CHECKMATE SERVICES P. LTD. versus COMMISSIONER OF INCOME TAX-1 on 12 October 2022

[2022] 10 S.C.R. 1065

CHECKMATE SERVICES P. LTD.

v.

COMMISSIONER OF INCOME TAX-1

(Civil Appeal No. 2833 of 2016)

OCTOBER 12, 2022

[UDAY UMESH LALIT CJI, S. RAVINDRA BHAT ANDSUDHANSHU DHULIA, JJ.]

Income Tax Act, 1961 – s.36(1)(va) and s.43B – Allowabledeductions – Assessee-appellants had belatedly deposited theiremployees’ contribution towards the EPF and ESI, considering thedue dates under the relevant acts and regulations – Whether byvirtue of s.36(1)(va) r/w s.2(24)(x), such sums received by appellantsconstituted “income” and could not be allowed as deductions u/s.36(1)(va) when the payment was made beyond the relevant duedate under the respective acts – Held: The essential character ofan employees’ contribution, i.e., that it is part of the employees’income, held in trust by the employer is underlined by the conditionthat it has to be deposited on or before the due date – There isdistinction between an employer’s contribution which is its primaryliability under law – in terms of s.36(1)(iv), and its liability to depositamounts received by it or deducted by it (s.36(1)(va)) – The formerforms part of the employers’ income, and the later retains itscharacter as an income (albeit deemed), by virtue of s.2(24)(x) -unless the conditions spelt by Explanation to s.36(1)(va) are satisfiedi.e., depositing such amount received or deducted from the employeeon or before the due date – There is thus a marked distinctionbetween the nature and character of the two amounts – This markeddistinction has to be borne while interpreting the obligation of everyassessee under s.43B – The non-obstante clause u/s.43B or anythingcontained in that provision would not absolve the assessee from itsliability to deposit the employee’s contribution on or before the duedate as a condition for deduction – Employees’ Provident Fundsand Miscellaneous Provisions Act, 1952 – Employees’ ProvidentFunds Scheme, 1952 – Employees’ State Insurance Act, 1948 –Employees’ State Insurance (Central) Regulations, 1950

Interpretation of Statutes – Tax statute – Deduction orexemption, when available – Held: If a deduction or exemption is

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Aavailable on compliance with certain conditions, the conditions areto be strictly complied with – Deductions are to be granted onlywhen the conditions which govern them are strictly complied with.

Dismissing the appeals, the Court

HELD : 1.1. Section 43B falls in Part-V of the Income TaxBAct, 1961. The Parliament’s endeavour in introducing Section43B [which opens with its non-obstante clause] was to primarilyensure that deductions otherwise permissible and hithertoclaimed on mercantile basis, were expressly conditioned, incertain cases upon payment. In other words, a mere claim ofCexpenditure in the books was insufficient to entitle deduction.The assessee had to, before the prescribed date, actually pay theamounts – be it towards tax liability, interest or other similarliability spelt out by the provision. [Para 30][1087-B-C]

1.2. What is apparent is that the scheme of the Act is suchDthat Sections 28 to 38 deal with different kinds of deductions,whereas Sections 40 to 43B spell out special provisions, layingout the mechanism for assessments and expressly prescribingconditions for disallowances. In terms of this scheme, Sections40 - 43B are concerned with and enact different conditions, thatthe tax adjudicator has to enforce, and the assessee has to complyEwith, to secure a valid deduction. [Para 31][1087-C-D, E-F]

2.1. The scheme of the provisions relating to deductions,such as Sections 32- 37, on the other hand, deal primarily withbusiness, commercial or professional expenditure, under variousheads (including depreciation). Each of these deductions, has itsFcontours, depending upon the expressions used, and theconditions that are to be met. It is therefore necessary to bear inmind that specific enumeration of deductions, dependent uponfulfilment of particular conditions, would qualify as allowabledeductions: failure by the assessee to comply with thoseGconditions, would render the claim vulnerable to rejection. [Para32][1087-F-H]

2.2. The Parliament treated contributions under Section36(1)(va) differently from those under Section 36(1)(iv). The latter[“employers’ contribution”] is described as “sum paid by the H

assessee as an employer by way of contribution towards arecognized provident fund”. However, the phraseology of Section36(1)(va) differs from Section 36(1)(iv). It enacts that “any sumreceived by the assessee from any of his employees to which theprovisions of sub-clause (x) of clause (24) of section 2 apply, ifsuch sum is credited by the assessee to the employee’s accountin the relevant fund or funds on or before the due date.” “ Theessential character of an employees’ contribution, i.e., that it ispart of the employees’ income, held in trust by the employer isunderlined by the condition that it has to be deposited on or beforethe due date. [Para 33][1088-E-G]

2.3. The differentiation is also evident from the fact thateach of these contributions is separately dealt with in differentclauses of Section 36(1). All these establish that Parliament, whileintroducing Section 36(1)(va) along with Section 2(24)(x), wasaware of the distinction between the two types of contributions.There was a statutory classification, under the IT Act, betweenthe two. [Para 34][1088-H; 1089-A-B]

3. The intent of the lawmakers was clear that sums referredto in clause (b) of Section 43B, i.e., “sum payable as an employer,by way of contribution” refers to the contribution by the employer.The reference to “due date” in the second proviso to Section43B was to have the same meaning as provided in the explanationto Section 36(1)(va). Parliament therefore, through thisamendment, sought to provide for identity in treatment of thetwo kinds of payments: those made as contributions, by theemployers, and those amounts credited by the employers, intothe provident fund account of employees, received from the latter,as their contribution. Both these contributions had to necessarilybe made on or before the due date. [Para 37][1090-C-E]

4. One of the rules of interpretation of a tax statute is thatif a deduction or exemption is available on compliance with certainconditions, the conditions are to be strictly complied with. Thisrule is in line with the general principle that taxing statutes areto be construed strictly, and that there is no room for equitableconsiderations. Deductions are to be granted only when the AB

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Aconditions which govern them are strictly complied with. [Paras48 and 49][1100-C-E]

5. When Parliament introduced Section 43B, what was onthe statute book, was only employer’s contribution (Section34(1)(iv)). At that point in time, there was no question ofBemployee’s contribution being considered as part of theemployer’s earning. On the application of the original principlesof law it could have been treated only as receipts not amountingto income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting thesecond proviso of Section 43B, its intention was not to treat theCdisparate nature of the amounts, similarly. The memorandumintroducing the Finance Bill clearly stated that the provisions –especially second proviso to Section 43B - was introduced toensure timely payments were made by the employer to theconcerned fund (EPF, ESI, etc.) and avoid the mischief ofDemployers retaining amounts for long periods. That Parliamentintended to retain the separate character of these two amounts,is evident from the use of different language. Section 2(24)(x)too, deems amount received from the employees (whether theamount is received from the employee or by way of deductionauthorized by the statute) as income - it is the character of theEamount that is important, i.e., not income earned. Thus, amountsretained by the employer from out of the employee’s income byway of deduction etc. were treated as income in the hands of theemployer. The significance of this provision is that on the onehand it brought into the fold of “income” amounts that wereFreceipts or deductions from employees income; at the time,payment within the prescribed time – by way of contribution ofthe employees’ share to their credit with the relevant fund is tobe treated as deduction (Section 36(1)(va)). The other importantfeature is that this distinction between the employers’

contribution (Section 36(1)(iv)) and employees’ contributionGrequired to be deposited by the employer (Section 36(1)(va)) wasmaintained - and continues to be maintained. On the other hand,Section 43B covers all deductions that are permissible asexpenditures, or out-goings forming part of the assessees’ liability.These include liabilities such as tax liability, cess duties etc. orH

interest liability having regard to the terms of the contract. Thus,timely payment of these alone entitle an assessee to the benefitof deduction from the total income. The essential objective ofSection 43B is to ensure that if assessees are following themercantile method of accounting, nevertheless, the deduction ofsuch liabilities, based only on book entries, would not be given.To pass muster, actual payments were a necessary pre-conditionfor allowing the expenditure. [Para 52][1103-B-H; 1104-A-B]

6. The distinction between an employer’s contribution whichis its primary liability under law – in terms of Section 36(1)(iv),and its liability to deposit amounts received by it or deducted byit (Section 36(1)(va)) is crucial. The former forms part of theemployers’ income, and the later retains its character as anincome (albeit deemed), by virtue of Section 2(24)(x) - unlessthe conditions spelt by Explanation to Section 36(1)(va) aresatisfied i.e., depositing such amount received or deducted fromthe employee on or before the due date. In other words, there isa marked distinction between the nature and character of thetwo amounts – the employer’s liability is to be paid out of itsincome whereas the second is deemed an income, by definition,since it is the deduction from the employees’ income and held intrust by the employer. This marked distinction has to be bornewhile interpreting the obligation of every assessee under Section43B. [Para 53][1104-B-E]

7. The non-obstante clause in Section 43B has to beunderstood in the context of the entire provision of Section 43Bwhich is to ensure timely payment before the returns are filed, ofcertain liabilities which are to be borne by the assessee in theform of tax, interest payment and other statutory liability. In thecase of these liabilities, what constitutes the due date is definedby the statute. Nevertheless, the assessees are given some leewayin that as long as deposits are made beyond the due date, butbefore the date of filing the return, the deduction is allowed. That,however, cannot apply in the case of amounts which are held intrust, as it is in the case of employees’ contributions- which arededucted from their income. They are not part of the assesseeemployer’s income, nor are they heads of deduction per se in the ABC

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Aform of statutory pay out. They are others’ income, monies, onlydeemed to be income, with the object of ensuring that they arepaid within the due date specified in the particular law. They haveto be deposited in terms of such welfare enactments. It is upondeposit, in terms of those enactments and on or before the duedates mandated by such concerned law, that the amount which isBotherwise retained, and deemed an income, is treated as adeduction. Thus, it is an essential condition for the deductionthat such amounts are deposited on or before the due date. Ifsuch interpretation were to be adopted, the non-obstante clauseunder Section 43B or anything contained in that provision wouldCnot absolve the assessee from its liability to deposit the employee’scontribution on or before the due date as a condition for deduction.[Para 54][1104-F-H; 1105-A-C]

Commissioner of Income Tax v. Alom Extrusions Ltd.,(2010) 1 SCC 489 : [2009] 15 SCR 1154 –Ddistinguished.Commissioner of Customs v. Dilip Kumar & Co, 2018(9) SCC 1 : [2018] 7 SCR 1191 – followed on.

