ORDER
K.K. Boliya, A.M.
This appeal has been filed by the assessee against the order dated 31-3-1993 of Commissioner (Appeals)-XXV, Mumbai. The first ground of appeal pertains to disallowance of Rs. 11,62,131 under sections 43B and 36(1)(va) of the Income Tax Act. The relevant facts, as mentioned by the assessing officer at para 5 of his order, are that the assessee made payments of statutory liabilities after due dates as per the details given below:
“(i)
(a)
PF employer’s contribution
Rs. 44,433
Â
(b)
PF employees’ contribution
Rs. 44,433
(ii)
Gratuity fund for the calendar year 1985 and 86 paid during the year
Rs. 3,74,265
(iii)
Employer’s contribution for Superannuation fund
Rs. 6,99,000″
When asked to explain why the above-mentioned deductions be not disallowed having regard to the provisions of section 43B, the assessee stated before the assessing officer that it relies on the notes given along with the return of income. The assessing officer was of the view that since payments were made after the due dates as prescribed under the relevant Rules, the assessee was not entitled to deduction in respect of the abovementioned payments and therefore the entire sum of Rs. 11,62,131 was disallowed. The learned Commissioner (Appeals) has referred to the relevant provisions of Income Tax Act in this regard and he rejected assessee’s contentions that section 43B is applicable only in such cases where accounts are maintained as per mercantile system. The learned Commissioner (Appeals) has also stated that there is no dispute about the fact that the payments have been made after the expiry of the prescribed time limits in the respective Acts under which contributions lo various funds have been made. Referring to the second proviso to section 43B, the learned Commissioner (Appeals) concurred with the assessing officer that deductions are not allowable. He has also drawn support from the Hon’ble Calcutta High Court decision in the case of CIT v. Sree Kamakhya Tea Co. (P.) Ltd. (1993) 199 ITR 714 (Cal). Thus, the disallowance was sustained.
2. The learned counsel appearing for the assessee opened his arguments by forcefully pleading that section 43B is applicable to a case wherein the accounts are maintained as per mercantile system and if the accounts are maintained on cash basis, the provisions of section 43B will not apply and deductions will be available as per the cash system of accounting in the year in which the actual payment is made. Inviting our attention to Annexure ‘A’ of Column No. 1 of Form No. 3 CD (pages 2 to 6 of the paper book), the learned counsel submitted that the method of accounting employed by the manufacturing division of the company is generally mercantile except in some cases for which method of accounting is on cash basis. The instances of cash basis of accounting are enumerated in Annexure ‘B’ (page 6 of the PB) which include contributions to approved gratuity fund and approved superannuation fund. However, contribution to PF is not included in the list. The learned counsel pointed out that the requirement of section 43B is that a deduction otherwise allowable under the Income Tax Act shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. The learned counsel contended that the liability to pay any sum is incurred only in the mercantile system of accounting and therefore the section is not applicable to a case where cash system of accounting is adopted.
3. The next proposition of the learned counsel for the assessee is that the second proviso to section 43B is applicable only in respect of employees’ contributions to the funds enumerated under section 2(24)(x) of the Income Tax Act. The learned counsel for the assessee invited our attention to the relevant statutory provisions which may be reproduced below:
“43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him:
Provided further that no deduction shall, in respect of any sum referred to in clause (b) be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.
36(1)(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date.
Explanation – For the purpose of this clause, ‘due date’ means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
2(24)(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees.”
The learned counsel pointed out that the second proviso refers to the due date as defined in the Explanation below section 36(1)(va) of the Income Tax Act. It is further pointed out that section 36(1)(va) refers to any sum received by the assessee from his employees to which provisions of section 2(24)(x) apply. It is, therefore, contended that the concept of the due date is only applicable to the contributions of the employees. The learned counsel, therefore, argues that there is no due date prescribed in the Income Tax Act for payment of employer’s contributions to the various funds. It is pointed out that in the present case, the payments are in respect of employer’s contribution except the sum of Rs. 44,433 which is employees’ contribution to PE. It is argued that in respect of employer’s contributions, so long as the payments have been made during the previous year, deduction will be available under section 43B of the Income Tax Act. Reliance is placed upon the following Income Tax Appellate Tribunal decisions:
(i) Dy. CITv. Udaipur Distillery Co. Ltd (2001) 119 Taxman 206 (Jodh.) (Mag.)
