Punjab-Haryana High Court
Nuchem Ltd vs Income Tax Appellate Tribunal on 13 August, 2012
Author: Ajay Kumar Mittal
Bench: Ajay Kumar Mittal, G.S. Sandhawalia
ITA No. 116 of 2008 -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
ITA No. 116 of 2008
Date of Decision: 13.8.2012
Nuchem Ltd.
....Appellant.
Versus
Income Tax Appellate Tribunal, Delhi Bench and others
...Respondents.
CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.
HON'BLE MR. JUSTICE G.S. SANDHAWALIA.
PRESENT: Mr. S.K. Mukhi, Advocate with
Mr. Rajiv Sharma, Advocate for the appellant.
Mr. Tejinder Joshi, Advocate for the revenue,
in ITA Nos. 116 and 343 of 2008.
Mr. Rajesh Katoch, Advocate for the revenue,
in ITA No. 365 of 2008.
AJAY KUMAR MITTAL, J.
1. This order shall dispose of three appeals bearing ITA Nos. 116, 343 and 365 of 2008 as learned counsel for the parties are agreed that the similar issue is involved in all the three appeals. The facts are being taken from ITA No. 116 of 2008.
2. This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short "the Act") against the order dated 2.2.2007 passed by the Income Tax Appellate Tribunal, Delhi Bench "C", New Delhi (hereinafter referred to as "the Tribunal) in ITA No. 978/D/2004, for the assessment year 1998-99, claiming the ITA No. 116 of 2008 -2- following substantial questions of law:-
"I) Whether on the facts and circumstances of the present case, the Income Tax Appellate Tribunal has fallen in legal error, in upholding the addition of Rs.23,31,489/- under Section 43B being employer's contribution to P.F. and E.S.I. deposited within the year and/or before the date of filing of return? II) Whether the learned Income Tax Appellate Tribunal has correctly interpreted the provisions of Section 43B of the Act in holding that, the amendment by Finance Act, 2003 to Section 43B proviso allowing deduction of sums being employer's contribution to P.F. and E.S.I. is not retrospective in operation? III) Whether the learned Income Tax Appellate Tribunal has erred in disregarding the fact that the amendment made to Section 43B proviso being curative in nature, has to be applied retrospectively to all pending cases in order to remove the undue hardship faced by the assessee?
IV) Whether the learned Income Tax Appellate Tribunal has erred in arriving at an interpretation of the applicability of the amendment to Section 43B proviso while disregarding various judicial pronouncements of the Apex Court which lay down the law as to how such clarification/curative amendments are to be applied?ITA No. 116 of 2008 -3-
V) Whether the learned Income Tax Appellate Tribunal has erred in overlooking a catena of judicial pronouncements on the issue of retrospective applicability of procedural laws which are clarificatory in nature?"
3. The relevant facts for adjudication of the present appeal as mentioned therein are that the assessee is engaged in the business of manufacture and sale of various products viz. moulding powders, glue, formaldehyde, hydraulic presses etc. and filed its return for the assessment year 1998-99 (financial year 1997-98) on 30.11.1998 declaring a loss of ` 18,10,76,940/-. The said return was processed under Section 143(1)(a) of the Act on 17.3.1999 and an addition of ` 1,72,143/- was made against which the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short "the CIT (A)"]. The CIT(A) vide order dated 21.2.2000 deleted the said addition made by the Assessing Officer. Pursuant to the said addition made under Section 143(1)(a) of the Act, the assessee filed a revised return on 21.4.1999 declaring a loss of ` 20,75,37,520/- which included carry forward losses aggregating to ` 19,18,24,432/-. Subsequently, the second revised return was filed on 11.1.2000 declaring a loss of ` 20,85,68,440/- which included carry forward loss aggregating to ` 19,19,60,143/-. The assessee filed a third revised return on 23.2.2001 claiming certain deductions and declared a loss of ` 20,75,37,320/- which included the carry forward loss amounting to ` 19,18,24,432/-. The Assessing Officer vide assessment order dated 30.3.2001 ITA No. 116 of 2008 -4- assessed the income of the assessee at ` 62,63,030/- and income for computation under Section 115JA of the Act at ` 1,81,210/- as per the original return filed on 30.11.1998. The penalty proceedings under Section 271(1)(c) of the Act were also initiated against the assessee. Subsequently, notice under Section 154/155 of the act was issued to the assessee on 17.6.2003 proposing to add back ` 21,19,480/- deposited on various dates from 28.4.1998 to 17.7.1998 towards provident fund and ` 2,11,949/- deposited on 23.4.1998 and 8.5.1998 towards ESI under Section 43B of the Act. The said notice was duly replied by the assessee on 30.6.2003. Respondent No.3 vide order dated 31.7.2003 confirmed the additions proposed by the Assessing Officer vide notice dated 17.6.2003 on account of delayed payments towards Provident Fund and ESI. Against the said order, the assessee filed an appeal before the CIT(A) who vide order dated 27.1.2004 dismissed the appeal. On further appeal by the assessee, the Tribunal vide order dated 2.2.2007 upheld the addition of ` 23,31,489/- made on account of delayed payment of Provident Fund and ESI and dismissed the appeal filed by the assessee which gave rise to the filing of the present appeal.