Eagle Flask Industries Ltd. v. Commissioner of CentralExcise, 2004 Supp (4) SCR 35; State of Jharkhand vEAmbay Cements (2005) 1 SCC 368 : [2004] 6 Suppl.SCR 125; Commissioner of Income Tax v. Ace Multi AxesSystems Ltd., (2018) 2 SCC 158 : [2017] 12 SCR 21;Ajmera Housing Corporation & Ors. v. Commissionerof Income, 2010 (8) SCC 739 : [2010] 10 SCR 183 andFCommissioner of Income Tax-III v Calcutta Knitwears,Ludhiana 2014 (6) SCC 444 : [2014] 5 SCR 855 –relied on.

Allied Motors (P) Ltd. v. Commissioner of Income Tax,(1997) 3 SCC 472 : [1997] 2 SCR 780; M.M. AquaGTechnologies Ltd. v. Commissioner of Income Tax, Delhi,2021 SCC OnLine SC 575 and Union of India & Ors.v. Exide Industries Limited & Ors., (2020) 5 SCC 274 –referred to.

Commissioner of Income Tax v. State Bank of Bikaner,(2014) 363 ITR 70; Essae Teraoka Pvt. Ltd. v. DeputyH

CHECKMATE SERVICES P. LTD. v. COMMISSIONER OFINCOME TAX-1

Commissioner of Income Tax, (2014) 366 ITR 408;Commissioner of Income Tax v. Nipso Polyfabriks Ltd.,(2013) 350 ITR 327; Commissioner of Income-Tax Vs.Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court);Commissioner of Income-Tax and another v. SabariEnterprises, [2008] 298 ITR 141 (Karnataka HighCourt); Commissioner of Income Tax v. Pamwi TissuesLtd., [2009] 313 ITR 137 (Bombay High Court) andCommissioner of Income-Tax, Udaipur v. UdaipurDugdh Utpadak Sahakari Sandh Ltd., [2013] 35taxmann.com 616 (Rajasthan High Court) – referredto.

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Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No.2833of 2016.

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From the Judgment and Order dated 14.10.2014 of the High Courtof Gujarat at Ahmedabad in Tax Appeal No.680 of 2014.

With

Civil Appeal Nos.2830 Of 2016, 159 Of 2019, 2832, 2831 of 2016,7248, 7249, 7251-7253, 7254, 7247, 7246, 7245, 7250, 7243, 7244 of 2022

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Balbir Singh, ASG, Arvind Datar, Tushar Hemani, Arvind P. Datar,Pritesh Kapur, Arijit Prasad, Sr. Advs., S. Santanam Swaminadhan, RahulSharma, Ms. Rubina Virmani, Ms. Abhilasha Shrawat, Anubhav Gupta,Kartik Malhotra, Ms. Nishtha Khurana, Ms. Aarthi Rajan, Ms. Manisha H

AT. Karia, Ms. Sukhda Kalra, Ms. Nidhi Nagpal, Adarsh Kumar, HarisBeeran, Mushtaq Salim, Azhar Assees, Usman Ghani Khan, RadhaShyam Jena, Ms. Anushree Prashit Kapadia, Ms. Vaibhavi Parikh, RaviSingh Chhikara, Ms. Radha Rangaswamy, Ms. Ranjeeta Rohatgi, Ms.Vishakha, Ms. Seema Bengani, Rupesh Kumar, Adit Khorana, UdaiKhanna, Rajan Kr. Chourasia, Raj Bahadur Yadav, Mohit D. Ram, Ms.BMonisha Handa, Rajul Shrivastav, Anubhav Sharma, Nachiketa Joshi,Deepak Shah, Ms. Sucheta Joshi, Ms. Himadri Haksar, Anand Sukumar,S. Sukumaran, Bhupesh Kumar Pathak, Ms. Meera Mathur, AniruddhaDeshmukh, Judy James, Ramesh Babu M. R., Purvish Jitendra Malkan,Advs. for the appearing parties.CThe Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. Leave granted. Berger Paints India Ltd. v Commissioner ofIncome Tax, Kolkata-IV & Anr.[1]was the lead matter while hearing thisDbatch of appeals. However, the parties agreed to treat CheckmateServices Pvt. Ltd. v Commissioner of Income Tax-I[2]as the lead appeal,for convenience. In all these appeals, the common question involved iswith respect to the interpretation of Section 36(1)(va) and Section 43Bof the Income Tax Act, 1961 (hereinafter, “IT Act”), and whether theappellant assessees are entitled to deduction of amounts deposited byEthem towards contribution in terms of The Employees’ Provident Fundsand Miscellaneous Provisions Act, 1952 (hereinafter, “EPF Act”), TheEmployees’ Provident Funds Scheme, 1952 (hereinafter, “EPF Scheme”),The Employees’ State Insurance Act, 1948 (hereinafter, “ESI Act”),The Employees’ State Insurance (Central) Regulations, 1950 (hereinafter,F“ESI Regulations”) or any other provident or superannuation fund.

2. In the years under consideration, the Assessing Officers(hereinafter, “AO”) had ruled that the appellants had belatedly depositedtheir employees’ contribution towards the EPF and ESI, considering thedue dates under the relevant acts and regulations. Consequently, the AOruled that by virtue of Section 36(1)(va) read with Section 2(24)(x) ofGthe IT Act, such sums received by the appellants constituted“income”.Those amounts could not have been allowed as deductions 1 Berger Paints India Ltd. v Commissioner of Income Tax, Kolkata-IV & Anr., CivilAppeal No. 2830 of 2016.

2 Checkmate Services Pvt. Ltd. v Commissioner of Income Tax-I, C.A. No. 2383 ofH2016.

under Section 36(1)(va) of the IT Act when the payment was madebeyond the relevant due date under the respective acts. In other words,as per the AO, as such sums were paid beyond the due dates asprescribed under the respective acts, the right to claim such sums asallowable deduction while computing the income was lost forever. Theassessees’ pleas were unsuccessful before the Income Tax AppellateTribunal (hereafter, “ITAT”). Ultimately, in the case of the impugnedjudgment, the Gujarat High Court too rejected its pleas.[3]

3. Noticing a division of opinion on the issue, with the High Courtsof Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favouringthe interpretation beneficial to the assesses on the one hand, and theHigh Courts of Kerala and Gujarat preferring the interpretation in favourof the Revenue on the other, this court granted special leave to appeal inall these cases.

The relevant statutory provisions of the IT Act

4. The relevant provisions of the IT Act, with amendments, madefrom time to time, are as extracted below:

“Section 2. Definitions.

In this Act, unless the context otherwise requires, -***

(24) “income” includes —

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(x) any sum received by the assessee from his employeesascontributions to any provident fund or superannuation fundor any fund set up under the provisions of the Employees’State Insurance Act, 1948 (34 of 1948), or any other fund forthe welfare of such employees;…”[4]***

“Section 36. Other deductions.

(1) The deductions provided for in the following clauses shallbe allowed in respect of the matters dealt with therein, incomputing the income referred to in section 28-***

3 Commissioner of Income Tax-I v Checkmate Services P. Ltd., Tax Appeal No. 680 of2014, dated 14.10.2014.

4 Inserted by the Finance Act, 1987 (11 of 1987), w.e.f. 01.04.1988.

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A(iv) any sum paid by the assessee as an employer by way ofcontribution towards a recognized provident fund or anapproved superannuation fund, subject to such limits as maybe prescribed for the purpose of recognizing the providentfund or approving the superannuation fund, as the case maybe; and subject to such conditions as the Board may think fitBto specify in cases where the contributions are not in the natureof annual contributions of fixed amounts or annualcontributions fixed on some definite basis by reference to theincome chargeable under the head “Salaries” or to thecontributions or to the number of members of the fund;”C***

(va) any sum received by the assessee from any of hisemployees to which the provisions of sub-clause (x) of clause(24) of section 2 apply, if such sum is credited by the assesseeto the employee’s account in the relevant fund or funds on orDbefore the due date.

Explanation 1. -For the purposes of this clause, “duedate”means the date by which the assessee is required as anemployer to credit an employee’s contribution to the employee’saccount in the relevant fund under any Act. rule, order orEnotificationissued thereunder or under any standing order,award, contract of service or otherwise.”

Explanation 2.-For the removal of doubts, it is hereby clarifiedthat the provisions of section 43B shall not apply and shallbe deemed never to have been applied for the purposes ofFdetermining the “due date” under this clause.”[5]

(Emphasis supplied)5. With effect from 01.04.1984, Section 43B was inserted. It readsinter alia, as follows:

G“Section 43B. Certain deductions to be only on actualpayment.

