Income‑tax‑‑-

‑‑‑‑Business expenditure‑‑‑Disallowance of expenditure‑‑‑Payment towards provident fund‑‑‑Effect‑ of proviso to S.43B‑‑‑Payments made after "due date" are not deductible‑‑‑Indian Income Tax Act, 1961, Ss.36(l)(va), Expln. & 43B.

Though section 43B of the Income Tax Act, 1961, is relatable to payments actually made, the modality to be adopted in respect of payments of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees for getting deduction has been prescribed. A time limit has been fixed and only if payment was made‑ during that period, deduction can be claimed. The proviso to section 43B lays down that the payment should be made before the "due date as defined in the Explanation below clause (va) of subsection (1) of section 36". The expression "due date" means the time stipulated for payment. As per the Explanation to clause (va), for the purpose of the clause "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. The amount is deductible only if the assessee credits the amount to the employee's account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost if the sum is credited after the due date. It cannot be an indefinite date left to the choice of the assessee. It is to be noted that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund, etc., stress has been laid on payment within the "due date". Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The Legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main provision is to except something out of the enactment or to quality something enacted therein which but for the proviso would be within the purview of the enactment.

Local Government Board v. South Stoneham Union (1909) AC 57 (HL); Madras and Southern Mahratta Railway Co. Ltd. v. Bezwada Municipality (1944) AIR 1944 PC 71 and Mullins v. Treasurer of the Country of Surrey (1880) 5 QBD 170 ref.

P.K.R. Menon and George K. George for the Commissioner.

P.R. Raman for the Assessee.

JUDGMENT

ARIJIT PASAYAT, C.J.‑‑‑On being moved by the Revenue by an application under section 256(1) of the Income Tax Act, 1961 (in short "the Act"), the Income‑tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), has referred the following question for opinion:

"Whether, on the facts and in the circumstances of the case and on an interpretation of section 43B of the Income Tax Act, 1961, is not the disallowance of provident fund payments right and in accordance with law?"

The factual position necessary to be noted for adjudication of the question is essentially as follows:

In the assessment for the assessment year 1991‑92, the Assessing Officer disallowed the following payments made towards provident fund under section 43B of the Act:

The provident fund payments have to be made by the 15th of the succeeding month. A grace period of five days was also given without payment of damages. Another grace period of ten days was allowed with payment of damages. The Commissioner of Income‑tax (Appeals) (in short "the CIT (A)") held that the normal .time allowed under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (in short "the P. F. Act"), or the first grace period of five days without payment of damages should be taken into account. The payments were not made within either of these periods. The assessee was not entitled to deduction of any such payment in view of the provisions of section 43B of the Act read with the proviso thereto. The Tribunal, after referring to the provisions of section 43B of the Act and the proviso thereto, held that the Commissioner of Income‑tax (Appeals) has put too narrow a consideration on the provisions of section 43B. The purpose of section 43B is to allow deduction of an expenditure as and when it is paid irrespective of the previous year in which the liability for such expenditure was incurred by the assessee. The section was put in the statute book to curb the mischief- practiced by the taxpayers who used to dispute the liability before other authorities, but, at the same time, claim deduction of such liability for the purpose of income‑tax on accrual basis. The second proviso provided an exception to the main section. Ultimately, the Tribunal held that if regard is had to the background and the history of the section, the change it had undergone and also the purpose for which it was introduced, the deduction should be allowed in the year in which the amount was paid irrespective of the fact whether it became payable in the earlier year or not. There was no warrant to make a dichotomy between the payments made to the authorities within the grace time and beyond the grace period. Further, the computation of income takes place only for the year as a whole and not at intermediary stages and, therefore, what is to be seen is whether the payment has been made within the previous year and if so, irrespective of the fact whether there was any default in keeping to the schedule of payments for each month, no disallowance can be made in terms of the main provision of section 43B of the Act. Lastly, the Tribunal held that the second proviso cannot override the main provision.

Learned counsel for the Revenue submitted that the true import of section 43B has been lost sight of, more particularly, the second proviso. Learned counsel for the assessee, on the other hand, submitted that the proviso was not' intended to provide anything contrary to the stipulation in the main provision itself. At any event, clause (va) of subsection (1) of section 36 of the Act throws light on the controversy and a mere reading thereof would show that the only view possible was taken by the Tribunal.

In order to appreciate the rival submissions, it is necessary to take not of section 43B, so far as relevant, and clause (va) of sub?section (1) of section 36, which read as follows:

"43B.?? Certain deductions to be only on actual payment.‑‑?Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of‑‑ ....

(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, or...

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 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 subsection (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realized within fifteen days from the due date.

Explanation.‑‑‑For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in‑ section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him."

"36. Other deductions.‑(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28‑‑

(va) any sum received by the assessee from any. of his employees to which the provisions of sub‑clause (x) of clause (24) of section 2 apply , 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.

Explanation.‑‑‑For the purposes of this clause, `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, rule, order or notification issued there under or under any standing order, award, contract of service or otherwise;"

It is true, the proviso cannot provide anything repugnant to the main provision. It is in the nature of an exception to what has been provided in the main provision. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As stated by Lush, J., "when one finds a proviso to the section, the natural presumption is that, but for the proviso the enacting part of the section would have included the subject‑matter of the proviso." (see Mullins v. Treasurer of the Country of Surrey (1880) 5 Q13D 170, at page 173). In the words of Lord Macmillan, "the proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. " (see Madras and Southern Mahratta Rly. Co. Ltd. v. Bezwada Municipality, AIR 1944 PC 71, 73). It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate (see Local Government Board v. South Stoneham Union (1909) AC 57 (HL)). As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating a general rule.

The Tribunal has proceeded on the basis that the underlying object of section 43B of the Act is to entitle an assessee to deductions for payments actually made. The object of the enactment of section 43B was to curb the tendency of assessees to make claims for deductions and later on withhold the amount payable on the pretext of disputes. The admitted position being that payments were made before the expiry of the financial year relevant to the assessment year in question, the deduction was really permissible.

Though section 43B is relatable to payments actually made, the modality to be adopted in respect of payments of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees for getting deduction has been prescribed. 'A time‑limit has been fixed and only if payment is made during that period, deduction can be claimed. Undisputedly, the payment has not been made during the period prescribed under the relevant statute, i.e., the Provident Fund Act and the Scheme there under. Clause 38 of the Scheme deals with the period for payment of the contributions.

Learned counsel for the assessee submitted that if payment is permissible to be made with damages after a prescribed period, the same is not un-authorised payment and in view of the broad language employed in clause (va) of I subsection (1) of section 36, it shall be deemed as if the payment was made within the due date. The expression "due date" means the time stipulated for payment. As per the Explanation to clause (va) for the purpose of the clause, "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. The amount is deductible only if the assessee credits the amount to the employee's account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost even if the sum is credited after the due date. It cannot be an indefinite date left to the choice of the assessee. It is to be noted that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases: But in the case of payments relating to provident fund, etc., stress has been made on payment within the "due date". Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The Legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main provision and the proviso. They operate in different situations. The view of the Tribunal that payment having been made before the close of the financial year, qualifies for deduction is indefensible. The answer to the question referred is in the negative, i.e., in favour of the Revenue and against the assessee.

The reference is disposed of accordingly.

M.B.A./675/FC??????????

Order accordingly.