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Commissioner Of Income-Tax v. P.M Electronics Ltd.
Court Opinion Summary — Rajiv Shakdher, J.
Factual and Procedural Background
This is an appeal under section 260A of the Income-tax Act, 1961 against the Tribunal's judgment dated 12 August 2005 in I.T.A. No. 1585.Delhi/2002 for the assessment year 1998-99. The central factual dispute concerned the allowability of deductions under section 36(1)(va) read with section 2(24)(x) and section 43B for employer's and employees' contributions to provident fund when such contributions were made after the due date prescribed under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (and the Rules), but before the due date for filing the return of income under section 139(1).
Procedural chronology (as stated in the opinion): the assessee filed a return on 27 November 1998 showing a loss of Rs. 8,92,888; the return was processed under section 143(1)(b) on 11 May 1999; a notice under section 143(2) was issued on 27 September 1999; on examination the Assessing Officer found provident fund payments of Rs. 17,94,042 to be late under the relevant provisions and disallowed that sum. The CIT(A) deleted part of the addition (Rs. 4,83,251) as being within time and confirmed an addition of Rs. 13,10,791. The Tribunal allowed the assessee's appeal. The Revenue appealed to this court.
Legal Issues Presented
- Whether amounts paid on account of provident fund/ESI after the statutory ‘due date’ are allowable under section 43B read with section 36(1)(va) of the Income-tax Act?
- Whether the deletion of the second proviso to section 43B by way of amendment by the Finance Act, 2003 is retrospective in nature?
Arguments of the Parties
Revenue's Arguments
- The Tribunal's allowance of deduction (based on its decision in Addl. CIT v. Vestas RRB (India) Ltd.) is incorrect because the amendment to section 43B effected by the Finance Act, 2003 should not be treated as curative and retrospective.
- The Revenue relied on contrary authorities including the Division Bench of the Madras High Court in CIT v. Synergy Financial Exchange Ltd. and the Division Bench of the Bombay High Court in CIT v. Pamwi Tissues Ltd. to contend that the issue required further consideration.
- The Revenue framed two substantial questions of law (set out above) for this court's consideration.
Assessee's Arguments
- The Tribunal (and the assessee before it) took the view that the amendment to section 43B was curative and hence retrospective, which made payments made before the filing of the return allowable. The Tribunal had relied upon its own earlier decision in Addl. CIT v. Vestas RRB (India) Ltd.
- In related proceedings (as noted in other cases cited in the opinion) the assessee placed reliance on decisions such as the Gauhati High Court's judgment in CIT v. George Williamson (Assam) Ltd., which accepted arguments that the omission of certain provisos and clauses without a saving clause effectively meant the provisions had never been in existence for the relevant period.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Addl. CIT v. Vestas RRB (India) Ltd., [2005] 275 ITR (AT) 81; [2005] 92 ITD 1 (Delhi) | The Tribunal's view that the amendment to section 43B was curative and retrospective, permitting deduction for PF payments made before filing the return. | The Tribunal in the present matter relied upon this decision; the court noted that the Tribunal had taken that view and the present court sustained the Tribunal's outcome (through reliance on higher authorities described below). |
| CIT v. Vinay Cement Ltd., [2007] 213 CTR 268; [2009] 313 ITR (St.) 1 (Supreme Court) | The Supreme Court's dismissal of the special leave petition by a speaking order and the statement that where the law as it stood prior to the amendment applied, an assessee who had contributed to provident fund before filing the return was entitled to claim the benefit. | The court treated the Supreme Court's speaking dismissal as authoritative and followed its ratio; this decision was a principal basis for sustaining the Tribunal and dismissing the Revenue's appeal. |
| CIT v. Dharmendra Sharma, [2008] 297 ITR 320 (Division Bench, Delhi) | Application of the ratio of Vinay Cement Ltd. by a Division Bench of this court, dismissing Revenue appeals. | The present court relied on and followed this Division Bench decision as supporting the Tribunal's view. |