Notwithstanding anything contained in any other provisionof this Act, a deduction otherwise allowable under this Act inrespectof—H5 Explanation 2 inserted by Act No. 13 of 2021, w.e.f. 01.04.2021.

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(b) any sum payable by the assessee as an employer by wayof contribution to any provident fund or superannuation fundor gratuity fund or any other fund for the welfare ofemployees, or ***

shall be allowed (irrespective of the previous year in whichthe liability to pay such sum was incurred by the assesseeaccording to the method of accounting regularly employedby him) only in computing the income referred to in section28 of that previous year in which such sum is actually paid by him:

Provided that nothing contained in this section shall apply inrelation to any sum which is actually paid by the assessee onor before the due date applicable in his case for furnishingthe return of income under sub-section (1) of section 139inrespect of the previous year in which the liability to pay suchsum was incurred as aforesaid and the evidence of suchpayment is furnished by the assessee along with such return.[6]

Explanation : For the removal of doubts, it is hereby declaredthat where a deduction in respect of any sum referred to inclause (a) or clause (b) of this section is allowed in computingthe income referred to in section 28 of the previous year (beinga previous year relevant to the assessment year commencingon the 1st day of April, 1983, or any earlier assessment year)in which the liability to pay such sum was incurred by theassessee, the assessee shall not be entitled to any deductionunder this section in respect of such sum in computing theincome of the previous year in which the sum is actually paidby him.”

By Section 9 of the Finance Act, 1989, the following secondproviso was added:

“Provided further that no deduction shall, in respect of anysum referred to in clause (b), be allowed unless such sum has 6 Second proviso w.e.f. 1989.

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1076SUPREME COURT REPORTS

Aactually been paid in cash or by issue of a cheque or draft orby any other mode on or before the due date as defined in theExplanation below clause (va) of sub-section (1) of section36, and where such payment has been made otherwise thanin cash, the sum has been realised within fifteen days fromthe due date.”B

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By Section 21 of the Finance Act, 2003, the above second provisowas omitted.

Thereafter, by Finance Act, 2021 the following Explanation 5 wasadded, w.e.f. 01.04.2021:

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“Explanation 5.-For the removal of doubts, it is herebyclarified that the provisions of this section shall not applyand shall be deemed never to have been applied to a sumreceived by the assessee from any of his employees to whichthe provisions of sub-clause (x) of clause (24) of section 2Dapplies.”

6. The time limit for deposit of employees’ contribution under therelevant acts / regulations are follows:

A.EPF Scheme:

Chapter VI: Declaration, Contribution Cards, andEReturns

38. Mode of payment of contributions

“(1)The employer shall, before paying the member hiswages in respect of any period or part of period forwhich contribution are payable, deduct the employee’scontribution from his wages which together with his owncontribution as well as an administrative charge of suchpercentage of the pay (basic wages, dearness allowance,retaining allowance, if any, and cash value of foodconcessions admissible thereon) for the time beingpayable to the employees other than an excludedemployee and in respect of which provident fundcontributions are payable, as the Central Governmentmay fix, he shall within fifteen days of the close of everymonth pay the same to the Fund electronic throughinternet banking of the State Bank of India or any other F

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Nationalised Bank or through Pay Gov platform orthrough scheduled banks in India including privatesector banks authorized for collection on account ofcontributions and administrative charge:

7. In addition to the above, a five-day grace period was allowedto employers in terms of the Manual of Accounting Procedure (Part-IGeneral). However, the grace period was discontinued by circular bearingNo. WSU/9(1)(2013)/Settlement/35631 dated 08.01.2016, madeapplicable to contributions for January 2016 onwards.

B.ESI Regulations:

“31. Time for payment of contribution - An employerwho is liable to pay contributions in respect of anyemployee shall pay those contributions within 21 daysof the last day of the calendar month in which thecontributions fall due”

8. A circular[7] had explained the rationale for introduction ofSection 43B:

“Disallowance of unpaid statutory liability - Section 43B

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35.2 Several cases have come to notice where taxpayers donot discharge their statutory liability such as in respect ofexcise duty, employer’s contribution to provident fund,Employees’ State Insurance Scheme, etc., for long periods oftime, extending sometimes to several years. For the purposeof their income-tax assessments, they claim the liability asdeduction on the ground that they maintain accounts onmercantile or accrual basis. On the other hand, they disputethe liability and do not discharge the same. For some reasonor the other, undisputed liabilities also are not paid.

35.3 To curb this practice, the Finance Act has inserted anew section 438 to provide that deduction for any sum payableby the assessee by way of tax or duty under any law for the 7 Circular No. 372 dated 08-12-1983.

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Atime being in force or any sum payable by the assessee as anemployer by way of contribution to any provident fund orsuperannuation fund or gratuity fund or any other fund forthe welfare- of employees shall irrespective of the previousyear in which the liability to pay such sum was incurred, beallowed only in computing the income of that previous yearBin which such sum is actually paid by the assessee.”

9. The scope and effect of the newly inserted Section 36(1)(va)and the newly inserted provisos to Section 43B of the IT Act wereelaborated in a Central Board of Direct Taxes (hereinafter, “CBDT”)circular bearing No. 495.[8] Relevant extracts of the circular are as follows:C

“Measures of penalising employers who misutilisecontributions to the provident fund or any fund set up underthe provisions of the Employees’ State Insurance Act, 1948,or any other fund for welfare of employees

D12.1 The existing provisions provide for a deduction in respectof any payment by way of contribution to a provident fund orsuperannuation fund or any other fund for welfare ofemployees in the year in which the liability is actuallydischarged [section 438]. The effect of the amendment broughtabout by the Finance Act, is that no deduction will be allowedEin the assessment of the employer(s) unless such contributionis paid to the fund on or before the “due date”. Due datemeans the date by which an employer is required to credit the“contribution” to the employee’s account in the relevant fundunder the provisions of any law or term of contract of serviceFor otherwise [Explanation to section 36(1 )(va) of the FinanceAct]).”

Appellants’ Contentions

10. Mr. Arvind P. Datar, learned senior counsel appearing forsome of the appellants, relied upon the judgment of this court inGCommissioner of Income Tax v. Alom Extrusions Ltd.[9] It was urgedthat this decision had considered the effect of deletion of the secondproviso to Section 43B of IT Act (by Finance Act, 2003) and whetherthe same operated prospectively. The court rejected the Revenue’s appeal8 Circular No. 495 dated 22.09.1987.9 Commissioner of Income Tax v. Alom Extrusions Ltd., (2010) 1 SCC 489.H

and held that the omission of the second proviso to Section 43B wascurative and therefore operated retrospectively. Mr. Datar urged that inAlom Extrusions, the court took note of the fact that the law as existingprior to the omission of the second proviso to Section 43B restricteddeductions in respect of any sums payable by an employer as contributionto the PF / superannuation fund etc. for employees’ welfare unless theywere paid within the specified due date. Under the second proviso toSection 43B, a further constraint was placed on the employer – it waseligible for deduction only if it paid the contribution before the date forfiling of return of income, and necessarily enclosed with the return ofincome, which resulted in a lot of hardship to the employers. On arepresentation to the Government about this, the Kelkar committee wassetup by the Central Government, which considered the issue, and basedupon its recommendation, the relevant provisions of the Finance Act,2003 were introduced, resulting in the deletion of the second proviso ofSection 43B. Mr. Datar also highlighted that the court in AlomExtrustionstook note of the fact that the first proviso which came into force from01.04.1988 was not on the statute book when the assessments weremade in the previous decision of Allied Motors (P) Ltd. v Commissionerof Income Tax.[10]

11. Reliance was placed upon the judgment in Alom Extrustionsto say that this court was alive to the inconvenience caused to theassesses, if the Revenue’s contention was to be accepted that the FinanceAct, 2003 was operative prospectively. It was submitted that the ratioand logic in Alom Extrustions was followed by no less than forty HighCourts. Examples include the Allahabad High Court in Sagun FoundryPvt Ltd v. Commissioner of Income Tax[11]; the Rajasthan High Court inCommissioner of Income Tax v. State Bank of Bikaner[12]; theKarnataka High Court in Essae Teraoka Pvt. Ltd. v. DeputyCommissioner of Income Tax[13]; and the Himachal Pradesh High Courtin Commissioner of Income Tax v. Nipso Polyfabriks Ltd.[14]

12. It was submitted that only the impugned judgments of theGujarat High Court and Kerela High Court in Commissioner of Income 10 Allied Motors (P) Ltd. v Commissioner of Income Tax, (1997) 3SCC 472.

11 Sagun Foundry Pvt Ltd v. Commissioner of Income Tax, ITA/87/2006.

12 Commissioner of Income Tax V. State Bank of Bikaner, (2014) 363 ITR 70.

13 Essae Teraoka Pvt. Ltd. v. Deputy Commissioner of Income Tax, (2014) 366 ITR408.

14 Commissioner of Income Tax v. Nipso Polyfabriks Ltd., (2013) 350 ITR 327.

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ATax v. Merchem Ltd.[15] have taken a different view and distinguishedAlom Extrusions. It was submitted that views of the Gujarat and KerelaHigh Court were incorrect. Counsel urged that Section 43B had to beunderstood in the context of the existing laws. Mr. Datar emphasizedthat under the EPF Act and ESI Act, the employer was liable to make acomposite payment. The liability comprised of the employer’s contributionBand the contribution collected from the employee. If this were to be keptin mind, the deletion of the second proviso to Section 43B, and the openingnon-obstante clause in Section 43B had to be given full meaning. As aconsequence, under Section 43B, at the time of paying the employers’contribution, the employer is under legal obligation to pay not only itsCcontribution but also that of the employee, as a single payment to the PFauthority under the governing law. The insistence upon payment of actualpayment of employees’ contribution in Explanation to Section 36(1)(va)was expressly overridden by the non obstanteclause.

