1995-VIL-192-ITAT-BLR

Equivalent Citation: ITD 054, 394, TTJ 054, 260,

Income Tax Appellate Tribunal BANGALORE

Date: 21.03.1995

HUNSUR PLYWOOD WORKS LIMITED.

Vs

DEPUTY COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : A. V. BALASUBRAMANYAM., S. BANDYOPADHYAY.

JUDGMENT

Per Bandyopadhyay, AM --The first issue in this appeal filed by the assessee relates to the additions of the amounts of Rs. 1,58,739 under section 43B and of another amount of Rs. 1,49,061 under section 36(1)(va) of the Act, as confirmed by the first appellate authority.

1. (a) The AO found from examination of the details furnished by the assessee that the total amounts of employer's contributions to the Employees Provident Fund and Family Provident Fund alongwith administrative charges as remitted by the assessee from month to month during the relevant year amounted to Rs. 1,58,739. He also found that similar aggregate amount in respect of employees' contribution to the same funds as remitted by the assessee during the year came to Rs. 1,49,061. The AO also found that the assessee did not actually remit the amounts, within the stipulated period of 15 days from the end of the relevant months, but did so within the further period of grace of five days. On this ground, the AO disallowed the first amount as above under section 43B and the second amount under section 2(24)(x) read with section 36(1)(va).

(b) So far as the first addition is concerned, it is found that although the amounts might not have been paid within 15 days from the expiry of the month, yet in each case they were paid within the accounting year itself. Even in respect of the last month as considered by the AO, viz., January 1991, the date of remittance has been shown by himself to be 18-2-1991 as against the last date of the accounting year being 31-3-1991. Inasmuch as the entire amount in respect of the first named item of employer's contribution was paid within the accounting year itself and nothing remained as outstanding liability out of the game, we fail to understand how the provisions of section 43B could be applicable to this particular item. We also wonder how the CIT(A) could have approved of such a blatantly wrong addition. Hence, we have no hesitation in deleting the first addition of the amount of Rs. 1,58,739.

(c) So far as however, the other amount which constitutes employees' contribution is concerned, the matter takes a different shape. With effect from 1-4-1988, by virtue of insertion of clause (x) to sub-section (24) of section 2 by the Finance Act, 1987, even the employees' contribution to Provident Fund etc., is required to be included within the income of the assessee. The said sub-clause reads as below :

"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 new provision of clause (va) of section 36(1) also enacted from the same date, however, allows the assessee deduction in respect of this amount treated as income as above provided the assessee fulfils his liability of crediting the same on or before the due date. The abovementioned clause reads as below :

"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 purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit and 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 ;"

(a) It would appear from the two definitions as above that clause (x) of section 2(24) speaks of any sum received by the assessee from his employees as contributions to any provident fund etc. This has got the connotation of the employees deliberately handing over their respective portions of contributions to the assessee. In the instant case, however, the assessee has merely deducted the said amounts representing the employees' contribution to EPF and FPF from the respective wage or salary bills of the employees. Speaking from the strict legal stand-point, it may be argued that the assessee's case should not, therefore, exactly fit in the definition of "deemed income" under clause (x) of section 2(24). However, for all practical purposes, deduction from the salary bills of the employees may be considered to be equivalent to receipt of the amount from the employees. Straight-jacketing the matter in this way, we hold that the deductions made by the assessee from the pay-bills of its employees towards employees' contributions to EPF and FPF would have to be considered as deemed income as per the provisions of this particular clause.

2. On the other hand, clause (va) of section 36(1) speaks of the sum being credited by the assessee to the employees' account in the relevant fund or funds on or before the due dates. This again connotes the idea as if the assessee itself has set up the relevant fund or funds and also maintains the same and goes on crediting the amounts to the individual accounts of the employees by itself. In actual practice however, the funds are maintained by the Provident Fund Commissioner. The act of crediting the amounts concerned to the individual accounts of the employees is done in the office of the said Provident Fund Commissioner and the assessee merely remits or makes payment of the amount to the said office every month. Thus, we find that the actual practice followed by the assessee (and many other employers like it) does not exactly conform to the strict legal prescriptions of clause (va) of section 36(1). In fact, the assessee has got no control over the actual crediting of the employees' contribution to EPF etc., to the employees' accounts in the relevant fund. What it can do at best is to pay the amounts to the office of the Provident Fund Commissioner in time. All of us know that it may take even months to get the amounts credited in the individual accounts of the employees maintained in the office of the Provident Fund Commissioner.

