In M/s.Ratilal Bhagwandas Construction v. ITO, the Pune ITAT held that PF contribution in respect of contractual labours is allowable as expenditure under section 37(1) of the Income Tax Act.
Assessee-Company, engaged in the business of industrial construction, claimed IT deduction of contribution to Provident in respect of labourers employed through sub-contractors. Assessee claimed that many of the sub-contractors with whom it entered into contract, does not had PF Registration and therefore, the assesse had to pay bear the expenditure as per the agreement. AO, however, disallowed the claim by taking a view that the payment, being the employees contribution of sub contractors, cannot be considered to be contractual obligation of the assessee.
On first appeal, the CIT (A) upheld the same.
The Tribunal noted the fact that as per the agreement, it was the duty of the Assessee to cover all the employees (including that of sub-contractor) under the Provident Fund Act. It was also noted that a reading of section 8A of the Employees Provident Fund & Miscellaneous Provisions Act 1952 and Employees Provident Fund Scheme 1952 together with the clauses of the agreement that the Assessee had entered into with his clients shows that Assessee is responsible for the deduction of provident fund dues of the employees including those employed through subcontractor and its deposit with the appropriate authorities.
Allowing the appeal, the bench found that “in the present case, the rendering of services by the labours of sub-contractors for the purpose of business of the Assessee has not been doubted by Revenue. Further, statutorily the Assessee could have recovered the Provident Fund dues from the subcontractors but when the Assessee is not in a position to recover the amounts paid as provident fund contribution for the respective contract labourers, or considering the business exigencies when the Assessee bears the expenses on account of Provident Fund contribution, then whether in such a situation the expenses can be disallowed? We are of the view that the same cannot be disallowed as an expenditure more so when the rendering of services by the subcontractors for the business of the assessee is not in doubt & in such a situation the expenditure can be allowed u/s 37(1) of the Act.”
Read the full text of the Order below.
