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Smart Summary

Summary of Opinion: ITA No. 718/Bang/2021 (Assessment Year 2019-20)

Factual and Procedural Background

The assessee is a trust engaged in printing and publishing newspapers, periodicals and related publications. For the assessment year 2019-20, the assessee filed its original return on 31.10.2019 declaring nil total income. The return was processed under section 143(1) of the Income-tax Act. In the intimation issued under section 143(1) by the CPC, the employees' contribution to Provident Fund (PF) and Employees' State Insurance (ESI) amounting to Rs.47,81,594 and Rs.5,53,811 respectively (totaling Rs.53,35,405) was disallowed on the ground that the assessee did not remit the employees' contribution within the due dates specified under the respective Acts.

The assessee appealed to the Commissioner of Income Tax (Appeals) (CIT(A)). Before the CIT(A) the assessee contended that the employees' contributions were remitted before the due date for filing the return under section 139(1) and relied on a jurisdictional High Court decision (Pr.CIT vs. Hind Filter Ltd., ITA No.662 of 2015) and other authorities. The CIT(A) dismissed the appeal, relying on a Gujarat High Court decision and also noting relevant amendments to sections 36(1)(va) and 43B introduced by the Finance Act, 2021.

Aggrieved, the assessee filed the present appeal before the Income Tax Appellate Tribunal (Bangalore Bench 'B'). The Departmental Representative supported the orders of the income-tax authorities.

Legal Issues Presented

  1. Whether the employees' contribution to PF and ESI is allowable as a deduction for the assessment year 2019-20 where the payment was made before the due date for filing the return under section 139(1), despite not having been remitted within the due dates under the respective statutes?
  2. Whether the amendment effected by the Finance Act, 2021 to section 36(1)(va) and to section 43B of the Income-tax Act has retrospective effect so as to affect assessment year 2019-20, or whether it is prospective (applying from assessment year 2021-22 onwards)?

Arguments of the Parties

Appellant's Arguments (Assessee)

  • The employees' contribution to PF and ESI was remitted before the due date for filing the return under section 139(1) and therefore is allowable as a deduction.
  • The assessee relied upon a jurisdictional High Court judgment (Pr.CIT vs. Hind Filter Ltd., ITA No.662 of 2015) and submitted that identical issues had been decided in favour of assessees by coordinate benches of the Tribunal in several recent orders, specifically citing:
    • The Continental Restaurant & Café Co. v. ITO (ITA No.388/Bang/2021; order dated 11.10.2021)
    • M/s. Nirmal Enviro Solutions Pvt. Ltd. v. DCIT (ITA No.315/Bang/2021; order dated 12.10.2021)
    • Shri Gopalkrishna Aswini Kumar v. ACIT (ITA No.359/Bang/2021; order dated 13.10.2021)

Respondent's Arguments (Revenue / Departmental Representative)

