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Court : High court of andhra Brief : : If any delay payments regarding EPF and ESI , CHARGED INTEREST RATE IS 12% ON SIMPLE INTEREST Citation : SYED SHAH MOHAMMED QUADRI AND Y.V. NARAYANA, JJ. Judgment :  227 ITR 446 (AP) HIGH COURT OF ANDHRA PRADESH Hitech (India) (P.) Ltd. v. Union of India SYED SHAH MOHAMMED QUADRI AND Y.V. NARAYANA, JJ. WRIT PETITION NOS. 7516 OF 1922, 21142 OF 1994 AND 11774 OF 1995 AND 3051 OF 1996 DECEMBER 27, 1996 JUDGMENT Syed Shah Mohammed Quadri, J.—Common questions of law are urged in these writ petitions, so they are heard together and are being disposed of by a common judgment. For appreciating the facts which give rise to the questions referred to hereunder it will be enough to refer to the facts in W.P. No. 7516 of 1992 which are representative of the facts in the other writ petitions. The petitioners are challenging the constitutional validity of section 43B and section 36(1)(va) of the Income-tax Act, 1961, in so far as they provide for disallowance of the employer's contribution to provident fund, contribution to the employees' State insurance fund and the payment of employees' contribution to the provident fund and contribution to the employees' State insurance fund when the same are paid after the due dates in the respective Acts. The petitioner is a private limited company. It is engaged in the business of manufacture and sale of electronic connectors for the defence sector and it is registered as a small scale industry. It is an assessee under the Income-tax Act. The petitioner has employed about 400 persons in its establishment. It is covered by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short "the E.P.F. Act"), and the Employees' State Insurance Act, 1948 (for short "the E.S.I. Act"). It is under an obligation to remit the employer's as well as employees' contribution under the said Acts before the date prescribed thereunder. In the assessment year 1991-92, it faced some difficulties in remitting the amounts on or before the specified date (hereinafter referred to as "the due date"). It states that for the month of April, 1990, to February, 1991, the petitioner paid the contribution within the same financial year, however, the dues for the month of March, 1991, had been paid on April 9, 1991, which is before the due date. There was also delay in payment of contribution under the E.S.I. Act. Under the E.P.F. Act, the Commissioner is authorised to impose damages on delayed payments and likewise under the E.S.I. Act penalties can be imposed for belated payment. Under section 43B and section 36(1)(va) of the Income-tax Act the amounts of contribution paid belatedly are not allowable deductions in the hands of the assessee and, accordingly in the assessment year 1991-92, the petitioner was not permitted to deduct the contributions amounting to Rs. 96,564. It is on these facts that the petitioner challenged the validity of the said provisions of the Act. In W.P. No. 11774 of 1995 and W.P. No. 3051 of 1996 which are filed by the same petitioner, consequential relief is also prayed for by way of declaration that the assessment order made for the respective years of assessment passed by the Assistant Commissioner of Income-tax, Circle 4(1), the first respondent therein, is illegal.
No. dearness allowance and retaining allowance. It is submitted that the intention of the Legislature in introducing section 43B read with the Explanation to section 36(1) (va). Separate counter-affidavits are filed by the respondents. S. On the above contentions.S. Krishna Koundinya. of the basic wages. much less articles 14.F. The Income-tax Department is not levying any penalty or launching any prosecution. has contended that the employees' contribution is treated as income and that when the employer's contributions are not paid within the due date they are disallowed. Ravi. 7516 of 1992 and 21142 of 1994 and Mr. it is prayed that the writ petitions be dismissed. It is also contended that payment (sic) of deduction by the second proviso to section 43B is by way of penalty. the question that arises for our consideration is whether the first proviso and the second proviso to section 43B and the Explanation to section 36(1)(va) of the Income-tax Act are violative of articles 14.R. Therefore.P. The reliefs in these writ petitions relate to provisos (1) and (2) to section 43B and the Explanation to clause (va) of subsection (1) of section 36 of the Income-tax Act and the consequential orders of assessment passed thereunder.S. It is submitted that the petitioner defaulted in payment of contributions under the E. Under section 5 of the said Act the Central Government prepared a scheme. It is contended that there is no rational basis to treat the situations mentioned in clauses (a). were inserted to secure compliance with the provisions of the E.F. if any. is to encourage payment of dues to the exchequer before the due dates.In W. is unconstitutional. It is also contended that the provisions are bad for double jeopardy. the amount should have been allowed as permissible deduction. He has argued that the situations contemplated under clauses (a). So to check such malpractice Parliament enacted the above provision. Section 6 of the E.I. (c) and (d) are entirely different when compared to the situations taken note of by clause (b). It will be useful to refer to the relevant provisions of the E. 19 and 21 of the Constitution of India.. Act directs that the employer's contribution (eight and one-third per cent. Act and the E. Ashok. 