Business expenditure: S/s. 2(24)(x), 36(1)(va) and 43B: A. Y. 2001-02: Employees’ contribution towards ESI: Deposited before due date for filing return though after due date prescribed under ESI Act, 1948: Deduction to be allowed: No distinction to be made between employer’s contribution and employees’ contribution: Amendment of section 43B by Finance Act, 2003 deleting second proviso is retrospective:

For the A. Y. 2001-02, the assessee’s claim for deduction of employees’ contribution to ESI was disallowed by the Assessing Officer on the ground that the same was deposited after the due date prescribed under the ESI Act though it was deposited before the due date for filing the return of income. The Tribunal allowed the assessee’s claim.

On appeal by the Revenue, the following question was raised:

“Whether the Tribunal was correct in holding that amounts received by the assessee from employees for crediting to their accounts in provident fund and ESI but not so credited on or before the due dates specified under the respective statutes, were allowable deductions u/s. 36(1) (va) of the IT Act?”

The Himachal Pradesh High Court upheld the decision of the Tribunal and held as under:

“i) By the Finance Act, 1987 section 2(24)(x) was inserted and the sums collected by the assessee from his employees as contribution to provident funds and ESI were to be treated as income. By the same Act, section 36(1)(va) was introduced. Resultantly, the contribution of the employees collected by the employer was treated as his income. At the same time, the same was allowed as deductible expense if deposited within a particular time. Section 43B was also amended in the year 1987 itself and the two provisos were inserted. As per the amendment, there was no differentiation between the employer’s or employees’ contributions. Both had to be deposited by the due date as defined in the Explanation below cl. (va) of s/s. (1) of section 36. By the Finance Act of 2003, which came into effect from 1st April, 2004, the second proviso to section 43B which specifically made reference to section 36(1)(va) was deleted. The amendment was curative in nature and hence would apply with retrospective effect from 1st April, 1988.

ii) The second proviso to section 43B(b) specifically referred to the due date u/s. 36(1)(va) and as such, it cannot be urged that the provisions of section 43B and section 36(1)(va) should not be read together. It is clear that the law was enacted to ensure that the payment of the contributions towards the provident funds, the ESI funds or other such welfare schemes must be made before furnishing the return of income u/s. 139(1).

iii) Though the amount was not deposited by the due date under the Welfare Acts, it was definitely deposited before furnishing the returns. That is no reason to deny him the benefit of section 43B, which starts with a non obstante clause and which clearly lays down that the assessee can take benefit of deduction of such contributions, if the same are paid before furnishing the return. There is no reason to make any distinction between the employees’ contribution or the employer’s contribution.”