  • The Departmental Representative supported the assessment order and the CIT(A)'s order which disallowed the employees' contribution on the basis that the payments were not remitted within the due dates prescribed under the PF/ESI statutes.
  • The CIT(A) relied on a Gujarat High Court decision (reported in (2014) 41 taxmann.com 100 / reported as CIT v. Gujarat State Road Transport Corporation) and took the view that employees' contribution must be remitted within the statutory due dates for the deduction to be allowable.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Essae Teraoka (P.) Ltd. v. DCIT, reported in 366 ITR 408 (Karnataka) Held that the assessee is entitled to deduction of employees' contribution to PF and ESI provided the payment was made prior to the due date for furnishing the return of income under section 139(1). The Tribunal relied on the reasoning in Essae Teraoka and followed it: where payment is made before the due date of filing under section 139(1), deduction is allowable for AY 2019-20.
CIT v. Gujarat State Road Transport Corporation, reported in 366 ITR 170 (Gujarat) / (2014) 41 taxmann.com 100 Represents the contrary view (as cited) that employees' contribution must be remitted in accordance with the statutory due dates under the PF/ESI laws and not merely before the due date for filing the return. The CIT(A) relied on this Gujarat High Court decision to dismiss the assessee's appeal; the Tribunal considered this view but preferred the Karnataka High Court decision (Essae Teraoka).
Pr.CIT vs. Hind Filter Ltd. (ITA No.662 of 2015) Invoked by the assessee as a jurisdictional High Court precedent supporting the assessee's position (as referenced in the record). Raised by the assessee before the CIT(A) in support of the claim that payment before the due date of filing the return confers entitlement to deduction. The Tribunal’s order records that the assessee relied on this authority.
M.M. Aqua Technologies Limited v. CIT, (2021) 436 ITR 582 (Supreme Court) Held that a retrospective provision in a taxing statute described as "for removal of doubts" cannot be presumed retrospective if it alters or changes the law as it earlier stood. The Tribunal applied this principle to conclude that the Finance Act, 2021 amendment (which altered the legal position) could not be treated as retrospective and therefore did not apply to AY 2019-20.
The Continental Restaurant & Café Co. v. ITO (ITA No.388/Bang/2021; order dated 11.10.2021) Coordinate Bench decision on an identical issue decided in favour of the assessee (payment made before due date of filing return). The Tribunal reproduced and relied on the reasoning in this coordinate-bench order and treated it as supporting allowance of deduction for AY 2019-20.
M/s. Nirmal Enviro Solutions Pvt. Ltd. v. DCIT (ITA No.315/Bang/2021; order dated 12.10.2021) Coordinate Bench decision on an identical issue decided in favour of the assessee. Cited by the assessee and noted by the Tribunal as precedent supporting the assessee's claim.
Shri Gopalkrishna Aswini Kumar v. ACIT (ITA No.359/Bang/2021; order dated 13.10.2021) Coordinate Bench decision on an identical issue decided in favour of the assessee. Cited by the assessee and noted by the Tribunal as precedent supporting the assessee's claim.
Dhabriya Polywood Limited v. ACIT ((2021) 63 CCH 0030, Jaipur Tribunal) Held that the Finance Act, 2021 amendment to sections 36(1)(va) and 43B is prospective in nature. Appears in the Tribunal's list of decisions which supported the conclusion that the Finance Act, 2021 amendment does not apply to AY 2019-20.
NCC Limited v. ACIT ((2021) 63 CCH 0060, Hyderabad Tribunal) Held that the Finance Act, 2021 amendment is prospective. Cited as supporting authority for the proposition that the amendment does not apply retrospective to AY 2019-20.
Indian Geotechnical Services v. ACIT (ITA No.622/Del/2018; order dated 27.08.2021) Decision referenced in the context of the amendment being prospective. Cited as one of the Tribunal orders holding the amendment to be prospective and not retrospective.
M/s. Jana Urban Services for Transformation Pvt. Ltd. v. DCIT (ITA No.307/Bang/2021; order dated 11.10.2021) Tribunal order holding that the Finance Act, 2021 amendment is prospective. Cited by the Tribunal as a precedent supporting the view that the amendment will not apply to AY 2019-20.

Court's Reasoning and Analysis

The Tribunal heard the rival submissions and examined the material on record. Its analysis proceeded along two linked lines:

  1. On the factual/legal entitlement to deduction for employee contributions: the Tribunal relied on a coordinate-bench Tribunal decision (The Continental Restaurant & Café Co. v. ITO) which in turn relied on the Karnataka High Court decision in Essae Teraoka (P.) Ltd. v. DCIT. The Essae Teraoka decision analyzed the PF Scheme and the meaning of "contribution" in section 43B and concluded that if the contribution (including the employees' portion) is paid on or before the due date for filing the return under section 139(1) of the Income-tax Act, the employer is entitled to deduction. The Tribunal accepted and followed this reasoning and applied it to the present facts, noting that the assessee had made the payment before the due date for filing under section 139(1).
  2. On the scope and temporal application of the Finance Act, 2021 amendments to sections 36(1)(va) and 43B: the Tribunal considered whether those amendments were clarificatory/ declaratory and therefore retrospective, or whether they altered the prior legal position and were therefore prospective. Relying on the Supreme Court's reasoning in M.M. Aqua Technologies Ltd. v. CIT (that a provision described as 'for removal of doubts' cannot be treated as retrospective if it alters the law as it previously stood), the Tribunal concluded that the Finance Act, 2021 amendments altered the law adversely to assessees. Consequently, they could not be treated as retrospective and did not apply to the assessment year under consideration (AY 2019-20). The Tribunal also noted that the amendment had been stated to be effective from 01.04.2021 and to apply from assessment year 2021-22 onwards, and it recorded several Tribunal decisions that had held the amendment to be prospective.