11774 of 1995 and 3051 of 1996 have contended that under section 145 of the Income-tax Act chargeability of tax is based on the method of accounting and in these cases the method of accounting is accrual basis and accordingly contributions were paid though not within the due dates. Nos. the provisions cannot be said to be expropriatory nor can it be said that there was imposition of any penalty or damages. It has socio-economic prospectivity. learned standing counsel for the respondents.P.I.F. Act and the E. learned counsel for the petitioners in W. It is not disputed that under section 14B of the E. Mr.F.P. payable to each of the employees. viz. Mr. (c) and (d) differently from the one mentioned in clause (b) and that the provisos (1) and (2) to section 43B are discriminatory.S. whether employed by him directly or by or through a contractor) and an equal sum as employees' contribution shall be paid by the employer. that the Explanation to clause (va) of sub-section (1) of section 36 of the Income-tax Act. Act. Act here. The said provisions are not violative of any of the articles of the Constitution. Act which are welfare legislations enacted with the avowed object of advancing the cause of employees. 19 and 21. In the circumstances. called "the Employees' Provident Fund Scheme".I.P. S.I.P. The impugned provisions.F. Act and sections 85 and 86 of the E.P.P. Act and under the E. An option is given to the employee to pay a higher sum without obliging the employer to pay the contribution equal to the excess amount paid by him. it is submitted. 3051 of 1996 an additional relief is also sought for. Parliament only seeks to disallow deduction of expenditure where the assessee infracted the relevant law. therefore. Nos.P. the employer shall deduct the employee's contribution from his wages and that amount together with the employer's contribution as well as administrative charges of such percentage shall be paid . Paragraph 38 of the said Scheme directs that before paying an employee his wages in respect of any period or part of the period for which contribution is payable. learned counsel for the petitioners in W. It has been noticed that a few employers have been dishonestly misappropriating the deductions made from the salaries of the workers towards provident fund and have defaulted in contributing their matching share.S. Act the defaulters are liable for damages and penalty.
The contributions are payable on the last day of the wage period. Section 28 of the Income-tax Act enumerates categories of income chargeable to Income-tax under the head "Profits and gains of business or profession". Clause (va) of sub-section (1) of section 36. Section 39 of the E.I. a deduction otherwise allowable under this Act in respect of — (a) any sum payable by the assessee by way of tax. cess or fee. In case of nonpayment of contribution in time payment of interest at the rate of twelve per cent.I. section 7Q of the Employees' Provident Funds and Miscellaneous Provisions Act. Section 29 of the Act provides that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D.within 15 days of the close of every month. Corporation. Further. from the date on which the amount has become so due till the date of its actual payment.S.S. — For the purposes of this clause. Act provides for payment of contribution which comprises the employer's contribution and the employees' contribution to the E. or (c) any sum referred to in clause (ii) of sub-section (1) of section 36. may be set out here: "(va) any sum received by the assessee from any of his employees to which the provisions of subclause (x) of clause (24) of section 2 apply. or (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 employees. which is in the following terms: "43B. He is also under an obligation to forward the monthly statement within 25 days of the end of the month showing recoveries made from the wages of each employee and the amount contributed by the employer in respect of each such employee. which is impugned in the writ petition. 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. For noncompliance with the provisions of the Act and the Rules. if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. It says that the deductions provided for in various clauses of section 36 shall be allowed in computing the income referred to in section 28. In the case of contravention of the provisions of section 6C or clause (a) of sub-section (3A) of section 17 in so far as it relates to the payment of inspection charges. duty. contract of service or otherwise. A safeguard is provided to the employer. 1952. Act provides for punishment for failure to pay contribution. that the rate of interest shall not exceed the lending rate of interest charged by any scheduled bank. is also provided. 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act. Section 85 of the E. section 85B provides for recovery of damages and section 86 deals with prosecution. Section 36 deals with other deductions. Explanation.I. under any law for the time being in force. per annum or at such higher rate as may be specified in the Scheme on any amount due from him under the Act. order or notification issued thereunder or under any standing order. rule. Certain deductions to be only on actual payment. — Notwithstanding anything contained in any other provision of this Act. it will also be appropriate to note section 43B of the Income-tax Act in so far as it is relevant for our purpose. or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation. in accordance with the terms and conditions of the agreement governing such loan or borrowing. subsection (1A) of section 14 of the said Act prescribes punishment which shall not be less than one year and a fine of ten thousand rupees in case of default in payment of the employees' contribution which has been deducted by the employer from the employees' wages and in any other case it shall be not less than six months and a fine of five thousand rupees. award. the employer shall be punishable with imprisonment for a term which may extend to one year but which shall not be less than six months and shall also be liable to fine which may extend to five thousand rupees. Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in . by whatever name called. makes the employer liable to pay simple interest at the rate of twelve per cent." Here.S.
