Disallowance of Contribution of PF PDF

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Adv. Dhruv Bhargava...

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Disallowance of Contribution of PF, ESIC etc u/s 36(1)(va) – A Comparative Study between Section 36(1)(va) Vs. Section 43-B Section 36(1)(va) Vs. Section 43-B If the assessee fails to deposit the PF, ESIC etc Contribution before the due dates as per the respective Acts. Effect of Section 43B on unpaid liability towards 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. PF, ESIC etc Contribution- Income u/s 2(24)(x) The definition of Income u/s 2(24)(x) includes 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. Deduction from Income of contribution to PF, ESCI etc u/s 36(1)(va). However a deduction from the amount of income received from employees as contributions to any provident fund or superannuation fund etc. is provided u/s 36(1) (va). According to this section any sum received by the assessee from any of his employees to which the provisions of section 2(24)(x) will be allowed as deduction, 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. “Due date” here 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. The due date under employee welfare funds is 15 th day of the month following the month in respect of which the contribution was received. For example if the contribution was received for the month of April then the due date of payment will be 15th May. If payment is not made by the due date then the entire amount of contribution paid later than 15th of the next month shall not be deducted as expense 36(1)(va). However Certain deductions are allowed u/s 43B on actual payment such that the sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under section 139(1) are also allowed as deduction. Section 43B : Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or] (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, (c)…………..

(d)…………. 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 that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. Thus Section 43B is a non-obstante clause as it starts with the word “Notwithstanding” which clearly mean that the provisions of section 43B shall over ride even if, anything otherwise is contained in any other provision of Act 1961. In the light of the provisions of section 36(1)(va) and section 43B, let us analyze the allowability or otherwise of the above liabilities: Section 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 (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 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; Thus the due date for depositing the employees’ contribution is 15th of the month next to the month for which the contribution was collected. However u/s 43B(b) the due date for depositing the employer’s contribution is the due date for filing of the return of income u/s 139(1) , generally 30th September. Upto the introduction of Finance Bill 2003, the employers’ contribution was also required to be deposited alongwith employees’ contribution with the prescribed authorities by due dates under Welfare Acts to be eligible to claim deduction. The Finance Act 2003 deleted this provision such that employers’ contribution could now be made u/s 43B(b) before the due date u/s 139(1) i.e. due date for filing of the return for getting the deduction. The Word Contributions has not been refined under the Income Tax Act. But as per the provisions The Employees’ Provident Funds Scheme, 1952, section 29 & 30 it is provided that (1) The contribution payable by the employee under the Scheme, shall be equal to the contribution payable by the employer in respect of such employee;

(2) The employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer’s contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member’s contribution). (3) The amount of a member’s contribution paid by the employer or a contractor shall, notwithstanding the provisions in this scheme or any law for the time being in force or any contract to the contrary, be recoverable by means of deduction from the wages of the member and not otherwise. It therefore is clear that the employer has to in the first instance, pay both the contributions payable and thereafter recover the same by means of deduction from the wages of the member. If this is the case then the total contribution will be covered under the provision of section 43B(b) and therefore allowable as deduction on payment basis, if paid before the due date u/s 139(1)....