On application of these conclusions to the facts, the Tribunal determined that for AY 2019-20 the assessee was entitled to the deduction because the payments in question were made before the due date for filing the return under section 139(1), and the Finance Act, 2021 amendments did not apply to that year.

Holding and Implications

Core Holding: APPEAL ALLOWED.

Direct effect on the parties:

  • The Tribunal directed the Assessing Officer to grant deduction in respect of the employees' contribution to PF and ESI for AY 2019-20, since the payments were made before the due date for filing the return under section 139(1).
  • The addition of Rs.53,35,405 in the assessment was effectively set aside for the purposes of AY 2019-20 by allowing the appeal.

Broader implications as explained by the Tribunal:

  • The Tribunal held that the Finance Act, 2021 amendments to section 36(1)(va) and section 43B cannot be read as having retrospective effect to affect AY 2019-20 because the amendments altered the legal position and were thus prospective in operation (notwithstanding language suggesting they were "for removal of doubts").
  • The Tribunal relied upon the Supreme Court's guidance (M.M. Aqua) and a body of Tribunal decisions holding the amendment to be prospective; it thus treated the amendment as applying from assessment year 2021-22 onwards (consistent with the stated effective date of 01.04.2021).

The opinion, as reproduced, does not state that the Tribunal intended to lay down a new binding precedent beyond its application to the present appeal; it relied on existing High Court and Tribunal authorities in reaching its conclusion.

Show full summary ...

    M/s. Loka Shikshana Trust, Hubli v. Assistant Director Of Income Tax, CPC, Bangalore

    IN THE INCOME TAX APPELLATE TRIBUNAL

    'B' BENCH : BANGALORE

    BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER

    AND

    SMT. BEENA PILLAI, JUDICIAL MEMBER

    ITA No. 718/Bang/2021

    Assessment Year : 2019-20

    M/s. Loka Shikshana Trust, The Assistant

    Post Box No. 30,

    Director of Income Samyukta Karnataka, Tax,

    Koppikar Road,

    CPC,

    Hubli - 580 020.

    Vs. Bangalore

    PAN: AAATL1086H

    APPELLANT RESPONDENT

    Assessee by : Shri Ashok Kumar, CA Shri Priyadarshi Mishra, Addl. Revenue by :

    CIT (DR)

    Date of Hearing : 07-02-2022 Date of Pronouncement : 07-02-2022

    ORDER

    PER BEENA PILLAI, JUDICIAL MEMBER

    Present appeal by the assessee has been filed by assessee against the order dated 25.10.2021 passed by the National Faceless Appeal Centre (NFAC), Delhi relating to Assessment Year 2019-20 on following grounds of appeal:

    "1. That, the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, in so far as is prejudicial to the interests of the appellant, is bad and erroneous in law and against the facts and circumstances of the case.

    2. The learned Commissioner Of Income Tax (Appeals), NFAC is erred in fact and in law in confirming the action of the Assessing Officer of adding the amount of delayed

    1

    Page 2 of 6

    remittance of employee contribution to Employees Provident Fund (EPF) amounting to Rs 47,81,594/- and Employees State Insurance (ESI) amounting to Rs 5,53,811/- alleging that it was an item to be added under Section 36( I )(va) in spite of such contribution has been paid to appropriate authorities before the due date of fili ng the return of income and which is otherwise allowable under section 43B of Income Tax Act, 1961.