(ii) Eastern Clay & Ceramics Ltd. v. Asstt. CIT (2000) 69 TTJ (Coch.) 422.
Regarding the contributions to the Gratuity fund, another alternative plea submitted by the learned counsel for the assessee is that such contributions are allowable as per the special provisions of section 40A(7) of the Income Tax Act. The learned counsel submitted that apparently, there is a contradiction between the provisions of section 43B and section 40A(7) of the Income Tax Act. It is argued that section 40A(7) is a special provision and therefore it has overriding effect. For this proposition, reliance is placed on the ITAT, Jaipur (TM) decision in the case of Mewar Sugar Mills Ltd. v.. Dy. CIT (1998) 65 ITD 163. The learned counsel invited our attention to the following observations of the third member (extracted from headnote at page 164 of 65 ITD):
“The provisions of section 40A(7) and section 43B give rise to a conflicting situation. Section 40A(7) provides that no deduction shall be allowed in respect of any provision for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. Section 40A(7)(b) carves out an exception providing that this restriction or disabling section will not apply to provision made for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund or for the purpose of payment of any gratuity, that has become payable during the relevant previous year. Such an exception carved out in section 40A(7)(b) enabling grant of deduction in respect of provision for payment towards any approved gratuity fund, etc., have an overriding effect by virtue of non obstante clause at the beginning of section 40A(1) and will prevail over any contrary provision contained in any provision of the Act. However, section 43B provides that such deduction will be allowed only in the year in which it is actually paid. Thus, exception carved out in section 40A(7)(b) and section 43B are mutually contradictory.
In such a situation, exception carved out in section 40A(7)(b) being a provision of special nature dealing with provision made for payment of a sum by way of any contribution towards an approved gratuity fund, etc., will prevail over the general provisions of section 43B(b) dealing with contribution to any gratuity fund. The rule of construction which is relevant to the present enquiry is expressed in the maxim, generalia specialibus non derogant, which means that where there is a conflict between a general and a special provision, the latter shall prevail.
Thus, the question relating to allowability of any provision for payment of any contribution towards an approved gratuity fund would be governed by exception carved out in clause (b) of section 40A(7) and the contrary provision contained in section 43B(b) would not be applicable.
If the intention of the legislature was to deny this concession, then the provisions of section 40A(7) would have been omitted as the provisions of section 43B would have completely taken care of this aspect. Since the provisions of section 40A(7) were retained, it could be safely assumed that the legislature did intend to continue the concession given to the approved gratuity fund.”
The learned counsel for the assessee summed up the arguments by reiterating that no disallowance under section 43B is called for.
4. Joining the issue, the learned Departmental Representative contended that there is no basis for the view that provisions of section 43B are applicable only to cases where the assessee is following mercantile system of accounting. It is argued that the provisions of section 43B are of overriding nature and therefore these provisions, as a matter of fact, override all systems of accounting, mercantile, cash or hybrid. It is pointed out that the relevant provisions for the permitted methods as accounting are contained under section 145 of the Income Tax Act. It is pointed out that section 43B starts with a non obstante clause and therefore it supercedes even section 145 of the Income Tax Act. It is, therefore, argued that section 43B is applicable to all cases irrespective of the method of accounting followed and deductions in respect of specific sums are allowable only within the parameters of section 43B of the Income Tax Act. The learned Departmental Representative has placed reliance on the following judgments:
(i) Sree Kamakhya Tea Co. (P) Ltd.’s case (supra)
(ii) CIT v. K.L. Thirani & Co. Ltd. (1996) 218 ITR 149′ (Cal)
(iii) Hitech (India) (P.) Ltd. v. Union of India ( 1997) 227 ITR 446 (AP),
(iv) CITv. South India Corpn. Ltd. (2000) 242 ITR 114 (Ker.)