mentioned above." Now. the sum has been realised within fifteen days from the due date. it is clear that the employees' contribution received by the employer would be "income" in his hands and that would be allowed as permissible deduction under clause (va) of sub-section (1) of section 36 in computing the business income under section 28 provided the assessee credits the same to the relevant fund. and where such payment has been made otherwise than in cash. as has already been observed above. in respect of any sum referred to in clause (b). by whatever name called. It would also be useful to notice here the provisions of sub-clause (x) of clause (24) of section 2 of the Income-tax Act which reads thus: "2. The first proviso to section 43B relaxes the rigour of the section if the sum referred to in clause (a) or (c) or (d) is actually paid by the assessee before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with such return. but section 43B controls the allowability of deduction of payment specified in clauses (a) to (d) thereof and provides certain conditions subject to which alone the deductions may be permissible. mandates that the sum referred to in any one of the clauses. For this purpose the definition of "due date" as given in the Explanation to clause (va) of subsection (1) of section 36 is adopted. cess or fee. where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission and clause (d) deals with an amount of interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation in accordance with the terms and conditions of the agreement governing such loan or borrowing. clause (b) deals with payment of employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. payable by the assessee. a combined reading of these provisions suggests that if the assessee (employer) credited any sum received by him from any of his employees covered by section 2(24)(x) of the Income-tax Act in the relevant fund on or before the due date. Under section 43B. the date by which the assessee (employer) is required to credit the employees' contribution to the employees' account in the relevant fund under any Act. or any other fund for the welfare of such employees. Clause (a) of that section deals with payment of tax. contract of service or otherwise." Sub-clause (x) of clause (24) of section 2 includes within the meaning of "income" any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act. or any other fund for the welfare of such employees. award. duty. it empowers that 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 it shall not be allowed as deduction.. he will be entitled to deduct the said amount in computing his business income. The second proviso imposes further restriction on allowability of deduction of any sum referred to in clause (b). This section which commences with a non obstante clause.. Thus. order or notification issued thereunder or under any standing order. (x) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act.respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return: Provided further that no deduction shall. 1948. under any law for the time being in force.. 1948 (34 of 1948). will be allowed as deduction in computing the income under section 28 of that previous year only in which such sum is actually paid by the assessee irrespective of the fact that the said deduction is otherwise allowable under the Act and 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. Such contributions which . clause (c) deals with payment of any sum paid by the employer to the employee as bonus or commission for services rendered. that is. 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.. the sum referred to in clause (b) of section 43B is treated differently as it relates to the sum payable by the assessee as an employer which includes the employer's contribution as well as employees' contribution. rule. (24) 'income' includes —.