13. It was argued that the Parliament was alive to the fact thatDboth explanation to Section 36(1)(va) and second proviso to Section 43Bwere brought in together in 1989. Therefore, the deletion of the latteri.e., second proviso to Section 43B was intended to give relief to theassesses.The interpretation in the impugned judgment of the GujaratHigh Court and that of the Kerala High Court, focusing only on Section36(1)(va) is contrary to what Parliament intend.It was argued by learnedEcounsel that Alom Extrusions correctly found that the law hindered andcaused practical difficulties to assesses; as a result, it was omitted. Togive full effect to the omission was that amendment declared to beretrospective in effect by this court. Further, the non-obstante clause inthe opening phrase in Section 43B was deemed sufficient to overrideFother provisions, including Section 36(1).

14. Lastly, it was submitted that the scheme of the IT Act wassuch that business income or its deductions were spelt out under Section36, and Section 37 was a residual deduction clause whereby expendituresother than those falling within Sections 28-36, expressly laid out forGcommercial or business purposes, were allowed as deductions. If thescheme of the IT Act were to be kept in mind, the restrictive condition inSection 36(1)(va) i.e., the stipulation that the employees’ contributionmust be paid within the time specified, failing which no deduction waspermissible, was in fact intended to be expressly overridden by Section H15 Commissioner of Income Tax v. Merchem Ltd., ITA No. 402/2009.

43B. The philosophy behind Section 43B (which was introduced01.04.1984) was to ensure actual payment of certain specified andstatutory dues, before a particular date. These dues either by way of taxor other levies, (including interest-payment towards loan or contributionsdeducted by statutes such as EPF Act) were to be made within a specifieddate under such enactments which cast those obligations. This was onlya condition for the grant of deduction. The second proviso to Section43B had imposed further restrictive condition which was omitted in 2003.Therefore, the non-obstante clause of Section 43B was operativepropriae vigore entitling the assessees to claim deduction made by themin respect of contributions to PF authorities provided the entire amountswere paid before the return of income was filed.

15. Mr. Tushar Hemani, learned senior counsel appearing on behalfof Suzlon Energy Ltd. supported the submissions of Mr. Datar. He reliedupon Section 2(c) of the EPF Act and highlighted that the contributionpayable by the employer was a composite amount - referred to as theamount payable in respect of an employee under the scheme. It wassubmitted that similarly Section 6 of the Act and paragraphs 28, 30 & 38of the EPF Scheme establish that what was payable as contribution bythe employer was not only the contribution in respect of its obligation todeposit amounts in the account of the employee, but its contribution aswell as the contribution of the employee. Pointedly, Mr. Hemani referredSection 30 of EPF Act:

“30 (1) The employer shall in the first instance, pay both thecontribution payable by himself (in this Scheme referred toas the employer’s contribution) and also, on behalf of themember employed by him directly or by or through acontractor, the contribution payable by such member (in thescheme referred to as the member’s contribution):

(2) In respect of employee employed by or through acontractor, the contractor shall recover the contributionpayable by such employee (in this Scheme referred to as themember’s contribution) and shall pay to the principal employerthe amount of member’s contribution so deducted togetherwith an equal amount of contribution (in this Scheme referredto as the employer’s contribution) and also administrativecharges.

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A(3) It shall be the responsibility of the principal employer topay both the contributions payable by himself in respect ofthe employees directly employed by him and also in respect ofthe employees employed by or through a contractor and alsoadministrative charges.”

BLikewise, Regulation 31 of the ESI Regulations spells out the timefor payment – within 21 days of the last day of the calendar month inwhich the contribution was due.

16. Learned senior counsel referred to clause 2(c) of the fourthschedule of the IT Act:C“Part A

Recognized Provident Funds

Definitions.

2. In this Part, unless the context otherwise requires, —***D

(c) “contribution” means any sum credited by or on behalf ofany employee out of his salary, or by an employer out of hisown moneys, to the individual account of an employee, butdoes not include any sum credited as interest.”

EThe EPF Act, EPF Scheme, ESI Act and ESI Regulations as wellas provisions of the IT Act refer to employee’s contribution as part ofthe contribution that the employer has to make under the relevant Act.Parliament was alive to this: consequently, the term ‘sum payable bythe assessee as an employer by way of contribution” in Section 43B(b)of the IT Act means both its contribution and the sum collected from theFemployees as the latter’s contribution.

17. An alternative submission was that any sum paid by theemployer / assessee as contribution included both employee’s andemployer’s contributions and was allowed as deduction under Section36(1)(iv) of the IT Act. What was contemplated under Section 36(1)(va)Gwas the amount which was received and not deducted by the employerassessee from its employees. Both Sections 2(24)(x) read with Section36(1) (va) refer to any sum received by the assessee from its employeesas contributions as against any sum deducted by the assessee from thepayments made to employees. Received and deducted are two differentterms and cannot be used interchangeably.H

18. Again, reference was made to Clause 30 of the EPF Schemeand Regulations under the ESI Act, and it was submitted that under boththe EPF & ESI Acts, when employees were employed by or through acontractor, the latter was supposed to recover the contribution payableby such employee, with the amount of such member’s contribution paidto the principal employer, deducted together with an equal amount of itscontribution along with administrative charges. Such contribution wasreceived by the principal employer. But for Section 2(24)(x) read withSection 36(1)(va) of the IT Act, such transaction would remain in theBalance Sheet as receivable and payable. However, by deeming fiction,such receipt was treated as income first and upon payment of the saidsum so received by the due date so defined under the respective statutes,the same was allowed as deduction while computing the income underthe provisions of the IT Act. Therefore, Section 36 (1)(va) of the IT Acthad limited operation to allow such sum so received from the employees.The deduction from the employees’ salary as contribution was governedby Section 36(1)(iv) of the IT Act. Contributions of employees engagedas contract labour were to be recovered by such contractor and thenpaid over to the principal employer. This, coupled with the principalemployer contribution along with administrative charges, was to beremitted to the EPF account within the specified time.

19. Mr. Preetesh Kapoor, learned senior counsel appearing forone of the appellants, adopted the submissions of the other senior counsels.He urged, besides, that the Parliamentary concern in omitting the secondproviso to Section 43B was to avoid the difficulties faced by the assesseeswhich they would now re-experience ifw the Gujarat and Kerala HighCourt views were to be accepted. He urged that the Kelkar’sCommittee’s recommendations resulted in the 2003 amendments, theobject and purport of which would be negated if the Revenue’s viewswere to prevail.

20. Mr. Kapoor urged this court to adopt an interpretation thatwould be pragmatic and in consonance with fairness. So long as theassessee concerned deposited PF and other dues before the date offiling the return, no fiscal consequence of it being taxed should takeplace. Counsel submitted that deposit after due date would be visitedwith fine or other adverse consequences under the relevant statute.

Revenue’s Contentions

21. The learned Additional Solicitor General (hereinafter, “ASG”),Mr. Balbir Singh, for the Revenue argued that in Alom Extrusions, the A

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Aissue involved was with respect to the employer’s contribution to PFaccount. In the present cases, the issue involved was with respect toemployees’ contribution to PF account. It was urged that the IT Actdifferentiated between employees’ contribution and employers’contribution to PF account. With respect to employers’ contribution,Section 43B was applicable. However, with respect to employees’Bcontribution, Section 36(1)(va) was applicable, as it was specific andpointed to the kind of contribution, and when it could be made, to qualifyas a deductible expense. Both the provisions i.e., Section 43B and Section36(1)(va) operated in different fields, with respect to differentcontributions. Consequently, Section 43B was inapplicable and could notCoverride Section 36(1)(va).

22. The learned ASG further submitted that by Section 2(24)(x),any sum “received by the assessee” from the employees ascontribution to any provident fund or superannuation fund etc. thewelfare of such employees was deemed to be included in the income ofDthe assessee. This was introduced in the Finance Act of 1988. Thisinclusion, and the amendments to Section 36 and 43B were part of thescheme. Therefore, the deletion of second proviso to Section 43B couldnot result in that provision overriding the conditions imposed for obtainingdeduction, specifically that were part of Section 36.

E23. It was argued that it was with introduction of Section 43Bwith effect from 01.04.1984, that the law insisted upon actual paymentof amounts claimed as deductions, enumerated under the provision.Section 43B(b) spoke of sum payable by the employer by way ofcontribution to a welfare or provident fund. It could be understood thatthe provision took in both employee’s and employer’s contribution.FParliament then took note of the circumstance that many assesseesclaimed deductions on the ground of their maintaining accounts onmercantile or accrual basis and failed to discharge the liability.Consequently, by Finance Act 1987, Section 2(24) (x), and Section 36(1)(va) as well as second proviso to Section 43B were inserted. From thatGdate the statute treated employee’s and employer’s contributiondifferently.

24. It was urged that but for the above interpretation there wasno rationale to bring within the fold of “income” – by Section 2(24)(x)– employee’s contribution received by the employer and providing adeduction by Section 36 (1)(va) and permitting the deduction only if thatH

contribution were paid in accordance with the statute governing the fund(EPF/ESI Act). The second proviso to Section 43B then underwent acosmetic change and later was deleted. There was also a new provisoadded under Section 43B for permitting deduction on contributions paidbefore the returns were filed.

