ORDER
K.C. Singhal, J.M.
1. The main issue arising out of this appeal relates to the interpretation of Section 36(l)(va) and Section 43B,
2. During the year under consideration, the assessee had received employees contribution towards employees provident fund amounting to Rs. 1,48,916. The assessee was required to deposit the same within 15 days of the close of every month and grace period of 5 days. However, most of the payments made by the assessee were delayed payments. In the course of assessment proceedings, the details of payments were filed by the assessee. Since the payments had not been made within the due date as prescribed under Section 36(l)(va), the assessee was asked to show cause why the delayed payments be not disallowed under Section 36(l)(va). The assessee vide reply dt, 13th Jan., 1994 submitted that the amounts were deposited within the prescribed time-limit and hence the same could not be disallowed under Section 43B. However, the AO held the provisions of Section 43B were not attracted and the deductions were disallowable under Section 36(l)(va). Consequently, the aforesaid amounts were disallowed by AO. On appeal, the CIT(A) confirmed the disallowance on merit but a partial relief was given in respect of the payments which were made within the grace period. Accordingly, the disallowance in respect of employees provident fund was reduced to Rs. 1,48,916. Still aggrieved, the assessee is in appeal before the Tribunal.
3. The learned counsel for the assessee Mr. Gupta has vehemently argued that the provisions of Section 43B are non obstante provisions and, therefore, the provisions of Section 36(l)(va) must yield to the provisions of Section 43B. Proceeding further, it was submitted by him that Section 43B can be applied only to the amounts which remained outstanding at the close of the year and does not apply to the amounts which are paid during the year even though payments made beyond the prescribed limit. Strong reliance was placed on the decision of the Tribunal Madras Bench in the case of Madras Radiators & Pressings Ltd. v. Dy. CTT (1996) 56 TTJ (Mad) 662 : (1996) 59 TTD 515 (Mad). He also relied on the decision of the Tribunal Mumbai Bench, Fluid Air (India) Ltd. v. Dy. CJT (1997) 6?ITD 182 (Mumbai) for the proposition that no disallowance should be made on the principle of equity. Lastly, it was submitted by him that even if two views are possible, the view favourable to the assessee should be adopted in view of the Supreme Court decision in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). On facts, it was admitted by him that the entire payments aggregating to Rs. 1,48,916 were not paid in time as per the provisions of Employees Provident Fund Act. It was also pointed out by him that the sum of Rs. 78,370 has been paid during the year out of the sum of Rs. 1,48,916 and, therefore, he restricted his claim to the sum of Rs, 78,370.
4. On the other hand, the learned Departmental Representative has vehemently supported the order of CIT(A) by contending that the deduction has to be allowed only under Section 36(l)(va) being the special provisions and the provision of Section 43B are not attracted consequently. In support of this proposition, he relied on the Supreme Court decision CIT v. Shahzada Nand & Sons & Ors. (1966) 60 1TR 392 (SC) at p 400. It was also submitted that the provisions of Section 36(l)(va) have been held to be constitutionally valid by the Andhra Pradesh High Court in the case of Hi-Tech India (P) Ltd- v. Union of India (1997) 227 1TR 446 (AP) and, therefore, such provisions cannot be ignored. Proceeding further, he relied on the decision of Supreme Court in the case of Vikrant Tyres Ltd. v. ITO (2001) 247 ITR 821 (SC) for the proposition that the Court must adhere to the words of the statute where the language is clear and the equitable construction of the words is not permissible. The other decision relied on by him for the similar proposition is in the case of Kammchari Union v. Union of India (2000) 243 ITR 143 (SC). He also relied on the Delhi High Court decision CFT v. National Agricultural Co-op. Marketing Federation of India Ltd. (1999) 236 ITR 766 (Dei) for the proposition that where the provisions are unambiguous, then wider or narrower construction is not permissible. Since, according to him, the provisions of Section 36(l)(va) are unambiguous, the deduction has to be allowed within the framework of Section 36(l)(va) and accordingly, the provisions of Section 43B cannot be applied. Since admittedly, the payments were not made within the time prescribed by the relevant enactment, the CIT(A) was justified in confirming the order of AO on this issue.
5. Rival contentions of the parties have been considered carefully. It would be useful to refer the relevant provisions of Section 43B and Section 36(l)(va) which are being reproduced as under;
“Section 43B Certain deductions to be only on actual payment ; Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of —
(a)………
(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, or (c) to (e)………………….
shall be allowed (respective 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 that. ………………..
Provided further that no deduction shall, in respect of any sum referred to in cl. (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.
Section 36(l)(va):
36(1) : The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to
in Section 28–
(i) to (v)…………..
(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 purposes of this clause, ‘due date’ means the date by which the assesee is required as an employer to credit an 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.”
Sec. 43B was inserted in the statute w.e.f. 1st April, 1984, by Finance Act, 1983. Prior to its insertion, the assessee was entitled to deduction in respect of expenditure incurred in respect of excise duty, sales-tax, provident fund, etc. on the basis of accrual of liability by following mercantile system of accounting. On the other hand, the assessee used to dispute such liability before the various authorities and the Courts and thereby not discharging the liability till the dispute was finalised. Thus, they were enjoying the benefit of non-payment of income-tax without actually discharging such liabilities. With a view to discourage such mischief, the legislature introduced Section 43B by which the deduction was made allowable in the year in which it is actually paid and the allowability of deduction on the basis of accrual was discontinued irrespective of the method of accounting followed by the assessee. This is clear from cl. 60 of Notes on Clauses of the Finance Bill, 1983 reported in (1983) 140 TTR (St) 160. The Hon’ble Supreme Court in the case of Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC), after considering the same observed.
