It is an essential condition for the deduction that amounts are deposited on or before the due date: Supreme Court  

It is an essential condition for the deduction that amounts are deposited on or before the due date: Supreme Court  

The Supreme Court ruled that it is an essential condition for the deduction that the amounts are deposited on or before the due date. 


Berger Paints India Ltd. v Commissioner of Income Tax, was the lead matter while hearing the batch of appeals. However, the parties agreed to treat Checkmate Services Pvt. Ltd. v Commissioner of Income Tax as the lead appeal, for convenience. In all these appeals, the common question involved is with respect to the interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act, 1961, and whether the appellant assessees are entitled to deduction of amounts deposited by them towards contribution in terms of The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, The Employees’ Provident Funds Scheme, 1952, The Employees’ State Insurance Act, 1948, The Employees’ State Insurance (Central) Regulations, 1950 or any other provident or superannuation fund.


Senior Advocate Arvind P. Datar, appearing for some of the appellants, relied upon the judgment of Commissioner of Income Tax v. Alom Extrusions Ltd. It was urged that this decision had considered the effect of deletion of the second proviso to Section 43B of IT Act (by Finance Act, 2003) and whether the same operated prospectively. 

He urged that in Alom Extrusions, the court took note of the fact that the law as existing prior to the omission of the second proviso to Section 43B restricted deductions in respect of any sums payable by an employer as contribution to the PF / superannuation fund etc. for employees’ welfare unless they were paid within the specified due date.

He argued that the Parliament was alive to the fact that both explanation to Section 36(1)(va) and second proviso to Section 43B were brought in together in 1989. Therefore, the deletion of the latter i.e., second proviso to Section 43B was intended to give relief to the assesses.

The Additional Solicitor General, Balbir Singh, for the Revenue argued that in Alom Extrusions, the issue involved was with respect to the employer’s contribution to PF account. In the present cases, the issue involved was with respect to employees’ contribution to PF account. 

It was urged that the IT Act differentiated between employees’ contribution and employers’ contribution to PF account. With respect to employers’ contribution, Section 43B was applicable. 

He submitted that however, with respect to employees’ contribution, Section 36(1)(va) was applicable, as it was specific and pointed to the kind of contribution, and when it could be made, to qualify as a deductible expense. Both the provisions i.e., Section 43B and Section 36(1)(va) operated in different fields, with respect to different contributions. Consequently, Section 43B was inapplicable and could not override Section 36(1)(va). 


The three Judges bench of The Chief Justice of India Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice Sudhanshu Dhulia said that the scheme of the provisions relating to deductions, such as Sections 32- 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads.

The court noted that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. 

“In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv)” the court said.  

The bench noted that the Parliament treated contributions under Section 36(1)(va) differently from those under Section 36(1)(iv). The latter is described as “sum paid by the assessee as an employer by way of contribution towards a recognized provident fund”. However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). 

The bench observed that the essential character of an employees’ contribution, i.e., that it is part of the employees’ income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. 

It was further observed that the definition of contribution in Section 2 (c) is used in entirely different senses, in the relevant deduction clauses.

“The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish that Parliament, while introducing Section 36(1)(va) along with Section 2(24)(x), was aware of the distinction between the two types of contributions. There was a statutory classification, under the IT Act, between the two” the court said.

It was stated that Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act

The bench added that Section 2(24)(x), deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income – it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer.

While stating the significance of this provision the bench observed that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). 

“On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees’ liability” the bench added.

The court said that the essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary precondition for allowing the expenditure. 

The court opined that the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. 

It was stated that the non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. 

The court held that the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction. 

Case title: Checkmate Services P. Ltd. v/s Commissioner of Income Tax-1 

Citation: Civil appeal no. 2833 of 2016

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