25. This took in only the employer’s contribution especially sinceSection 2(24) and sub-clause (va) were retained. The employee’scontributions, as Merchem Ltd. noticed, stood on a different footing,since it was collected from the employee as a deduction in their salaryitself. This would in effect be deemed income of the assessee, as hadbeen specifically indicated in the definition of “income” under Section2(24)(x), a provision introduced w.e.f. 01.04.1988 under the FinanceAct, 1987.

26. The Revenue further contended that in terms of provisions ofSection 36(1)(va) with respect to any sum received by the assesseefrom any of its employees to which provision of Section 2 (24 (x) applied,if credited by the assessee to the employees’ account in the relevantfund or funds on or before the due date, the assessee was entitled to thededuction. It was submitted that even the Explanation to Section 36(1)(va) made it clear that for the purpose of that provision, “due date”meant the date by which the assessee, as an employer, had to credit theemployees’ contribution to the employees’ account in the relevant fundunder any law or rule or regulation issued thereunder or under any standingorder, etc. Therefore, during the relevant assessment year, if the employerdid not deposit the entire amount towards employees’ contribution withthe PF authorities on or before the due date under the EPF/ESI Act, tothe extent there was shortfall in deposit of the employees’ contribution/ESI contribution, the assessee was not entitled to the deduction.

27. The learned ASG further submitted that Section 43B whichwas applicable to employers’ contribution to any provident fund or anyother fund for the welfare of the employees, and the amendment toSection 43B, which enacted that any such amount of employers’contribution was deposited by the employer on or before the due date offiling of the return under Section 139 was entitled to deduction in therelevant year, was not applicable with respect to employees’ contribution.It was argued therefore, that when the assessee did not deposit theemployees’ contribution in the PF account before the due date providedunder the EPF/ESI Act, the assessee was disentitled to deduction under A

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ASection 36 in the relevant assessment order, though the assessee mighthave deposited the employees’ contribution on or before the due date offiling of the return under Section 139 of the IT Act.

28. It was also urged that the difference in language betweenSections 36 and 43B was because the two provisions had differingBobjectives. Whereas Section 36 dealt with deductions that were notcovered in the previous provisions, Section 36(1)(va), with its Explanations,was directly concerned with the meaning of “due date” which was thedate by which the assessee was required as an employer “to credit anemployee’s contribution to the employee’s account in the relevantfund under any Act.” On the other hand, Section 43B was introducedCto ensure that sums that could otherwise be treated as deductions,particularly, those shown as payable, based on the mercantile method ofaccounting, would not be eligible to such treatment, unless those paymentswere actually made when they fell due: such as tax dues, statutory orinterest liabilities. The limited exception carved out by the proviso toDSection 43B was that if such amount wa[s actually paid by the assessee“on or before the due date applicable in his case for furnishing thereturn of income under sub-section (1) of section 139 in respect ofthe previous year in which the liability to pay such sum was incurred”and the assessee furnished evidence of such payment along with thereturn, there would be entitlement for deduction.E

29. It was urged that Section 43B spoke of sum payable by theemployer or the ‘employer’s contribution’, payable by the employerwithout deduction from the salary of the employee. Employees’contribution was remitted to the fund by the employer, and they werededucted from the employees’ salary. Such deduction was statutorilyFenabled. Deduction from the salary of the employee, no doubt, was theresponsibility of the employer, as was the remittance, to the fund. Thatnevertheless, did not change the basic nature of the contribution, whichwas of the employee. A contribution deducted from the employee’s salaryand deposited by the employer, could not be termed as employer’sGcontribution. A distinction existed so far as contributions payable underthe EPF Act and the ESI Act. The employer’s contribution had to bepaid by the employer itself. In that case there was no deduction from theemployees’ salary. The employee’s contribution, on the other hand, wasto be deducted from the salary payable to the employee into the relevantfund.H

Analysis and Conclusions

30. The factual narration reveals two diametrically opposed viewsin regard to the interpretation of Section 36(1)(va) on the one hand andproviso to Section 43(b) on the other. If one goes by the legislative historyof these provisions, what is discernible is that Parliament’s endeavour inintroducing Section 43B [which opens with its non-obstante clause] wasto primarily ensure that deductions otherwise permissible and hithertoclaimed on mercantile basis, were expressly conditioned, in certain casesupon payment. In other words, a mere claim of expenditure in the bookswas insufficient to entitle deduction. The assessee had to, before theprescribed date, actually pay the amounts – be it towards tax liability,interest or other similar liability spelt out by the provision.

31. Section 43B falls in Part-V of the IT Act. What is apparent isthat the scheme of the Act is such that Sections 28 to 38 deal withdifferent kinds of deductions, whereas Sections 40 to 43B spell out specialprovisions, laying out the mechanism for assessments and expresslyprescribing conditions for disallowances. In terms of this scheme, Section40 (which too starts with a non-obstante clause overriding Sections 30-38), deals with what cannot be deducted in computing income under thehead “Profits and Gains of Business and Profession”. Likewise, Section40A(2) opens with a non-obstante clause and spells out what expensesand payments are not deductible in certain circumstances. Section 41elaborates conditions which apply with respect to certain deductionswhich are otherwise allowed in respect of loss, expenditure or tradingliability etc. If we consider this scheme, Sections 40- 43B, areconcerned with and enact different conditions, that the taxadjudicator has to enforce, and the assessee has to comply with, tosecure a valid deduction.

32. The scheme of the provisions relating to deductions, such asSections 32-37, on the other hand, deal primarily with business, commercialor professional expenditure, under various heads (including depreciation).Each of these deductions, has its contours, depending upon the expressionsused, and the conditions that are to be met. It is therefore necessary tobear in mind that specific enumeration of deductions, dependent uponfulfilment of particular conditions, would qualify as allowabledeductions: failure by the assessee to comply with those conditions, wouldrender the claim vulnerable to rejection. In this scheme the deductionmade by employers to approved provident fund schemes, is the A

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Asubject matter of Section 36 (iv). It is noteworthy, that this provisionwas part of the original IT Act; it has largely remained unaltered. On theother hand, Section 36(1)(va) was specifically inserted by the FinanceAct, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section3(b), Section 2(24) – which defines various kindsof “income” – insertedclause (x). This is a significant amendment, because Parliament intendedBthat amounts not earned by the assessee, but received by it, - whetherin the form of deductions, or otherwise, as receipts, were to be treatedas income. The inclusion of a class of receipt, i.e., amounts received (ordeducted from the employees) were to be part of the employer/assessee’sincome. Since these amounts were not receipts that belonged to theCassessee, but were held by it, as trustees, as it were, Section 36(1)(va)was inserted specifically to ensure that if these receipts were depositedin the EPF/ESI accounts of the employees concerned, they could betreated as deductions. Section 36(1)(va) was hedged with the conditionthat the amounts/receipts had to be deposited by the employer, with theEPF/ESI, on or before the due date.The last expression “due date”Dwas dealt with in the explanation as the date by which such amounts hadto be credited by the employer, in the concerned enactments such asEPF/ESI Acts. Importantly, such a condition (i.e., depositing the amounton or before the due date) has not been enacted in relation to theemployer’s contribution (i.e., Section 36(1)(iv)).E

33. The significance of this is that Parliament treated contributionsunder Section 36(1)(va) differently from those under Section 36(1)(iv).The latter (hereinafter, “employers’ contribution”) is described as “sumpaid by the assessee as an employer by way of contribution towardsa recognized provident fund”. However, the phraseology of SectionF36(1)(va) differs from Section 36(1)(iv). It enacts that “any sumreceived by the assessee from any of his employees to which theprovisions of sub-clause (x) of clause (24) of section 2 apply, ifsuch sum is credited by the assessee to the employee’s account inthe relevant fund or funds on or before the due date.” The essentialcharacter of an employees’ contribution, i.e., that it is part of theGemployees’ income, held in trust by the employer is underlined by thecondition that it has to be deposited on or before the due date.

34. It is therefore, manifest that the definition of contribution inSection 2 (c) is used in entirely different senses, in the relevant deductionclauses. The differentiation is also evident from the fact that each ofH

these contributions is separately dealt with in different clauses of Section36 (1). All these establish that Parliament, while introducing Section36(1)(va) along with Section 2(24)(x), was aware of the distinctionbetween the two types of contributions. There was a statutoryclassification, under the IT Act, between the two.

35. It is instructive in this context to note that the Finance Act,1987, introduced to Section 2(24), the definition clause (x), with effectfrom 1 April 1988; it also brought in Section 36(1)(va). The memorandumexplaining these provisions, in the Finance Bill, 1987, presented to theParliament, is extracted below:

“Measures of penalising employers mis-utilising contributionsto the provident fund or any funds set up under the provisionsof the Employees State Insurance Act, 1948, or any other fundfor the welfare of employees - 12.1. The existing provisions provide for a deduction in respectof any payment by way of contribution to the provident fundor a superannuation fund or any other fund for welfare ofemployees in the year in which the liabilities are actuallydischarged (Section 43B). The effect of the amendment broughtabout by the Finance act, is that no deduction will be allowedin the assessment of the employer, unless such contribution ispaid into the fund on or before the due date. “Due date”means the date by which an employer is required to credit thecontribution to the employees account in the relevant fund orunder the relevant provisions of any law or term of the contractof service or otherwise.

(Explanation to Section 36 (1) of the Finance Act)

12.2. In addition, contribution of the employees to the variousfunds which are deducted by the employer from the salariesand wages of the employees will be taxed as income withinbrackets insertion of new [clause (x) in clause (24) of Section2] of the employer, if such contribution is not credited by theemployer in the account of the employee in the relevant fundby the due date. Where such income is not chargeable to taxunder the head “profits and gains of business or profession”it will be assessed under the head “income from othersources.”