(a) Thus, with regard to the consideration of the deemed income by way of receipt of employees' contributions towards EPF etc., and allowance of deduction of the same amount, as discussed by us above, we find that the strict legal principles as enunciated in the statute book, cannot be adhered to. What we should therefore, attempt to achieve, is to have a practical approach to the matter and to look at the problem whether the intention of the Legislature as conveyed through these two newly enacted provisions of law have been complied with in substance from practical point of view or not. We get an idea of the intention of the Legislature from clause 12.1 of the Explanatory Note on the provisions of the Finance Act, 1987 as extracted below :

" 12.1 The existing provisions provide for a deduction in respect of any payment by way of contribution to a provident fund or superannuation fund or any other fund for welfare of employees in the year in which the liability is actually discharged (section 43B). The effect of the amendment brought about by the Finance Act, 1987, is that no deduction will be allowed in the assessment of the employer(s) unless such contribution is paid to the fund on or before the 'due date'. Due date means the date by which an employer is required to credit the 'contribution' to the employee's account in the relevant fund under the provisions of any law or term of contract of service or otherwise."

Finally therefore, we hold that the amounts deducted by employers from the salary bills of their employees towards employees' contributions to EPF etc., will have to be considered as deemed income of the employer in terms of the provisions of section 2(24)(x). At the same time again, the said amount will be treated as an allowable item interms of the provisions of clause (va) of section 36(1), if the amount be paid by the employer to the office of the Commissioner of Provident Fund within time, as allowed to him in accordance with the relevant law, regulations, circulars, etc.

(b) Para 38 of the Employees' Provident Funds Scheme, 1952 says that the amounts under consideration in respect of wages of the employees for any particular month shall be paid within 15 days of the close of every month. Clause (iii) of CPFC's Circular No. E. 128(1) 60-III dated 19-3-1964 as modified by Circular No. E. 11/128 (section 14-B Amendment)/73 dated 24-10-1973 allows five days of grace period to the employers for payment of provident fund contribution, administrative charges and inspection charges. The said Circular also states that if payment be made within the said period of grace, no damages as per section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 shall be levied. Furthermore, our attention has also been drawn to CPFC's Circular No. E. 128(1)60-IV dated 29-4-1967 in clause (iii) of which it has been stated that the Central Board of Trustees at its meeting on 13-4-1967 agreed that if payment was made within grace period already allowed by it, then such payments should not be counted as default even for the purpose of counting the number of defaults.

(c) The question before us is, therefore, to determine whether the payments of employees' contribution to EPF etc., made by the assessee to the office of the Provident Fund Commissioner, not within the formally stipulated period of 15 days after the end of the month, but within the further grace period of five days would be considered as the payments having been made within "due date" as shown in clause (va) of section 36(1). It is required to be mentioned in this connection that for all the months of the accounting year under present consideration, the relevant payments were made within such grace period of five days.

(d) As has been discussed by us above, a strict legal approach is not possible in respect of this question, but a practical view only will have to be undertaken. Stroud's Judicial Dictionary (third edition) states in connection with 'Days of grace' that 'a right of action does not accrue until after the expiration of the whole of the last day of grace, although a right to protest and to give notice of dishonour accrues immediately on refusal of payment'.

Venkataramaiya's 'Law Lexicon with Legal Maxims' says as follows :

"The days of grace, strictly so-called are clearly days before the expiry of which there is no right of action for the party giving the days of grace -- Varanasi Ramabrahmam v. Kota Rami Reddy AIR 1928 Mad. 250 at p. 250 : 1927 MWN 305 : 108 IC 273"

3. Thus, we find that from strict judicial angle, the period or days of grace would seem to be falling within a twilight region. The period certainly follows the exact due date but at the same time no action by the other side is possible within the said period except for registering a protest. Since the present issue is required to be resolved from practical angle, as discussed by us above, we are required to examine the consequences of making of payment of the employees'contribution to the EPF etc., within five days' period of grace. We find that if an employer makes payment within such period of grace, not only is he not liable to pay any damage in accordance with the Employees' Provident Fund Scheme and the relevant Act, but by virtue of the Circular dated 29-4-1967 as mentioned above, he will also not be treated to be in default. Hence, we ultimately hold that from practical point of view, the five days' period of grace after 15th of the succeeding month is to be considered merely as an extension of the early 15 days and all the consequences of making payment within the said 15 days should be considered to follow if the payment be made within the grace period following the said period of 15 days. The Explanation to clause (va) of section 36(1) again defines "due date" rather in a vague way to mean the date by which the assessee is required to make the payment in accordance with the relevant Act, rule, order or notification or even any Standing Order, award, contract of services or otherwise. It is clear therefrom that the concept of "due date" here is to be taken in a rather very flexible sense. Inasmuch as the assessee is very much under impunity to make payment of the amount under consideration within 20th of the following month, we are of the view that the purpose of clause (va) of section 36(1) will be substantially complied with if the payment be made within such period of 20th of the following month. In the instant case, inasmuch as the assessee has actually made the payment within such date, we hold that the assessee should get the benefit of deduction of the amount under clause (va) of section 36(1). In that view, we reverse the actions of the lower authorities and direct that the entire amount of Rs. 1,49,061 being deductible under section 36(1)(va) be deleted from the addition as made in the assessment.

4. to 8 [These paras are not reproduced here as they involved minor issues].

 

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