4. The issue involved herein is whether the statutory payment in respect of ESI contribution and Provident Fund of the employees which were paid by the assessee before the filing of the return were allowable deductions within the meaning of Section 43B of the Act.
5. Learned counsel for the parties are ad idem that the issue raised herein stands concluded by the judgment of the Hon'ble Supreme Court in Commissioner of Income-Tax v. Alom Extrusions ITA No. 116 of 2008 -5- Ltd., [2009] 319 ITR 306 (SC).
6. Learned counsel for the revenue does not dispute that the issue is covered by the aforesaid judgment.
7. The Hon'ble Supreme Court in Alom Extrusions Ltd's case (supra) while delving into the similar issue had noticed as under:-
"We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Section 43-B (main section), which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non-obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Merchantile System of Accounting. At the same time, Section 43-B [main section] made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act [octroi] and other Tax laws. Therefore, by way of first proviso, an incentive/ relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under the Income Tax Act [due date], the assessee(s) ITA No. 116 of 2008 -6- then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under Social Welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance 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 this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Limited vs. Commissioner of Income Tax, reported in [1997] 224 I.T.R.677, the Scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous ITA No. 116 of 2008 -7- year but within the time allowed under the relevant Sales Tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, as stated above, was inserted with effect from 1st April, 1984. It is also relevant to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited (supra). However, the assessee contended that even though the first proviso came to be inserted with effect from 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when Section 43-B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Limited (supra). This Court, in Allied Motors (P) Limited (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious ITA No. 116 of 2008 -8- omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Limited (supra), held that the first proviso was curative in nature, hence, retrospective in operation with effect from 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions 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 judgment in Allied Motors (P) Limited (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively with effect from 1st April, 1988 [when the first proviso stood inserted]. Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively.
Take an example - in the present case, the ITA No. 116 of 2008 -9- respondents have deposited the contributions with the R.P.F.C. after 31st March [end of accounting year] but before filing of the Returns under the Income Tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 43-B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under Section 43-B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003."
8. The Hon'ble Supreme Court held that the amendment by Finance Act,2003, whereby second proviso to Section 43B was deleted, ITA No. 116 of 2008 -10- to be curative in nature and was operative from 1.4.1988 (when first proviso came to be inserted). Once that was so, the appellant was entitled to deduction on account of contributions made to ESI and PF fund before the filing of the income tax return. The Tribunal was, thus, in error in deciding the issue against the assessee.
9. Accordingly, the substantial questions of law are answered in favour of the assessee and against the revenue. The appeals stand allowed.
(AJAY KUMAR MITTAL)
JUDGE
August 13, 2012 (G.S. SANDHAWALIA)
gbs JUDGE
ITA No. 116 of 2008 -11-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 343 of 2008 Date of Decision: 13.8.2012 Shri Dharmender Sharma ....Appellant.
Versus Commissioner of Income Tax, Faridabad ...Respondent.
CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.
HON'BLE MR. JUSTICE G.S. SANDHAWALIA.
PRESENT: Mr. S.K. Mukhi, Advocate with Mr. Rajiv Sharma, Advocate for the appellant. Mr. Tejinder Joshi, Advocate for the respondent. AJAY KUMAR MITTAL, J.
For orders, see ITA No. 116 of 2008 (Nuchem Ltd. v. Income Tax Appellate Tribunal, Delhi Bench and others).
(AJAY KUMAR MITTAL)
JUDGE
August 13, 2012 (G.S. SANDHAWALIA)
gbs JUDGE
ITA No. 116 of 2008 -12-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 365 of 2008 Date of Decision: 13.8.2012 M/s Rex Sewing Machine Co. (P) Ltd.
....Appellant.
Versus Commissioner of Income Tax-III, Ludhiana ...Respondent.
CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.
HON'BLE MR. JUSTICE G.S. SANDHAWALIA.
PRESENT: Mr. S.K. Mukhi, Advocate with Mr. Rajiv Sharma, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J.
For orders, see ITA No. 116 of 2008 (Nuchem Ltd. v. Income Tax Appellate Tribunal, Delhi Bench and others).
(AJAY KUMAR MITTAL)
JUDGE
August 13, 2012 (G.S. SANDHAWALIA)
gbs JUDGE