| CIT v. Synergy Financial Exchange Ltd., [2007] 288 ITR 366 (Division Bench, Madras) | A contrary view on the effect of the amendment to section 43B; relied upon by the Revenue. | The court noted this contrary authority but rejected the Revenue's reliance on it because of the binding effect of the Supreme Court's speaking dismissal in Vinay Cement Ltd. |
| CIT v. Pamwi Tissues Ltd., [2008] 215 CTR 150; [2009] 313 ITR 137 (Division Bench, Bombay) | A contrary view adopted by the Division Bench of the Bombay High Court. | The court expressly disagreed with the approach adopted by this Division Bench and did not follow it, given the binding effect of the Supreme Court's order and related authorities. |
| CIT v. George Williamson (Assam) Ltd., [2006] 284 ITR 619 (Division Bench, Gauhati) | Dealt with the same issue; agreed with submissions that omission of certain provisos/clauses without a saving clause meant the provisions were never in existence for the relevant period; relied on Constitution Bench precedents. | The court noted this Gauhati decision as supporting the assessee's position and observed that the matter had been taken up in appeal along with Vinay Cement Ltd.'s case. |
| CIT v. South India Corporation Ltd., [2000] 242 ITR 114 (Kerala High Court) | A contrary view noted by the Gauhati High Court in George Williamson; referenced in the context of conflicting High Court authorities. | The court recorded that the Gauhati Bench had noted this contrary decision; the present court's ultimate conclusion did not adopt the Kerala Court's contrary view because of higher authority considerations. |
| Kolhapur Canesugar Works Ltd. v. Union of India, (2000) 2 SCC 536 (Constitution Bench) | One of the Constitution Bench authorities relied upon in George Williamson to support the assessee's submissions about omission and legislative effect. | The opinion records that such Constitution Bench authority was relied upon in earlier proceedings (George Williamson); the present court noted those citations as part of the chain of reasoning in other courts. |
| Rayala Corporation P. Ltd. v. Director of Enforcement, (1969) 2 SCC 412 | Historical constitutional/interpretative precedent relied on in related proceedings (as recorded in George Williamson). | Noted as part of the authorities relied upon in support of the assessee's submissions in earlier cases cited by the Gauhati Bench. |
| General Finance Co. v. Asst. CIT, [2002] 257 ITR 338 (SC) | Authority cited in George Williamson as supporting the legal position advanced by the assessee in that case. | Recorded as one of the authorities on which the Gauhati High Court relied when dismissing Revenue's appeal in George Williamson. |
| CIT v. Assam Tribune, [2002] 253 ITR 93 (Gauhati) | Earlier decision of the Gauhati High Court relied upon by the Division Bench in George Williamson. | The Gauhati Bench relied on this earlier decision; the present court noted that reliance as part of the Gauhati court's reasoning. |
| CIT v. Bharat Bamboo and Timber Suppliers, [1996] 219 ITR 212 (Gauhati) | Earlier Gauhati High Court decision relied on by the Division Bench in George Williamson. | Noted in the opinion as part of the Gauhati court's body of precedents supporting its conclusion. |
| Kunhayammed v. State of Kerala, [2000] 245 ITR 360; 119 STC 505 (Supreme Court) | Explained effect of a speaking order refusing leave to appeal: where the refusal is a speaking order it contains a statement of law which is a declaration under Article 141 and also contains findings which bind the parties and judicial discipline. | The present court relied on the reasoning in Kunhayammed (as applied by the Madras High Court in Nexus) to conclude that the Supreme Court's speaking dismissal in Vinay Cement Ltd. constituted a binding declaration of law under Article 141. |
| CIT v. Nexus Computer P. Ltd., Tax Case (A) No. 1192/2008, [2009] 313 ITR 144 (Madras) | The Madras Division Bench discussed the effect of dismissal of special leave petitions by speaking orders and concluded that the view in Vinay Cement Ltd. would bind under Article 141. | The court expressed respectful agreement with the Madras High Court's reasoning in Nexus and relied upon that approach in following the Supreme Court's dismissal in Vinay Cement Ltd. |
Court's Reasoning and Analysis
The court first identified that the central controversy concerned whether payments made after the statutory due date under the EPF Act but before the due date for filing returns were deductible under the income-tax provisions as they stood before the 2003 amendment to section 43B.