. may not arise. AIR 1958 SC 538. the rule contained in the second proviso is an exception to the rule. We shall now take up the cases referred to by learned counsel for the parties. the Explanation to clause (va) of sub-section (1) of section 36 and provisos (1) and (2) to section 43B are not violative of article 14 of the Constitution of India. Sabyasachi Mukharji J. v. There is indeed a reasonable classification between a sum dealt with in clause (b) and sum dealt with in clauses (a). Gotla  156 ITR 323 (SC) the rule of interpretation is laid down. The subject matter of the sum under clause (b) is the sum payable by the assessee as an employer by way of contribution. Though the general rule embodied in section 43B is one of allow ability of deduction based on actual payment. We find no substance in the contention of learned counsel for the petitioners that this would result in double jeopardy because the provisions deal with different aspects and different benefits. damages and prosecution. the payment should also be made within the due date as defined therein. viz. (c) and (d). we conclude that the impugned provisions. prohibits class legislation. Such is not the position with reference to the sums which are the subject-matter of clauses (a). This is to ensure that beneficial legislations for the welfare of the employees should be complied with strictly. This classification has nexus with the object sought to be achieved by provisos (1) and (2) to section 43B and the Explanation to clause (va) of sub-section (1) of section 36 and that is to ensure strict compliance with the beneficial legislation dealing with workers' rights and benefits. Speaking for the Supreme Court. Justice S. Therefore. as contended by learned counsel. Though the rule of equality contained in article 14. Thus he is unauthorisedly retaining the total amount of contributions as employer. if paid within the due date. a Division Bench of this court upheld the validity of section 43B of the Income-tax Act. the question of equitable construction. whereas the relevant beneficial legislations in favour of the employees provide for compliance on the pain of payment of interest. we may add that in Srikakollu Subba Rao and Co. the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The learned judge further observed that in case the literal construction leads to injustice. the defaulter loses the benefit of deduction which is otherwise allowable to him under the scheme of the provisions of the Act. an equitable construction should be adopted. For the above reasons. the employer will be able to avail of the benefit of deduction under section 43B. Indeed. There actual payment is not enough. . (i) it must be founded on intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group. damages and prosecution. Here. the Income-tax Act provides for compliance by denying the benefit of deduction which is otherwise available. Therefore. (c) and (d). viz. From the above discussion it is clear that the interpretation of the provision we have made. we find no discrimination as alleged. (c) and (d).R. But under the Income-tax Act. and (ii) the differentia must have a rational relation to the object sought to be achieved by the impugned Act. further he is not discharging his obligation by paying the employer's contribution which ought to have been parted with by him to form the total contribution.are payable to any provident fund or superannuation fund or any fund. Union of India  173 ITR 708. J. This is only meant to ensure prompt payment. For permissible classification two conditions must be satisfied. the interpretation of the impugned provisions by us gives effect to the real intention of Parliament.H. As long back as in 1958 the Supreme Court laid down the principle of permissible classification in Ram Krishna Dalmia v. Tendolkar. does not produce any manifestly unjust result which could be said to have never been intended by Parliament. There can be no doubt that article 14 cuts at the root of discrimination either by legislation or by administrative action. (as he then was) observed that where the plain literal interpretation of a statutory provision produced a manifestly unjust result which could never have been intended by the Legislature. We find no substance in the contention of learned counsel that the provisos (1) and (2) are discriminatory inasmuch as the sum referred to in clause (b) is treated differently from the sums referred to in clauses (a).. it permits classification. In CIT v. The employer who is in a dominant position deducts employees' contribution from the wages/pay at the time of disbursement and retains the amounts with him beyond the permissible period. If the payment is not made within the due date there is contravention of the provisions of the EPF Act and the ESI Act for which provision is made by way of payment of interest.
Having regard to the facts of the case. They are accordingly dismissed. we make no order as to costs. Posted by :Muthu Aravind Posted on 25 June 2008 Back To Judiciary Home .In the result we find no merit in the writ petitions.
