The Division Bench of the High Court of Patna, has recently declared that the Employers’ contribution and Employees’ contribution towards Employees’ Provident Fund must be treated as same under the provisions of 43B of the Income Tax Act, 1961 since both are covered under this section. The division bench comprising Justices Ramesh Kumar Datta and Hemant Gupta expressed a view that while allowing deduction for the both these contribution, no distinction can be made. The Court was considering an appeal filed by the assessee in a case where the lower authorities disallowed the amount paid towards the employees’ contribution and employers’ contribution to the Fund by treating both under different heads. The facts and the decision of the case are below.
The assessee is a Public Sector Undertaking carrying on the business of warehousing in Patna. The assessee filed a return declaring income of Rs. 28,35,750/- for the AY 2003-04.proceedings u/s 142(1) of the Income Tax Act was initiated against the assessee. On completion of the proceedings, the Assessing Officer disallowed the payment of employer’s contribution to EPF u/s 43B of the Act on ground that the payment was made after the due date prescribed under the statute and also disallowed employee’s contribution to Provident Fund by treating it as “Income from Other Sources as per s. 24(2) read with s. 36(1)(va).” Similarly, the officer disallowed the amount provided for gratuity under s. 40A(4) of the Act.
On appeal, the CIT(A) deleted the addition of payment made by the employer towards the EPF. However, the disallowance of contribution made by the employees towards the EPF was sustained on ground that s. 43B does not apply to payments made to any Provident Fund or any other Fund mentioned u/s 24(2) of the Act. Similarly, the disallowance of amount provided for gratuity was also confirmed. The Appellate Tribunal also dismissed the appeals filed by both the Department and Assessee. Thereafter, an appeal was filed before the High Court challenging the above orders.
The assessee contended before the Court that the delay in making payments to the above funds were condoned by the concerned authorities and therefore, the disallowance is unjustified. It was also argued that there is no reason to treat the employee’s contribution from employer’s contribution and both should be dealt with u/s 43B of the Act.
The High Court has placed reliance on judgments of various High Courts held that both the employers’ contribution and Employees’ Contribution towards Provident Funds are covered by s. 43B. The Court in this regard opined that though, a plain reading of the provisionsi.e, s. 43B and s. (2) read with s. 36(1)(va)would create an impressein that these contributions must be treated as different under different heads, the intention of the Parliament is appears to be a sufficient reason for considering these in a same footing.
Coming to the second substantial question of law, I.e, disallowance of amount to Gratuity fund, the division bench held that the appellant is not entitled to get deduction u/s 40A(7). In opinion of the Court, the Authorities were rightly disallowed the said amount by finding that the provision for payment of gratuity has not been made towards approved gratuity fund and that the gratuity has not become payable during the financial year corresponding to the Assessment Year under consideration and that the provision has not been made an actual valuation basis.
Read the full text of the order below.