The learned Departmental Representative also invited our attention to the Board’s Circular No. 550 dated I- 1-1990 explaining the provisions of Finance Act, 1989 – 182 ITR (St.) 114. On the basis of the aforesaid cases, the learned Departmental Representative forcefully submitted that provisions of section 43B are applicable to all contributions to various funds irrespective of the fact as to whether it is employer’s contribution or employees contribution and also irrespective of the method of accounting followed.
5. We have given a very careful consideration to the rival submissions visa-vis the facts of the case and have also gone through the decisions cited before us. In our view, the proposition of the learned counsel for the assessee, that section 43B has no application in cases where cash system of accounting is followed, cannot be accepted. From a plain reading of section 43B, it is clear that this mandatory provision is of overriding nature and is applicable to the sums specified therein irrespective of the method of accounting followed by the assessee. The section clearly lays down that a deduction which may otherwise be allowable under the Income Tax Act in respect of the specified sums shall be allowed in the year in which such sum is actually paid. There can be no assumption in the absence of any specific provision to this effect, that the section is applicable only to cases where mercantile system of accounting is followed. We, therefore, hold that section 43B would be applicable to the present case. Coming to the second proposition of the learned Counsel that due date for payment is prescribed only for employees’ contributions to PF, the provisions of second proviso may be considered. The second proviso casts a further burden on the assessee in as much as no deduction shall be allowed in respect of any sums payable by the assessee as an employer by way of contributions to any PF or superannuation fund or gratuity fund or any other funds for the welfare of the employees, unless such sum has actually been paid in cash or by issue of a cheque or draft before the due date. The due date is defined in the Explanation below section 36(1)(va) of the Income Tax Act. It is true that the said explanation defines the ‘due date’ in the context of employees’ contributions. However, it is notable that the second proviso to section 43B refers to sums mentioned under clause (b) of section 43B of the Income Tax Act, which covers any sum payable by the assessee as an employer by way of contributions to various funds. The operation of clause (b) is not restricted to employees contribution to the PE At this stage, the various cases cited may be considered. In the case of Udaipur Distillery Co. Ltd. (supra), relied upon by the learned counsel for the assessee, it was held by the ITAT, Jodhpur Bench that if the assessee employer has made contributions in respect of PF, EPF, PLI and ESI, etc. within the accounting year, deduction would be allowable even though such payments were made beyond the due dates. Similar view has been expressed by the ITAT, Cochin Bench in the case of Eastern Clay & Ceramics Ltd. (supra). The ITAT, Jaipur Bench (TM), in the case of Mewar Sugar Mills Ltd. (supra), held that provisions of section 40A(7) will prevail over the provisions of section 43B. It is notable that similar issues concerning interpretation of the provisions of section 43B have come up before the different High Courts in the cases relied upon by the learned Departmental Representative The Hon’ble Andhra Pradesh High Court, in the case of Hitech (India) (P) Ltd. (supra) have held as under (extracted from headnote at page 447 of 227 ITR) :
“The second proviso imposes a further restriction on the allowability of deduction of any sum referred to in clause (b). It provides that unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date, it shall not be allowed as deduction. For this purpose, the definition of ‘due date’ as given in the Explanation to clause (va) of sub-section (1) of section 36 is adopted. Sub-clause (x) of clause (24) of section 2 includes within the meaning of ‘income’ any sum received by, the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948, or any other fund for the welfare of such employees. Thus, it is clear that the employees’ contribution received by the employer would be ‘income’ in his hands and that would be allowed as permissible deduction under clause (va) of sub-section (1) of section 36 in computing the business income under section 28 provided the assessee credits the same to the relevant fund. Under section 43B, the sum referred to in clause (b) of section 43B is treated differently, as it relates to the sum payable by the assessee as an employer which includes the employer’s contribution as well as employees’ contribution, If such contributions which are payable to any provident fund or superannuation fund or any fund are paid within the due date, the employer will be able to avail of the benefit of deduction under section 43B. Though the general rule embodied in section 43B is one of allowability of deduction based on actual payment, the rule contained in the second proviso is an exception to the rule. There, actual payment is not enough the payment should also be made within the due date as defined therein. This is to ensure that beneficial legislations for the welfare of the employees are complied with strictly. If the payment is not made within the due date there is contravention of the provisions of the Employees’ Provident Funds Act and the Employees’ State Insurance Act for which provision is made by way of payment of interest, damages and prosecution. But under the Income Tax Act, the defaulter loses the benefit of deduction which is otherwise allowable to him under the scheme of the provisions of the Act. This would not result in double jeopardy because the provisions deal with different aspects and different benefits. Whereas the relevant beneficial legislations in favour of the employees provides for compliance on the pain of payment of interest, damages and prosecution, the Income Tax Act provides for compliance by denying the benefit of deduction which is otherwise available. This is only meant to ensure prompt payment.-
It would be fruitful to reproduce below the observations of the Hon’ble Kerala High Court in the case of South India Corpn. Ltd. (supra):
“Though section 43B is relatable to payments actually made, the modality to be adopted in respect of payments of contribution to any PF or superannuation fund or gratuity fund or any other fund for the welfare of the employees for getting deduction has been prescribed. A time limit has been fixed and only if payment is made during that period, deduction can be claimed. Undisputedly, the payment has not been made during the period prescribed under the relevant statute, i.e., the PF Act and the scheme thereunder. Clause 38 of the scheme deals with the period for payment of the contributions.
Learned counsel for the assessee submitted that if payment is permissible to be made with damages after a prescribed period, the same is not unauthorized payment and in view of the broad language employed in clause (va) of sub-section (1) of section 36, it shall be deemed as if the payment was made within the due date. The expression ‘due date’ means the time stipulated for payment. As per the Explanation to clause (va) for the purpose of the clause, ‘due date’ means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund. The amount is deductible only if the assessee credits the amount to the employee’s account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost even if the sum is credited after the due date. it cannot be an indefinite date left to the choice of the assessee. It is to be noted that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to PF, etc., stress has been made on payment within the ‘due date’. Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The Legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main ‘provision and the proviso’. They operate in different situations. The view of the Tribunal that payment having been made before the close of the financial year, qualifies for deduction is indefensible. The answer to the question referred is in the negative, i.e., in favour of the revenue and against the assessee.”
The Hon’ble Calcutta High Court, in the case of KL. Thirani & Co. Ltd. (supra) have observed as under (extracted from headnote at page 154 of 218 ITR) :
The proviso says that the provision for the liability for contribution to PF, superannuation fund, gratuity fund or any other fund for the welfare of the employees is allowable only if the payment corresponding to the provision is made within the ‘due date’ for such payments in the Explanation below clause (va) of sub-section (1) of section 36. This takes us to that particular provision and the ‘due date’ is defined in the said Explanation as the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, Rules, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. That clause (va) of section 36(1) is as follows :
“(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date.
This again refers to sub-clause (x) of clause (24) of section 2 which is as follows :
(x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees.”
From a combined reading of these provisions, it is clear that the contributions to provident fund or superannuation fund or a fund under the ESI Act are allowable only if the payments are made within the due date under the Acts or the Rules or the Orders governing such contributions.
