Commissioner of Income Tax and Another vs Desh Rakshak Aushdhalaya Ltd.

Prafulla C. Pant, J.—This appeal, preferred u/s 260A of the IT Act, 1961, by the Revenue, is directed against the order dt. 7th April, 2006, passed by the Income Tax Appellate Tribunal, Delhi Bench ''A'', Delhi (hereinafter referred as Tribunal''), in IT Appeal No. 3506/Del/2003, relating to asst. yr. 1998-99, whereby the appeal of the respondent/assessee, was partly allowed.

Heard learned Counsel for the parties.

Brief facts of the case are that assessment in the present case of the respondent/assessee M/s Desh Rakshak Aushdhalaya Ltd., Kankhal, Haridwar, was completed u/s 143(3) of the IT Act, 1961, on 16th Oct., 2000, in which the AO has made addition of Rs. 2,98,924 as per the provisions of Section 2(24) of the Act, on account of delay in depositing said amount in relation to the employees contribution towards PF/EPF by the employer into the credit of Central Government account, and denied deduction u/s 43B of the Act. Respondent/assessee preferred appeal against said order, passed by the AO, before CIT(A)-I, Dehradun [hereinafter referred as CIT(A)], who vide his order dt. 15th Jan., 2003, passed in Appeal No. 346/DDN/2000-01, affirmed the order passed by the AO. Aggrieved by said order of CIT(A), the respondent/assessee further went -in second appeal before the Tribunal. Said Tribunal vide impugned order dt. 7th April, 2006, accepted the appeal to the extent of addition made by the AO, and deleted the same. Hence, this appeal by the Revenue, on the ground that deletion of second proviso to Section 43B of the IT Act, 1961 by Finance Act, 2003, is not retrospective in effect, and as such, the Tribunal has allegedly erred in law in treating it deleted for the purposes of assessment, made for the asst. yr. 1998-99.

The substantial question of law involved in this appeal is as under:

Whether, on the facts and in the circumstances of the case, the Tribunal has erred in law in deleting the addition of Rs. 2,98,924 on account of breach of Section 43B of the IT Act, 1961, in spite of the fact that the amendment brought in said section vide Finance Act, 2003, had expressly no retrospective implementation?

Before further discussion, we think it just and proper to mention here, the relevant provision of law applicable to the case. Clause (b) of Section 43B of the IT Act, 1961, and its second proviso (now deleted), provide as under:

43B. Certain deductions to be only on actual payment�Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of-

(a) ...

(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees, or...

(c) to (f) ...

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him:

Provided...

Provided further, that no deduction shall, in respect of any sum referred to in Clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below Clause (va) of Sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the same has been realised within fifteen days from the due date.

Explanation-...

The aforementioned second proviso was deleted vide Finance Act, 2003 w.e.f. 1st April, 2003. It is also necessary to be kept in mind that Section 43B contains provision in the Chapter IV of computation of business income of the assessee. As such, the object of the aforementioned proviso contained in the section is clear that any sum relating to provident fund which is deducted by the employer/assessee from salary of its employees and deposited in the Government account cannot form part of the taxable income of the assessee for the purposes of taxing the same, and the deduction in respect of such deposits made in the Government account is allowable. When Section 43B was incorporated in the IT Act, z1961, and contained the aforementioned second proviso, the intention of the legislature appears to be that the deduction should be given only if the deposits are made within due dates under the enactment under which the same were realised from employees and required to be deposited so that that employer may not earn interest etc. in his own account and deprive the Government of the same. However, later the legislature appears to have realized that whenever such amount is deposited under the Government treasury, in any case it cannot be said to be taxable income of the employer/assessee, and has to be deducted. That might be the reason due to which the legislature omitted the aforementioned second proviso to Section 43B through Finance Act, 2003, which came into force w.e.f. 1st April, 2003.

Now, the question before this Court is whether, the deletion of second proviso, made by Finance Act 2003, is applicable retrospectively, or not? Expressly it is not provided in the Finance Act, 2003, that the deletion is retrospective. Therefore, this Court has to see whether, impliedly the deletion is retrospective, or not? The assessment year in question, in the present case is, 1998-99. If this Court takes the view that deletion of second proviso in Section 43B is impliedly retrospective, it cannot be said that Tribunal has erred in law in deleting the addition of Rs. 2,98,924 made by the AO.

Mr. Arvind Vashistha, learned standing Counsel for the Revenue/appellants argued that the deletion cannot be treated to be retrospective, as there is no express provision to this effect in the Finance Act, 2003, which indicates that the deletion would apply retrospectively. As against this, Mr. S.K. Posti, learned Counsel for the respondent/assessee contended that the amendment by which second proviso to Section 43B was deleted is curative in nature, and being explanatory has a retrospective effect. In support of his contention learned Counsel for the respondent/assessee drew attention of this Court to the case of Allied Motors (P.) Ltd. Vs. Commissioner of Income Tax, Delhi, , in which the three Judges Bench of the apex Court having considered views of various High Courts on a similar issue relating to deduction of deposits of sales-tax under Clause (a) of Section 43B and Expln. 2 to said section, has held that the first proviso to Section 43B and Expln. 2 if read together make it clear that Expln. 2 is retrospectively applicable. The Supreme Court, in said case, has taken the view that the amendment which simply removes the ambiguity, and curative in nature, impliedly has retrospective effect. The issue involved in the present case is almost identical to the one dealt by the apex Court in Allied Motors (P) Ltd. (supra) which related to deductions of deposits made by assessee, of sales tax, under Clause (a) of Section 43B of the IT Act, 1961.

Therefore, we have no hesitation in following the principle of law laid down in the aforesaid case to the present case for the purposes of interpreting, whether, the deletion of second proviso to Section 43B is retrospective in nature, on not? That being so, it cannot be said that the Tribunal has committed any error of law in deleting the addition of Rs. 2,98,924 made by the AO, which was the amount deposited by the employer/assessee on account of provident fund deduction of its employees, in the Government account.

For the reasons as discussed above, the substantial question of law stands answered in favour of the respondent/assessee, and the appeal is liable to be dismissed. The same is dismissed.