    3. The learned Commissioner Of Income Tax (Appeals), NFAC is erred in fact and in law in confirming the action of the Assessing Officer in coming to conclusion that insertion of Explanation 2 to section 36(1)(va) and Explanation 4 to section 43B by the Finance Act 2021 has retrospective effect, in spite of categorical assertion in Notes on Clauses in Finance Bill, 2021 that the relevant amendment will take effect from April, 2021 and will accordingly apply in relation the assessment year 2021-22 and subsequent years.

    4. The learned Commissioner of Income Tax (Appeals), NFAC is erred in in law by not following the decisions of jurisdictional High Court in the case of ESSAE TERAOKA PRIVATE LIMITED Vs DC1T (366 ITR 408) (Karnataka HO, Cll' Vs Sabari Enterprises, (2008) (298 ITR 141 (Karnataka HC) and other judicial precedences.

    5. For these and other grounds of appeal which may be taken at the time of hearing, it is prayed that the Order of Commissioner of Income Tax (Appeals) in so far as it relates to the above grounds, the additions made in the order of assessment of Rs 53,35,405/- is deleted.

    6. Each of the above grounds is without prejudice to one another and the appellant craves leave of the Honorable Commissioner to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal."

    2. The brief facts of the case are as follows:

    The assessee is a TRUST carrying on the business of printing and publishing of newspaper and periodicals, weekly magazine, monthly digest etc. For the assessment year 2019-20, original return of income was filed on 31.10.2019 declaring total income of Rs.Nil. The return was processed u/s 143(1) of the I.T.Act. In the

    Page 3 of 6

    intimation issued u/s 143(1) of the I.T.Act, the CPC disallowed the employees' contribution to PF and ESI to the tune of Rs.47,81,594/. The reason for making the disallowance was that the assessee did not remit the employees' contribution to PF and ESI within the due date specified under the respective Acts.

    3. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), it was submitted that the assessee remitted the employees contribution to PF and ESI before the due date of filing of the return u/s 139(1) of the I.T.Act and in view of the judgment of the Hon'ble jurisdictional High Court Pr.CIT vs. Hind Filter Ltd. in ITA No. 662 of 2015. The assessee is entitled to deduction of the same. The Ld.CIT(A), however, dismissed the appeal of the assessee by relying on decision of Hon'ble Gujarat High Court in case of Gujarat Road Transport Corporation reported in (2014) 41 taxmann.com 100. The CIT(A) noticed the difference between the employees' contribution and the employer's contribution and held insofar as the employees' contribution to ESI and PF, the same need to be remitted within the due date as mentioned in the respective Acts. The CIT(A) also relied on the amendment brought about to section 36(1)(va) and 43B of the I.T.Act.

    4. Aggrieved, the assessee has filed this appeal before the Tribunal.

    4.1 The Ld.AR submitted that an identical issue is decided in favour of the assessee by the coordinate Bench of this Tribunal in following cases:

    M/s.The Continental Restaurant & Café Co. v. ITO in ITA No.388/Bang/2021 (order dated 11.10.2021)M/s. Nirmal Enviro Solutions Pvt. Ltd. vs. DCIT in ITA No. 315/Bang/2021 (order dated 12.10.2021)

    Shri Gopalkrishna Aswini Kumar vs. ACIT in ITA No. 359/Bang/2021 (order dated 13.10.2021)

    5. The learned Departmental Representative supported the orders of the Income Tax Authorities.

    Page 4 of 6

    6. We have heard rival submissions and perused the material on record. An identical issue was considered by the Tribunal in the case of The Continental Restaurant & Café Co. v. ITO (supra). The relevant finding of the Tribunal reads as follows:-

    "7. I have heard rival submissions and perused the material on record. Admittedly, the assessee has not remitted the employees' contribution of PF of Rs.1,06,190 and ESI of Rs.16,055 totaling to Rs.1,22,245 before the due date specified under the respective Act. However, the assessee had paid the same before the due date of filing of the return u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT reported in 366 ITR 408 (Kar.) has categorically held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1) of the I.T.Act. The Hon'ble jurisdictional High Court differed with the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation reported in 366 ITR 170 (Guj.). In holding so, the Hon'ble High Court was considering following substantial question of law:-

    "Whether in law, the Tribunal was justified in affirming the finding of Assessing Officer in denying the appellant's claim of deductions of the employees contribution to PF/ESI alleging that the payment was not made by the appellant in accordance with the provisions u/s 36(1)(va) of the I.T.Act?"