. Venkateswaran. a constituent of what may be considered while arriving at an appropriate figure of damages which a party may be called upon to pay under Section 14B of the Employees Provident Fund and Miscellaneous Provisions Act.Hello Mineral Water P. on 2 August. Abrol. Antarim Zilla Parishad . to the Govt. Kuntesh Gupta v. vs Assistant P. Collector of Customs v. Registrar of Trade Marks . vs Assistant P. 1961 Collector Of Customs & . 1954 Babu Ram Prakash Chandra . 2. 1967 Wellpoint Systems (P.. ITO . J. by this writ petition the petitioner has challenged the jurisdiction of the Regional Provident Fund Commissioner to impose interest under Section 7Q of the Employees Provident Fund and Miscellaneous Provisions Act. Venkateswaran v. Ramchand Sobhraj Wadhwani . Alka Subhash Gadia (1992) Supp. 1. 1 SCC 496. Bava . 2006 Cites 17 docs .is wholly without jurisdiction.S. Baburam Prakash Chandra Maheshwari v. Inter alia. The submission therefore is that the interest component. v. 3. 1952 in addition to a levy of damages under Section 14B of the enactment. The petitioner has submitted that in view of the challenge to the impugned order being passed on a lack of jurisdiction.. The factors which may be considered to constitute the penalty which may be imposed on a party under Section 14B of this statute fell for consideration before the Apex Court in Organo Chemical Industry and Anr.. Bava on 27 July.811/.. (c) administrative charges.20. 1989 The Bengal Immunity Company .. the petitioner has placed reliance on several pronouncements of the Apex Court including Himmat Lal Harilal Mehta v. 8. on 1 May. Based on this submission.. Ltd.) Ltd vs Inspecting Assistant . UOI where the court held that the penalty could constitute of the following three factors : (a) the loss of interest to the employees account . State of Haryana . on 4 April. 28. v.. Addl. Ram and Shyam Co. Collector of Central Excise v. Collector Of . 2005 passed against the petitioner imposing damages to the extent of Rs. V.[View All] A..under Section 14B of the statute and an additional liability of interest under Section 7Q to the extent of Rs. Ltd. UOI v. Union of India v.G. of India v. Whirlpool Corpn. it is contended that the impugned order dated 12th May. vs A.. 1968 Delhi High Court Bench: G Mittal Hello Mineral Water P... It is contended that Section 7Q merely prescribes the rate of interest which is to be levied which is a factor to be considered while exercising jurisdiction under Section 14B and does not enable the concerned official to impose or levy interest over and above what has been assessed as damages under Section 14B. Commissioner on 15 May. (b) penalty and.F. Commissioner on 15/5/2006 ORDER Gita Mittal. State of Bihar .F. . Calcutta Discount Co.. 7 Judges decision in the case of Bengal Immunity Company Ltd. is at the most. Shantilal Chhotelal and Co. State of Haryana . Ltd. A. State of Madhya Pradesh (1954) SCR 1122. Alka Subhash Gadia (Smt. Hindu Kaniya Mahavidlya . an objection to the maintainability of the writ petition on the ground of availability of the alternative remedy of a statutory appeal under Section 7I of the Employees Provident Fund and Miscellaneous Provisions Act would be without substance. v.142/. Government of India v. vs Antarim Zila Parishad Muzaffar . M.91.) 1992 Supp (1) SCC 496. .V. 1957. S. State of Haryana . A. v. v. State of Tripura v.. Secy. vs The State Of Bihar And Others on 4 December. vs Ramchand Sobhraj Wadhwani And . In this behalf. Addl.
R. 28.91. Let reply.C. The respondent shall keep this amount of Rs.which has been assessed by the respondent towards the damages under Section 14B of the Employees Provident Fund and Miscellaneous Provisions Act and furnishing security for the amount of Rs. there shall be a stay of recovery by coercive measures pursuant to the order dated 10th May. Chawla. Mr. 7.C.20.811/. 11 lakh with the respondent on account of the demand raised by the respondents vide the impugned order dated 10th May.811/. Issue notice to the respondent to show cause why rule nisi be not issued. R. 2005. Chawla. CM No. Pandit Durga Prasad . Harbanslal Sahnia v. 4.Manoranjan Chakraborty . subject to the petitioner depositing the remaining amount out of Rs.which has been assessed as the interest liability of the petitioner under Section 7Q of the enactment to the satisfaction of the Registrar of this court within a period of our weeks from today. 8. In my view. List this matter before the Registrar (Administration) for completion of pleadings on 21st August.in a fixed deposit receipt till disposal of the writ petition and appropriate orders in this behalf shall be passed at the time of final disposal.142/. 5. 2940/2006 Issue notice. Mr. Advocate accepts notice. be filed within six weeks. It is ordered accordingly. and Seth Chand Ratan v. Rejoinder thereto may be filed before the next date of hearing. if any. Indian Oil Corpn. 2006. 28. It is contended on behalf of the petitioner that the petitioner has since deposited a sum of Rs. . Advocate accepts notice and prays for time to file a reply. Ltd. 2006. 6. the issues raised by the petitioner require consideration. Learned counsel for the parties submit that this application can be disposed of in the above terms. 8.20.
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