The court observed that the Tribunal's conclusion (allowing the assessee's claim) is supported by higher authority. The decisive point of analysis was the effect of the Supreme Court's dismissal of the special leave petition in CIT v. Vinay Cement Ltd. That dismissal was a speaking order which explicitly addressed the law as it stood prior to the amendment to section 43B and observed that the assessee was entitled to claim the benefit because contribution was made before filing the return. The present court treated that speaking dismissal as a declaration of law under Article 141 and therefore binding.
The court also noted that a Division Bench of this court (in Dharmendra Sharma) had applied the ratio of Vinay Cement and dismissed Revenue appeals; and the Madras High Court in Nexus Computer explained and applied the principle that a speaking dismissal of a special leave petition binds under Article 141. The Gauhati High Court's decision in George Williamson was also recorded as supportive of the assessee's position on earlier facts, and relied upon Constitution Bench and other authorities to reach that view.
The Revenue's reliance on contrary High Court decisions (Madras in Synergy and Bombay in Pamwi Tissues) was considered but rejected by the court because the Supreme Court's speaking dismissal in Vinay Cement Ltd. and the subsequent authorities produced a binding statement of law which the court felt required adherence to judicial discipline.
On that basis the court concluded that the Tribunal's view was correct and that no substantial question of law arose for its consideration.
Holding and Implications
HOLDING: The appeal is dismissed.
Implications:
- The Tribunal's judgment (which had allowed the assessee's appeal on the issue of deductibility of the provident fund contributions in the facts of this case) is sustained by this court.
- The direct effect is that the additions previously made by the Assessing Officer (and partially confirmed by the CIT(A)) are not sustained to the extent the Tribunal allowed the deduction; the Revenue's appeal against that Tribunal decision is dismissed.
- The court emphasized adherence to the Supreme Court's speaking dismissal in Vinay Cement Ltd. and the consequent binding effect under Article 141; the opinion does not purport to lay down any new legal principle beyond the application of those higher authorities.
Note: This summary is confined to the facts, issues, authorities and reasoning expressly set out in the provided opinion and does not add or infer material beyond that text.
Rajiv Shakdher, J.:— This is an appeal under section 260A of the Income-tax Act, 1961 (hereinafter referred to in short as “the Act”), against the judgment dated August 12, 2005 in I.T.A No. 1585.Delhi/2002 in respect of the assessment year 1998-99. The only issue which arises for consideration is the allowability of deduction under section 36(1)(va) read with section 2(24)(x) and section 43B to the assessee in respect of employer's/employees' contributions towards provident fund payments which were made after the due date prescribed under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, and the Rules made thereunder before the due date for furnishing the return of income under sub-section (1) of section 139.
2. The Revenue being aggrieved by the impugned judgment on account of the fact that the Tribunal, based on its own decision in the case of Addl. CIT v. Vestas RRB (India) Ltd., [2005] 275 ITR (AT) 81 (Delhi); [2005] 92 ITD 1 Delhi, has taken the view that the amendment brought about in sec-tion 43B by virtue of the Finance Act, 2003, was curative in nature and hence applicable retrospectively. In other words, the Tribunal held that the assessee would be eligible for deduction in respect of such payments made before the due date of filing of return. The Revenue has contested this position before us. Towards this end, the Revenue has proposed the following questions of law which, according to them, are substantial ques-tions of law:
“(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 second proviso to section 43B by way of amendment by the Finance Act, 2003, is retrospective in nature ?”
3. In order to adjudicate upon the present appeal, the following facts require to be noted. On November 27, 1998, the assessee had filed a return of income declar-ing a loss of Rs. 8,92,888. On May 11, 1999, the return was processed under section 143(1)(b) of the Act. The case of the assessee was selected for scru-tiny. Accordingly, a notice dated September 27, 1999, under section 143(2) of the Act was issued to the assessee. In response to the notice and on examination of the details submitted by the assessee with respect to pro-vident fund payments made both on account of the employer's and employees' share revealed that payments in the sum of Rs. 17,94,042 were late as per the provisions of section 36(1)(va) read with section 2(24)(x) and section 43B. Consequently, the Assessing Officer disallowed the deduction and added a sum of Rs. 17,94,042 towards EPF contribution.