The conflict between section 40A(7) and section 43B has been considered by the Hon’ble Calcutta High Court in the case of Sree Kamakhya Tea Co. (P) Ltd. (supra) and the relevant portion of the judgment is reproduced below (extracted from headnote at page 718 of 199 ITR) :
“Under section 36(1)(va), deduction is allowed in respect of any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund, as defined in section 2(5) of the Act, created by the employer for the exclusive benefit of his employees under an irrevocable trust. After the insertion of section 40A(7), for claiming deduction for gratuity payment, the assessee was required to fulfil the conditions laid down in section 40A(7) and, without fulfilling the conditions laid down therein, no assessee was entitled to deduction under section 36(1)(v). This has undergone a change after the insertion of section 43B for and from the assessment year 1984-85. The provisions of section 43B(b) are relevant and apposite in the context of the provisions of section 36(1)(v). Section 43B has overriding effect over the provisions of section 40A(7). Under the provisions of section 43B, a deduction in respect of any sum payable by the assessee as an employer by way of contribution inter alia to a gratuity fund is to be allowed in computing the business income of that previous year in which such sum has been actually paid by him. There is no dispute in this case that the assessee made a payment of a sum of Rs. 9,99,560 on 27-3-1985. It is also admitted that, in respect of this amount, no deduction was claimed or allowed in any past assessment year. Accordingly, this deduction was claimed in this year. In our view, section 43B permits a deduction in respect of any payment by way of contribution to a provident fund or superannuation fund or any other fund for the welfare of employees in the year in which the liability is actually discharged. We may, however, add that clause (va) has been inserted in sub-section (1) of section 36 by the Finance Act, 1987. The effect of the amendment is that no deduction will be allowed in the assessment of the employer unless such contribution is paid to the fund on or before the due date. The due date in the context means the date by which an employer is required to credit the contribution to the employees’ account under the provisions of any law or the terms of the contract of service or otherwise. If such contribution is not credited by the employer in the account of the employees in the relevant fund by the due date, it will be assessed as the income of the employer. This amendment, however, has been made effective from the assessment year 1988-89.
6. In the above-mentioned cases, all the High Courts have consistently and categorically held that the second proviso would be applicable to all contributions including employer’s contribution to the PF, gratuity fund, superannuation fund etc. The Hon’ble Calcutta High Court in the case of Sree Kamakhya Tea Co. (P.) Ltd. (supra), have held that section 43B has overriding effect over the provisions of section 40A(7) of the Income Tax Act. It may be mentioned here that the Hon’ble Calcutta High Court’s decision was never cited before the ITAT, Jaipur Bench, in the case of Mewar Sugar Mills Ltd. (supra). Further, it may be mentioned that provisions of section 40A(7) are applicable in respect of the ‘provision’ made by the assessee for payment of gratuity. Thus, section 40A(7) will not apply to a case where ,provision’ is not made and direct payment is made and deduction is claimed. In the present case, no material has been placed before us to show that to the gratuity payments, the provisions of section 40A(7) are applicable. Further, it has been held by the Hon’ble Calcutta High Court, as mentioned above, that section 43B has overriding effect over the provisions of section 40A(7).
7. A reference here will not be out of place, to the Board’s Circular No. 550 referred to by the learned Departmental Representative The relevant para 15.4 of the circular ‘IS reproduced below (page 124 of ITI) 182):
“Unlike other payments referred to in section 43B of the Income Tax Act, the deduction regarding employer’s contribution, if denied in a year, is not available as a deduction in any subsequent year also, On account of various reasons like postal delay, strikes or long holidays, the payment of employer’s contribution to the respective authorities is delayed even though the payment by a cheque or draft is tendered before the due date. To avoid any hardship being caused in such cases, it has been provided by substituting the second proviso to section 43B that, if payment of any sum payable by an employer by way of contribution to any PF or superannuation fund or gratuity fund or any other fund for the welfare of employees is made by a cheque, draft or any other mode, deduction shall be allowed if the cheque, etc., has been tendered by the due date, and the actual payment has been realised within fifteen days of the due date.”
From this circular explaining provisions of the relevant Finance Act, it is clear that the second proviso will be applicable to contributions made by an employer to any PF or superannuation fund or gratuity fund or any other fund.
8. After considering carefully the relevant provisions of law, the various High Court cases cited above and the Board’s Circular, we hold that the second proviso would be applicable to all contributions and therefore, if such contributions have been made beyond the due date as prescribed in the relevant Acts or Rules, the assessee will not be entitled to deduction under section 43B of the Income Tax Act. In the present case, admittedly, the payments have been made after the expiry of the due date. Therefore, in our view, the learned Commissioner (Appeals) was justified in sustaining the disallowance and therefore his order on this issue is confirmed.
9. to 13. (These paras are not reproduced here as they involved minor issues.)