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A36. Significantly, the same Finance Act, 1987 also introducedprovisos to Section 43B, through amendment (clause 10 of the FinanceBill). The memorandum explaining the Bill, pertinently states, in relationto second proviso to Section 43B that:

“…The second proviso seeks to provide that no deductionBshall be allowed in regard to the sum referred to in clause (b)unless such sum has actually been paid during the previousyear on or before the due date. The due date for the purposesof this proviso shall be the due date as under Explanation toclause (va) of sub-section (1) of Section 36.”

C37. It is evident that the intent of the lawmakers was clear thatsums referred to in clause (b) of Section 43B, i.e., “sum payable as anemployer, by way of contribution” refers to the contribution by theemployer. The reference to “due date” in the second proviso to Section43B was to have the same meaning as provided in the explanation toSection 36(1)(va). Parliament therefore, through this amendment, soughtDto provide for identity in treatment of the two kinds of payments: thosemade as contributions, by the employers, and those amounts credited bythe employers, into the provident fund account of employees, receivedfrom the latter, as their contribution. Both these contributions had tonecessarily be made on or before the due date.E38. This court had occasion to consider the object of introducingSection 43B, in Allied Motors. The court held, after setting out extractsof the Budget speech of the Finance Minister, for 1983-84, that:

“Section 43B was, therefore, clearly aimed at curbing theactivities of those tax-payers, who did not discharge theirFstatutory liability of payment of excise duty, employer’scontribution to provident fund, etc., for long periods of timebut claimed deductions in that regard from their income onthe ground that the liability to pay these amounts had beenincurred by them in the relevant previous year. It was to stopGthis mischief that Section 43B was inserted.”

39. Original Section 43B(b) enabled the assessee/employer toclaim deduction towards contribution as an employer, “by way ofcontribution to any provident fund”. The second proviso wassubstituted by Finance Act, 1989 with effect from 01.04.1989 and readas under:H

“…Provided further that no deduction shall in respect of anysum referred to in clause (b) be allowed unless such sum hasactually been paid in cash or to by issue of a cheque or draftor by any other mode on or before the due date as defined inthe explanation below Clause (va) of sub-section (1) of Section36, and where such payment has been made otherwise thanin cash, the same has been realised within 15 days from thedue date.”

40. The position in law remained unchanged for 14 years. TheCentral Government then constituted the Kelkar Committee, to suggesttax reforms. The report suggested amendments inter alia, to Section43B. The relevant extract of the report is as follows:

“In terms of the provisions of section 43B of the Income-taxAct, deduction for statutory payments relating to labour, taxesand State and public financial institutions are allowed asdeductions, if they are paid during the financial year. However,under the provisions payment of taxes and interest to Stateand public financial institution are deemed to have been paidduring the financial year even if they are paid by the duedate of filing of return. Further if the liability is dischargedin the subsequent year after the due date of filing of return,the payment is allowed as a deduction in the subsequent year.In the case of statutory payment relating to labour, thededuction for the payment is disallowed if such payment ismade any time after the last date of payment of the aboutrelated liability. Trade and industry across the countryrepresented that the delayed payment of statutory liabilityrelated to labour should be accorded the same treatment asdelayed payment of taxes and interest, i.e. they should beallowed in the year of account.

Since the objective of the provision is to ensure that a tax-payer does not avail of any statutory liability without actuallymaking a payment for the same, we are of the view that theseobjectives would be served if the deduction for the statutoryliability relating to labour are allowed in the year of payment.The complete disallowance of such payments is too harsh apunishment for delayed payments. Therefore, we recommendthat the deduction for delayed payment of statutory liability A

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Arelating to labour should be allowed in the year of paymentlike delayed taxes and interest.”

Based on the report, the Union introduced amendments to the ITAct, including an amendment to Section 43B; the memorandum explainingthe provisions in the Finance Bill, 2003 in the matter of Section 43B.Binter alia, reads thus:

“The Bill also proposes to provide that in case of deductionof payments made by the assessee as an employer by way ofcontribution to any provident fund or superannuation fundor any other fund for the welfare of the employees shall beCallowed in computing the income of the year in which suchsum is actually paid. In case the same is paid before the duedate of filing the return of income for the previous year, theallowance will be made in the year in which the liability wasincurred.

DThese amendments will take effect from 1st April, 2004 andwill accordingly apply in relation to the assessment year 2004-05 and subsequent years.”

41. The Notes on Clauses inter alia, reads as follows:

“It is also proposed to amend the first proviso to the saidEsection so as to omit the references of clause (a), clause (c),clause (d), clause (e) and clause (f) which is consequential innature.

It is also proposed to omit the second proviso to the saidsection. These amendments will take effect from 1st April, 2004Fand will, accordingly, apply in relation to the assessment year2004-2005 and subsequent years.”

42. The rationale for introduction of Section 43B was explainedby this court in M.M. Aqua Technologies Ltd. vs. Commissioner ofIncome Tax, Delhi:[16]G“

“19. The object of Section 43B, as originally enacted, is toallow certain deductions only on actual payment. This is made clear by the non-obstante Clause contained in the beginningof the provision, coupled with the deduction being allowed16 M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi, 2021 SCCHOnLine SC 575.

irrespective of the previous years in which the liability to paysuch sum was incurred by the Assessee according to themethod of accounting regularly employed by it. In short, amercantile system of accounting cannot be looked at when adeduction is claimed under this Section, making it clear thatincurring of liability cannot allow for a deduction, but only“actual payment”, as contrasted with incurring of a liability,can allow for a deduction.”

43. This condition, i.e., of payment of actual amount on or beforethe due date to enable deduction, continued for 14 years. By theamendment of 2003, the second proviso was deleted. This courtinterpreted the law, in the light of these developments, in Alom Extrusions.The court considered the effect of omission of the second proviso, andobserved as follows:

“10. “Income” has been defined under Section 2(24) of theAct to include profits and gains. Under Section 2(24)(x), anysum received by the assessee from his employees ascontributions to any provident fund/superannuation fund orany fund set up under the Employees’ State Insurance Act,1948, or any other fund for the welfare of such employeesconstituted income. This is the reason why every assessee(s)[employer(s)] was entitled to deduction even prior to 1-4-1984, on mercantile system of accounting as a businessexpenditure by making provision in his books of accounts inthat regard. In other words, if an assessee(s) [employer(s)] ismaintaining his books on accrual system of accounting, evenafter collecting the contribution from his employee(s) and evenwithout remitting the amount to the Regional Provident FundCommissioner (RPFC), the assessee(s) would be entitled todeduction as business expense by merely making a provisionto that effect in his books of accounts. The same situationarose prior to 1-4-1984, in the context of assessees collectingsales tax and other indirect taxes from their respectivecustomers and claiming deduction only by making provisionin their books without actually remitting the amount to theexchequer. To curb this practice, Section 43-B was insertedwith effect from 1-4-1984, by which the mercantile system ofaccounting with regard to tax, duty and contribution to welfare AB

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funds stood discontinued and, under Section 43-B, it becamemandatory for the assessee(s) to account for the aforestateditems not on mercantile basis but on cash basis. This situationcontinued between 1-4-1984 and 1-4-1988, when Parliamentamended Section 43-B and inserted the first proviso to Section43-B.

11. By this first proviso, it was, inter alia, laid down, in thecontext of any sum payable by the assessee(s) by way of tax,duty, cess or fee, that if an assessee(s) pays such tax, duty,cess or fee even after the closing of the accounting year butbefore the date of filing of the return of income under Section139(1) of the Act, the assessee(s) would be entitled todeduction under Section 43-B on actual payment basis andsuch deduction would be admissible for the accounting year.This proviso, however, did not apply to the contribution madeby the assessee(s) to the labour welfare funds. To this effect,the first proviso stood introduced with effect from 1-4-1988.

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15. By the Finance Act, 2003, the amendment made in thefirst proviso equated in terms of the benefit of deduction oftax, duty, cess and fee on the one hand with contributions tothe Employees’ Provident Fund, superannuation fund andother welfare funds on the other. However, the Finance Act,2003, bringing about this uniformity came into force witheffect from 1-4-2004. Therefore, the argument of theassessee(s) is that the Finance Act, 2003, was curative innature, it was not amendatory and, therefore, it appliedretrospectively from 1-4-1988, whereas the argument of theDepartment was that the Finance Act, 2003, was amendatoryand it applied prospectively, particularly when Parliamenthad expressly made the Finance Act, 2003 applicable onlywith effect from 1-4-2004.

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18. However, as stated above, the second proviso resulted inimplementation problems, which have been mentionedhereinabove, and which resulted in the enactment of theFinance Act, 2003, deleting the second proviso and bringing

about uniformity in the first proviso by equating tax, duty,cess and fee with contributions to welfare funds. Once thisuniformity is brought about in the first proviso, then, in ourview, the Finance Act, 2003, which is made applicable byParliament only with effect from 1-4-2004, would becomecurative in nature, hence, it would apply retrospectively witheffect from 1-4-1988.