4. Being aggrieved, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) (hereinafter referred to in short as “the CIT(A)”). The Commissioner of Income-tax (Appeals), after considering the matter, while accepting the view of the Assessing Officer on the interpretation of the relevant provisions of the Act, on facts directed the deletion of an addition of Rs. 4,83,251 being payments made towards provident fund in respect of December, 1997, January, 1998, and February, 1998, on the ground that they were within the time prescribed under the relevant pro-visions of the Act. As a result, the Commissioner of Income-tax (Appeals) confirmed the addition to the income of the assessee only a sum of Rs. 13,10,791 as against Rs. 17,94,042 added by the Assessing Officer.
5. The assessee being aggrieved preferred an appeal to the Tribunal. The Tribunal, as indicated hereinabove, allowed the appeal of the assessee.
6. 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., [2007] 213 CTR 268; [2009] 313 ITR (St.) 1 which has been followed by a Division Bench of this court in the case of CIT v. Dharmendra Sharma, [2008] 297 ITR 320.
7. Despite the aforesaid judgments, the learned counsel for the Revenue has contended that in view of the, judgment of the Division Bench of the Madras High Court in the case or 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., [2009] 313 ITR 137, the issue requires consideration. According to us, in view of the dismissal of the special leave petition in the case of Vinay Cement Ltd., [2007] 213 CTR 268; [2009] 313 ITR (St.) 1 by the Supreme Court by a speaking order, the submission of learned counsel for the Revenue has to be rejected at the very threshold. The reason for the same is as follows:
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 Cor-poration 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 the Finance Act, 2003, with effect from April 1, 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 pro-visions 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. Asst. CIT, [2002] 257 ITR 338 (SC). The said submissions found favour with the Division Bench of the Gauhati 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 and Timber Suppliers, [1996] 219 ITR 212 (Gauhati) the Division Bench dismissed the appeal of the Revenue. It transpires that the aforesaid matter was taken up in appeal along with other matters including Vinay Cement Ltd.'s case, [2007] 213 CTR 268; [2009] 313 ITR (St.) 1. The order in Vinay Cement Ltd.'s case, [2007] 213 CTR 268; [2009] 313 ITR (St.) 1 was passed by the Supreme Court on March 7, 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 par-ticularly in view of the fact that he has contributed to provident fund before filing of the return. Special leave petition is dismissed.”
8. 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 pertains to a period prior to the amendment brought about in section 43B of the Act. The afore-said 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, [2008] 297 ITR 320 (Delhi). Applying the ratio of the decision of the Supreme Court in Vinay Cement Ltd.'s case, [2007] 213 CTR 268; [2009] 313 ITR (St.) 1 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 August 18, 2008, passed in Tax Case (A) No. 1192 of 2008 [2009] 313 ITR 144 (Mad) discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd., [2006] 284 ITR 619 (Gauhati) and Vinay Cement Ltd.'s case, [2007] 213 CTR 268; [2009] 313 ITR (St.) 1 as well as a contrary view of the Division Bench of its own court in Synergy Financial Exchange, [2007] 288 ITR 366 (Mad). 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, [2000] 245 ITR 360 (SC); 119 STC 505 at page 526 in paragraph 40 and noted the following observations (page 382):
“If the order refusing leave to appeal is a speaking order, i.e, gives reasons for refusing the grant of leave, then the order has two impli-cations. 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 sub-sequent proceedings between the parties.”
9. Upon noting the observations of the Supreme Court in Kunhayammed, [2000] 245 ITR 360 the Division Bench of the Madras High Court in the case of Nexus Computer (P.) Ltd. T.C.A No. 1192/2008 ([2009] 313 ITR 144 (Mad)) came to the conclusion that the view taken by the Supreme Court in Vinay Cement Ltd.'s case, [2007] 213 CTR 268; [2009] 313 ITR (St.) 1 would bind the High Court as it was the law declared by the Supreme Court under article 141 of the Constitution.
10. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P.) Ltd. T.C.A No. 1192/2008 ([2009] 313 ITR 144 (Mad)). The judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement Ltd.'s case, [2007] 213 CTR 268; [2009] 313 ITR (St.) 1, as also the view of the Division Bench of this court in Dhar-mendra Sharma's case, [2008] 297 ITR 320 (Delhi). In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in CIT v. Pamwi Tissues Ltd., [2008] 215 CTR 150; [2009] 313 ITR 137.
11. 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.
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