“Sec. 43B was, therefore, clearly aimed at curbing the activities of those taxpayers who did not discharge their statutory liability of payment of excise duty, employer’s contribution to provident fund, etc. for long periods of time to claim deductionc in that regard from their income on the ground that liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief, Section 43B was inserted………”
The above background has been narrated to point out that Section 43B was made applicable only to those amounts which remained outstanding at the close of the accounting year. This is also apparent from the use of words ‘any sum payable’ in all the Clauses (a) to (e). That means Section 43B cannot be applied to any sum which has been actually paid during the accounting period.
6. The provisions of Section 43B are non obstante provisions and, therefore, have overriding effect over other provisions of the Act. The opening sentence includes the words “otherwise allowable”. That means Section 43B applies only to those deductions in respect of the items mentioned in Clauses (a) to (e) which remained outstanding at the close of the year and are allowable under other provisions of the Act. Therefore, this section cannot be applied to a situation where a particular deduction is disallowable under the other provisions of the Act.
7. Clause (b) relates to any sum payable by the assessee as an employer by way of contribution to any provident fund, superannuation fund, gratuity fund or any other fund for the welfare of the employees. There is no ambiguity in this clause. It supplies only to employer’s contribution. Consequently, the employees contribution towards such funds is outside the scope of this clause.
8. Since employees contribution was not included, no disallowance could have been made under Section 43B if the employer, after deducting the same from the wages/salary of the employees, did not pay the same to the Government within the period prescribed under the various schemes. The assessee in such cases were acting as a conduit pipe and, therefore, the payment of such contribution could not be considered as an expenditure of the assessee and consequently, question of any disallowance did not arise. The employers were utilising this money for the purpose of business and not paying the same within the specified period. Only interest was being paid by such employer for delayed payments. With a view to curb this practice, the legislature amended the definition of ‘income’ in Section 2(24) by insetting Clause (x) which included any sum received by the assessee from his employees as contribution 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 set up for the welfare of such employees. Simultaneously, Clause (va) was inserted in Section 36, according to which assessee could claim deduction in respect of such contribution if it was paid before the due date as prescribed in the Explanation attached to this clause. These insertions were made by the legislature by Finance Act, 1987 w.e.f 1st April, 1988. The combined reading of these provisions reveals that the sum received by the assessee from his employees was included in his total income and the deduction thereof could be allowed only in the manner prescribed in Section 36(l)(va). That means if the assessee does not make the payment within the specified period then he is not entitled to deduction even if he makes the delayed payment. These provisions were made as a deterrent provisions and the object of the legislation can be achieved if the deduction is allowed only where the payment is made by the employer assessee within the specified period. Consequently, no deduction can be allowed where such payments are made after the specified period even though such dates fall during the period under consideration. Admittedly, the sum of Rs. 1,48,916 relating to employees provident fund contribution was after the specified period prescribed in Section 36(l)(va) and. therefore, such amounts were rightly disallowed under Section 36(l)(va).
9. In view of the above discussion, the provisions of Section 43B cannot be applied to the present case inasmuch as (i) the employees contribution is outside the scope of Clause. (b) of Section 43B; (ii) delayed, payment of such contribution is itself disaliowable under Section 36(l)(va) and consequently, it cannot be said that such deduction is otherwise allowable under the other provisions; (iii) the provisions of Section 43B is applicable only to the amounts outstanding at the close of the year. Even assuming for the sake of argument that employees contribution is covered by Section 43B, the same cannot be allowed as deduction because the second proviso in clear terms provided that no such deduction shall be allowed unless such sum has been paid on or before the due date as defined in Explanation below Clause (va) of Sub-section (1) of Section 36. Since, admittedly, the payments were made after the specified date such deduction cannot be allowed to the assessee. Regarding the decision of the Tribunal, Madras Bench, relied upon by assessee’s counsel, it would be sufficient to mention that the various aspects of issue considered by us were neither raised nor considered by the said Bench of the Tribunal.
10. In view of the above discussion, we uphold the disallowance confirmed by the CIT( A).
11. The disallowances of Rs. 3,911 on account of fines and penalties and disallowance of Rs. 9,768 on account of ESI contribution have not been pressed before us. Accordingly, such disallowances are also confirmed.
12. The next issue relates to the disallowance of Rs. 13,500, being subscription to Gymkhana club. This issue is covered in favour of the assessee by the decision of Bombay High Court in the case of OTIS Elevator Co. India Ltd. v. CIT (1992) 195 ITR 682 (Bom), decision of Gujarat High Court Gujarat State Export Corpn. Ltd v. CIT (1994) 209 ITR 649 (Guj) and the decision of Madras High Court CIT v. Sundaram Industries Ltd. (1999) 240 ITR 335 (Mad). Following the same, the issue is decided in favour of assessee.
13. The next ground relates to the disallowance of Rs. 49,540 out of sales promotion expenses. The AO considered the same as entertainment expenditure and the assessee accordingly requested the AO to allow 35 per cent of expenses in view of the decision of Delhi High Court in the case of CIT v. Expo Machinery (P) Ltd. (1991) 190 ITR 576 (Del). Accepting this plea, the AO disallowed the balance amount of Rs. 49,540 after allowing basic deduction of Rs. 5,000. The said has been confirmed by the CIT(A). After hearing both the parties, we do not find any infirmity in the order of CIT(A) on this issue. The order of CIT(A) is, therefore, upheld.
14. In the result, appeal of the assessee is partly allowed.