19. Secondly, it may be noted that, in Allied Motors (P)Ltd. v. CIT [(1997) 3 SCC 472 : (1997) 224 ITR 677] , thescheme of Section 43-B of the Act came to be examined. Inthat case, the question which arose for determination was,whether sales tax collected by the assessee and paid after theend of the relevant previous year but within the time allowedunder the relevant sales tax law should be disallowed underSection 43-B of the Act while computing the business incomeof the previous year? That was a case which related toAssessment Year 1984-1985. The relevant accounting periodended on 30-6-1983. The Income Tax Officer disallowed thededuction claimed by the assessee which was on account ofsales tax collected by the assessee for the last quarter of therelevant accounting year. The deduction was disallowed underSection 43-B which, as stated above, was inserted with effectfrom 1-4-1984

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22. It is important to note once again that, by the FinanceAct, 2003, not only is the second proviso deleted but even thefirst proviso is sought to be amended by bringing about auniformity in tax, duty, cess and fee on the one hand vis-à-viscontributions to welfare funds of employee(s) on the other.This is one more reason why we hold that the Finance Act,2003 is retrospective in operation. Moreover, the judgmentin Allied Motors (P) Ltd. [(1997) 3 SCC 472 : (1997) 224ITR 677] was delivered by a Bench of three learned Judges,which is binding on us. Accordingly, we hold that the FinanceAct, 2003 will operate retrospectively with effect from 1-4-1988 (when the first proviso stood inserted).

23. Lastly, we may point out the hardship and the invidiousdiscrimination which would be caused to the assessee(s) if AB

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the contention of the Department is to be accepted that theFinance Act, 2003, to the above extent, operated prospectively.

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Take an example, in the present case, the respondents havedeposited the contributions with RPFC after 31st March (endof accounting year) but before filing of the returns under theBIncome Tax Act and the date of payment falls after the duedate under the Employees’ Provident Fund Act, they will bedenied deduction for all times. In view of the second proviso,which stood on the statute book at the relevant time, each ofsuch assessee(s) would not be entitled to deduction underSection 43-B of the Act for all times. They would lose theCbenefit of deduction even in the year of account in whichthey pay the contributions to the welfare funds, whereas adefaulter, who fails to pay the contribution to the welfare fundright up to 1-4-2004, and who pays the contribution after 1-4-2004, would get the benefit of deduction under Section 43-DB of the Act.”

44. There is no doubt that in Alom Extrusions, this court didconsider the impact of deletion of second proviso to Section 43B, whichmandated that unless the amount of employers’ contribution was depositedwith the authorities, the deduction otherwise permissible in law, wouldEnot be available. This court was of the opinion that the omission wascurative, and that as long as the employer deposited the dues, beforefiling the return of income tax, the deduction was available.

45. A reading of the judgment in Alom Extrusions, would revealthat this court, did not consider Sections 2(24)(x) and 36(1)(va).FFurthermore, the separate provisions in Section 36(1) for employers’contribution and employees’ contribution, too went unnoticed. The courtobserved inter alia, that:

“15. …It is important to note once again that, by FinanceAct, 2003, not only the second proviso is deleted but even thefirst proviso is sought to be amended by bringing about anGuniformity in tax, duty, cess and fee on the one hand vis-a-viscontributions to welfare funds of employee(s) on the other.This is one more reason why we hold that the Finance Act,2003, is retrospective in operation. Moreover, the judgementin Allied Motors (P) Limited (supra) is delivered by a Bench H

of three learned Judges, which is binding on us. Accordingly,we hold that Finance Act, 2003 will operate retrospectivelywith effect from 1st April, 1988 [when the first proviso stoodinserted]. Lastly, we may point out the hardship and theinvidious discrimination which would be caused to theassessee(s) if the contention of the Department is to beaccepted that Finance Act, 2003, 2003, to the above extent,operated prospectively. Take an example - in the present case,the respondents have deposited the contributions with theR.P.F.C. after 31st March [end of accounting year] but beforefiling of the Returns under the Income Tax Act and the dateof payment falls after the due date under theEmployees’ Provident Fund Act, they will be denied deductionfor all times. In view of the second proviso, which stood onthe statute book at the relevant time, each of such assessee(s)would not be entitled to deduction under Section 43B of theAct for all times. They would lose the benefit of deductioneven in the year of account in which they pay the contributionsto the welfare funds, whereas a defaulter, who fails to pay thecontribution to the welfare fund right upto 1st April, 2004,and who pays the contribution after 1st April, 2004, wouldget the benefit of deduction under Section 43B of the Act. Inour view, therefore, Finance Act, 2003, to the extent indicatedabove, should be read as retrospective. It would, therefore,operate from 1st April, 1988, when the first proviso wasintroduced. It is true that the Parliament has explicitly statedthat Finance Act, 2003, will operate with effect from 1st April,2004. However, the matter before us involves the principle ofconstruction to be placed on the provisions of Finance Act,2003".

46. A discussion on the Principles of interpretation of tax statutesis warranted. In Ajmera Housing Corporation & Ors. vs.Commissioner of Income[17 ]this court held as follows:

“27. It is trite law that a taxing statute is to be construedstrictly. In a taxing Act one has to look merely at what is saidin the relevant provision. There is no presumption as to a tax.Nothing is to be read in, nothing is to be implied. There is no 17 Ajmera Housing Corporation & Ors. vs. Commissioner of Income, 2010 (8) SCC739.

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Aroom for any intendment. There is no equity about a tax. (See:Cape Brandy Syndicate v. Inland Revenue Commissioners(1921) 1 KB 64 and Federation of A.P. Chambers of Commerceand Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC550. In interpreting a taxing statute, the Court must looksquarely at the words of the statute and interpret them.BConsiderations of hardship, injustice and equity are entirelyout of place in interpreting a taxing statute. (Also see:Commissioner of Sales Tax, Uttar Pradesh v. The Modi SugarMills Ltd. 1961 (2) SCR 189.)”

47. Likewise, this court underlined the rule, regarding interpretationCof taxing statutes, in Commissioner of Income Tax-III v CalcuttaKnitwears, Ludhiana.[18] Recently, in Union of India & Ors. vs. ExideIndustries Limited &Ors,[19 ] this court examined, and repelled a challengeto the constitutionality of Section 43B, especially the provision requiringactual payment, in respect of leave encashment benefit of employees.DThe court observations in this regard are relevant:

“20. Section 43B, however, is enacted to provide fordeductions to be availed by the Assessee in lieu of liabilitiesaccruing in previous year without making actual payment todischarge the same. It is not a provision to place any embargoEupon the autonomy of the Assessee in adopting a particularmethod of accounting, nor deprives the Assessee of any lawfuldeduction. Instead, it merely operates as an additionalcondition for the availment of deduction qua the specifiedhead.

F21. Section 43B bears heading “certain deductions to be onlyon actual payment”. It opens with a non-obstante clause. Asper settled principles of interpretation, a non obstante Clauseassumes an overriding character against any other provisionof general application. It declares that within the sphereallotted to it by the Parliament, it shall not be controlled orGoverridden by any other provision unless specifically providedfor. Out of the allowable deductions, the legislatureconsciously earmarked certain deductions from time to timeand included them in the ambit of Section 43B so as to subject 18 Commissioner of Income Tax-III v Calcutta Knitwears, Ludhiana 2014 (6) SCC 444.H19 Union of India & Ors. vs. Exide Industries Limited & Ors., 2020 (5) SCC 274.

such deductions to conditionality of actual payment. Suchconditionality may have the inevitable effect of being differentfrom the theme of mercantile system of accounting on accrualof liability basis qua the specific head of deduction coveredtherein and not to other heads. But that is a matter for thelegislature and its wisdom in doing so.

22. The existence of Section 43B traces back to 1983 whenthe legislature conceptualised the idea of such a provision inthe 1961 Act. Initially, the provision included deductions inrespect of sum payable by Assessee by way of tax or duty orany sum payable by the employer by way of contribution toany provident fund or superannuation fund. It is noteworthythat the legislature explained the inclusion of these deductionsby citing certain practices of evasion of statutory liabilitiesand other liabilities for the welfare of employees...”

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23. With the passage of time, the legislature inserted moredeductions to Section 43B including cess, bonus orcommission payable by employer, interest on loans payableto financial institutions, scheduled banks etc., payment in lieuof leave encashment by the employer and repayment of duesto the railways. Thus understood, there is no oneness oruniformity in the nature of deductions included in Section43B. It holds no merit to urge that this Section only providesfor deductions concerning statutory liabilities. Section 43Bis a mix bag and new and dissimilar entries have been insertedtherein from time to time to cater to different fiscal scenarios,which are best determined by the government of the day. It isnot unusual or abnormal for the legislature to create a newliability, exempt an existing liability, create a deduction orsubject an existing deduction to override regulations orconditions.

24. The leave encashment scheme envisages the payment of acertain amount to the employees in lieu of their unused paidleaves in a year. The nature of this payment is beneficial andpro-employee. However, it is not in the form of a bounty andforms a part of the conditions of service of the employee. An A

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Aemployer seeking deduction from tax liability in advance, inthe name of discharging the liability of leave encashment,without actually extending such payment to the employee asand when the time for payment arises may lead to abhorrentconsequences. When time for such payment arises uponretirement (or otherwise) of the employee, an employer mayBsimply refuse to pay. Consequently, the innocent employeewill be entangled in litigation in the evening of his/her lifefor claiming a hard-earned right without any fault on his part.Concomitantly, it would entail in double benefit to the employer- advance deduction from tax liability without any burden ofCactual payment and refusal to pay as and when occasionarises. It is this mischief Clause (f) seeks to subjugate.”

48. One of the rules of interpretation of a tax statute is that if adeduction or exemption is available on compliance with certain conditions,the conditions are to be strictly complied with.[20 ]This rule is in line with Dthe general principle that taxing statutes are to be construed strictly, andthat there is no room for equitable considerations.

49. That deductions are to be granted only when the conditionswhich govern them are strictly complied with. This has been laid downin State of Jharkhand v Ambay Cements[21]as follows:E“23…. In our view, the provisions of exemption clause shouldbe strictly construed and if the condition under which theexemption was granted stood changed on account of anysubsequent event the exemption would not operate.

