Extrusions. High Courts were divided. The Supreme Court held that employees' contributions are deemed income of the employer under Section 2(24)(x) and are allowable only under Section 36(1)(va), and only if credited by the due date under the welfare statute. Employer's contributions, by contrast, fall under Section 36(1)(iv) and Section 43B. The non-obstante clause in Section 43B and its proviso allowing payment up to the return date do not reach employees' money held in trust. Alom Extrusions had not considered Sections 2(24)(x) and 36(1)(va). The Gujarat High Court's view was upheld.
Issues
- Whether employees' EPF/ESI contributions deposited after the due date under the welfare statute but before the return date are deductible
- Whether Section 43B and the 2003 omission of its second proviso override the due-date condition in Section 36(1)(va)
- Whether Alom Extrusions governs employees' contributions
Provisions considered
- Section 2(24)(x) and Section 36(1)(va) with Explanation 1, Income Tax Act, 1961Employees' contributions received or deducted by the employer are deemed its income and are deductible only if credited to the fund by the due date under the EPF/ESI law. (¶¶ 32, 33, 35, 53)
- Section 43B(b) and first proviso, Income Tax Act, 1961Section 43B concerns the employer's own liabilities, including its contribution under Section 36(1)(iv). Its non-obstante clause and return-date leeway do not apply to employees' money held in trust. (¶¶ 37, 52, 54)
- Section 36(1)(iv), Income Tax Act, 1961Employer's contributions are a separate head of deduction without the due-date condition, confirming the statutory distinction between the two kinds of contribution. (¶¶ 32, 33, 34, 53)
Held
- Sections 40 to 43B lay down conditions for deduction, while Sections 32 to 37 enumerate deductions with their own conditions. A deduction is available only on strict compliance with its conditions, and equitable considerations have no place in construing a taxing statute. (¶¶ 31, 32, 46, 48, 49, 50)
- Parliament deliberately distinguished the employer's contribution (Section 36(1)(iv)) from employees' contributions received or deducted by the employer, which Section 2(24)(x) deems income and Section 36(1)(va) allows only on deposit by the statutory due date. (¶¶ 32, 33, 34, 35, 52, 53)
- Section 43B(b) refers to the employer's own contribution. Its non-obstante clause and the leeway to pay before the return date do not dispense with the due-date condition for employees' contributions, which are others' money held in trust. (¶¶ 37, 52, 53, 54)
- Alom Extrusions, which held the 2003 omission of the second proviso to Section 43B to be curative, did not consider Sections 2(24)(x) and 36(1)(va) or the separate treatment of the two contributions, so High Court decisions resting on it do not lay down the correct law. (¶¶ 44, 45, 51, 55)
Result
Appeals dismissed; the Gujarat High Court's view was affirmed, and contrary High Court decisions were held not to lay down the correct law.