    7.1 In deciding the above substantial question of law, the Hon'ble High Court rendered the following findings:-

    "20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub para (1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause (b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub- section (1) of Section 139 of the IT Act is made, the employer is entitled for deduction.

    21. The submission of Mr.Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected.

    Page 5 of 6

    22. With respect, we find it difficult to endorse the view taken by the Gujarat High Court. WE agree with the view taken by this Court in W.A.No.4077/2013.

    23. In the result, the appeal is allowed and the substantial question of law framed by us is answered in favour of the appellant-assessee and against the respondent-revenue. There shall be no order as to costs."

    7.2 The further question is whether the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is clarificatory and declaratory in nature. The Hon'ble Supreme Court in the recent judgment in the case of M.M.Aqua Technologies Limited v. CIT reported in (2021) 436 ITR 582 (SC) had held that retrospective provision in a taxing Act which is "for the removal of doubts" cannot be presumed to be retrospective, if it alters or changes the law as it earlier stood (page 597). In this case, in view of the judgment of the Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. v. DCIT (supra) the assessee would have been entitled to deduction of employees' contribution of PF and ESI if the payment was made prior to due date of filing of the return of income u/s 139(1) of the I.T.Act. Therefore, the amendment brought about by the Finance Act, 2021 to section 36(1)(va) and 43B of the I.T.Act, alters the position of law adversely to the assessee. Therefore, such amendment cannot be held to be retrospective in nature. Even otherwise, the amendment has been mentioned to be effective from 01.04.2021 and will apply for and from assessment year 2021-2022 onwards. The following orders of the Tribunal had categorically held that the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 is only prospective in nature and not retrospective.

    (i) Dhabriya Polywood Limited v. ACIT reported in (2021) 63 CCH 0030 Jaipur Trib.

    ii) NCC Limited v. ACIT reported in (2021) 63 CCH 0060 Hyd Tribunal.

    (iii) Indian Geotechnical Services v. ACIT in ITA No.622/Del/2018 (order dated 27.08.2021).

    (iv) M/s.Jana Urban Services for Transformation Private Limited v. DCIT in ITA No.307/Bang/2021 (order dated 11th October, 2021)

    7.3 In view of the aforesaid reasoning and the judicial pronouncements cited supra, the amendment to section 36(1)(va) and 43B of the I.T.Act by Finance Act, 2021 will not have application for the relevant assessment year, namely A.Y. 2019-2020. Accordingly, I direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made payment before the due date of filing of the return of income u/s 139(1) of the I.T.Act, It is ordered accordingly.

    8. In the result, the appeal filed by the assessee is allowed."

    6.1 In view of the judicial pronouncements cited supra, we hold that the amendment to section 36(1)(va) and 43B of the I.T.Act will not have application for the relevant assessment year, namely assessment

    Page 6 of 6

    year 2019-2020. Accordingly, we direct the A.O. to grant deduction in respect of employees' contribution to PF and ESI since the assessee has made the payment before the due date of filing of return u/s 139(1) of the I.T.Act. It is ordered accordingly.

    In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 07th February, 2022.

    Sd/- Sd/-

    (CHANDRA POOJARI) (BEENA PILLAI)

    Accountant Member Judicial Member Bangalore,

    Dated, the 07thFebruary, 2022. /MS /

    Copy to:

    1. Appellant 4. CIT(A)

    2. Respondent 5. DR, ITAT, Bangalore

    3. CIT 6. Guard file By order

    Assistant Registrar, ITAT, Bangalore

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    Comments

    M/s. Loka Shikshana Trust, Hubli v. Assistant Director Of Income Tax, CPC, Bangalore
    (Feb 7, 2022)