24. In our view, an exception or an exempting provision in aFtaxing statute should be construed strictly and it is not opento the court to ignore the conditions prescribed in theindustrial policy and the exemption notifications.

25. In our view, the failure to comply with the requirementsrenders the writ petition filed by the respondent liable to beGdismissed. While mandatory rule must be strictly observed,substantial compliance might suffice in the case of a directoryrule.

20 See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004Supp (4) SCR 35.21 State of Jharkhand v Ambay Cements, (2005) 1 SCC 368.H

26. Whenever the statute prescribes that a particular act is tobe done in a particular manner and also lays down that failureto comply with the said requirement leads to severeconsequences, such requirement would be mandatory. It isthe cardinal rule of interpretation that where a statute providesthat a particular thing should be done, it should be done inthe manner prescribed and not in any other way. It is alsosettled rule of interpretation that where a statute is penal incharacter, it must be strictly construed and followed. Sincethe requirement, in the instant case, of obtaining priorpermission is mandatory, therefore, non-compliance with thesame must result in cancelling the concession made in favourof the grantee, the respondent herein.”

This was also reaffirmed in a number of judgments, such asCommissioner of Income Tax v. Ace Multi Axes Systems Ltd.[22]

50. The Constitution Bench, in Commissioner. of Customs v. DilipKumar & Co.[23] endorsed as following:

“24. In construing penal statutes and taxation statutes, theCourt has to apply strict rule of interpretation. The penalstatute which tends to deprive a person of right to life andliberty has to be given strict interpretation or else manyinnocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article265 of the Constitution [ “265. Taxes not to be imposed saveby authority of law.—No tax shall be levied or collected exceptby authority of law.”] prohibits the State from extracting taxfrom the citizens without authority of law. It is axiomatic thattaxation statute has to be interpreted strictly because the Statecannot at their whims and fancies burden the citizens withoutauthority of law. In other words, when the competentlegislature mandates taxing certain persons/certain objectsin certain circumstances, it cannot be expanded/interpretedto include those, which were not intended by the legislature.***

34. The passages extracted above, were quoted with approvalby this Court in at least two decisions being CIT v. Kasturi &

22 Commissioner of Income Tax v. Ace Multi Axes Systems Ltd., 2018 (2) SCC 158

23 Commissioner. of Customs v. Dilip Kumar & Co,2018 (9) SCC 1.

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ASons Ltd. [CIT v. Kasturi & Sons Ltd., (1999) 3 SCC 346]and State of W.B. v. Kesoram Industries Ltd. [State ofW.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201](hereinafter referred to as “Kesoram Industries case [Stateof W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]”, forbrevity). In the later decision, a Bench of five Judges, afterBciting the above passage from Justice G.P. Singh’s treatise,summed up the following principles applicable to theinterpretation of a taxing statute:

‘(i) In interpreting a taxing statute, equitable considerationsare entirely out of place. A taxing statute cannot be interpretedCon any presumption or assumption. A taxing statute has to beinterpreted in the light of what is clearly expressed; it cannotimply anything which is not expressed; it cannot importprovisions in the statute so as to supply any deficiency;

(ii) Before taxing any person, it must be shown that he fallsDwithin the ambit of the charging section by clear words usedin the section; and

(iii) If the words are ambiguous and open to twointerpretations, the benefit of interpretation is given to thesubject and there is nothing unjust in a taxpayer escaping ifEthe letter of the law fails to catch him on account of thelegislature’s failure to express itself clearly.’”

51. The analysis of the various judgments cited on behalf of theassessee i.e., Commissioner of Income-Tax v. Aimil Ltd.[24];Commissioner of Income-Tax and another v. Sabari Enterprises[25];FCommissioner of Income Tax v. Pamwi Tissues Ltd.[26]; Commissionerof Income-Tax, Udaipur v. Udaipur Dugdh Utpadak SahakariSandh Ltd.[27] and Nipso Polyfabriks (supra) would reveal that in allthese cases, the High Courts principally relied upon omission of secondproviso to Section 43B (b). No doubt, many of these decisions also dealt G24 Commissioner of Income-Tax Vs. Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court).25 Commissioner of Income-Tax and another Vs. Sabari Enterprises, [2008] 298 ITR141 (Karnataka High Court).

26 Commissioner of Income Tax Vs. Pamwi Tissues Ltd., [2009] 313 ITR 137 (BombayHigh Court).

27 Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari SandhHLtd., [2013] 35 taxmann.com 616 (Rajasthan High Court).

with Section 36(va) with its explanation. However, the primaryconsideration in all the judgments, cited by the assessee, was that theyadopted the approach indicated in the ruling in Alom Extrusions. Asnoticed previously, Alom Extrutions did not consider the fact of theintroduction of Section 2(24)(x) or in fact the other provisions of theAct.

52. When Parliament introduced Section 43B, what was on thestatute book, was only employer’s contribution (Section 34(1)(iv)). Atthat point in time, there was no question of employee’s contribution beingconsidered as part of the employer’s earning. On the application of theoriginal principles of law it could have been treated only as receipts notamounting to income. When Parliament introduced the amendments in1988-89, inserting Section 36(1)(va) and simultaneously inserting thesecond proviso of Section 43B, its intention was not to treat the disparatenature of the amounts, similarly. As discussed previously, the memorandumintroducing the Finance Bill clearly stated that the provisions – especiallysecond proviso to Section 43B - was introduced to ensure timely paymentswere made by the employer to the concerned fund (EPF, ESI, etc.) andavoid the mischief of employers retaining amounts for long periods. ThatParliament intended to retain the separate character of these twoamounts, is evident from the use of different language. Section 2(24)(x)too, deems amount received from the employees (whether the amountis received from the employee or by way of deduction authorized by thestatute) as income - it is the character of the amount that is important,i.e., not income earned. Thus, amounts retained by the employer fromout of the employee’s income by way of deduction etc. were treated asincome in the hands of the employer. The significance of this provisionis that on the one hand it brought into the fold of “income” amounts thatwere receipts or deductions from employees income; at the time, paymentwithin the prescribed time – by way of contribution of the employees’share to their credit with the relevant fund is to be treated as deduction(Section 36(1)(va)). The other important feature is that this distinctionbetween the employers’ contribution (Section 36(1)(iv)) and employees’contribution required to be deposited by the employer (Section 36(1)(va))was maintained - and continues to be maintained. On the other hand,Section 43B covers all deductions that are permissible as expenditures,or out-goings forming part of the assessees’ liability. These includeliabilities such as tax liability, cess duties etc. or interest liability havingregard to the terms of the contract. Thus, timely payment of these alone A

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Aentitle an assessee to the benefit of deduction from the total income.The essential objective of Section 43B is to ensure that if assessees arefollowing the mercantile method of accounting, nevertheless, the deductionof such liabilities, based only on book entries, would not be given. Topass muster, actual payments were a necessary pre-condition for allowingthe expenditure.B

53. The distinction between an employer’s contribution which isits primary liability under law – in terms of Section 36(1)(iv), and itsliability to deposit amounts received by it or deducted by it (Section36(1)(va)) is, thus crucial. The former forms part of the employers’income, and the later retains its character as an income (albeit deemed),Cby virtue of Section 2(24)(x) - unless the conditions spelt by Explanationto Section 36(1)(va) are satisfied i.e., depositing such amount receivedor deducted from the employee on or before the due date. In otherwords, there is a marked distinction between the nature and characterof the two amounts – the employer’s liability is to be paid out of itsDincome whereas the second is deemed an income, by definition, since itis the deduction from the employees’ income and held in trust by theemployer. This marked distinction has to be borne while interpreting theobligation of every assessee under Section 43B.

54. In the opinion of this Court, the reasoning in the impugnedEjudgment that the non-obstante clause would not in any manner dilute oroverride the employer’s obligation to deposit the amounts retained by itor deducted by it from the employee’s income, unless the condition thatit is deposited on or before the due date, is correct and justified. Thenon-obstante clause has to be understood in the context of the entireprovision of Section 43B which is to ensure timely payment before theFreturns are filed, of certain liabilities which are to be borne by the assesseein the form of tax, interest payment and other statutory liability. In thecase of these liabilities, what constitutes the due date is defined by thestatute. Nevertheless, the assessees are given some leeway in that aslong as deposits are made beyond the due date, but before the date ofGfiling the return, the deduction is allowed. That, however, cannot applyin the case of amounts which are held in trust, as it is in the case ofemployees’ contributions- which are deducted from their income. Theyare not part of the assessee employer’s income, nor are they heads ofdeduction per se in the form of statutory pay out. They are others’income, monies, only deemed to be income, with the object ofH

ensuring that they are paid within the due date specified in theparticular law. They have to be deposited in terms of such welfareenactments. It is upon deposit, in terms of those enactments and on orbefore the due dates mandated by such concerned law, that the amountwhich is otherwise retained, and deemed an income, is treated as adeduction. Thus, it is an essential condition for the deduction that suchamounts are deposited on or before the due date. If such interpretationwere to be adopted, the non-obstante clause under Section 43B oranything contained in that provision would not absolve the assessee fromits liability to deposit the employee’s contribution on or before the duedate as a condition for deduction.

55. In the light of the above reasoning, this court is of the opinionthat there is no infirmity in the approach of the impugned judgment. Thedecisions of the other High Courts, holding to the contrary, do not laydown the correct law. For these reasons, this court does not find anyreason to interfere with the impugned judgment. The appeals areaccordingly dismissed.

Bibhuti Bhushan Bose(Assisted by : Preetam Bharti, LCRA)

Appeals dismissed.

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