No Deduction allowable If Employer omitted to remit Employees’ contribution to EPF within Statutory Due Date: Kerala HC


The Kerala High Court in the case of M/s. Popular Vehicles & Services Pvt. Ltd. v. The Commissioner of Income Tax held that no deduction would be allowable if the employer omitted to remit employees’ contribution to EPF within statutory due date. 
The appellant in the present case failed to pay the Employees’ Contribution under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 [EPF and MP Act] and the Employees State Insurance Act, 1949 [ESI Act] before the due date as was provided under the said enactments. 

The issue before the Court is whether the appellant can claim deduction under in the year 2008-09 for the employees’ contribution belatedly paid in the previous year to the assessment year. 
As highlighted by the bench, the primary issue before the present Court is whether there should be a reconsideration of the decision of Mechem Ltd. Alom Extrusions Ltd. and Merchem Ltd. applied in two different fields the ratio of which stands as a principle applicable in the present issue in hand and was relied upon by the respondent. The question which arose for consideration in Alom Extrusions Ltd. was “Whether omission (deletion) of the second proviso to Section 43B of the Income Tax Act, 1961, by the Finance Act, 2003, operated with effect from April 1, 2004, or whether it operated w.e.f. April 1, 1998. 

The Hon’ble Supreme Court noted that prior to Finance Act, 2003, the second proviso to Section 43B restricted the deduction in respect of any sum payable by an employer as the contribution to the provident fund for the welfare of employees unless it stood paid within the specified due date. 

The Hon’ble Court after considering the arguments raised in the present case and the case before consideration proceeded to elucidate that the Explanation below sub-clause (va) no deduction could be claimed if the contribution has not been paid, after collection from the employees by way of deduction from their salaries, within the due date under EPF&MP Act and even after the deletion of the Proviso under Section 43B, the Explanation under Section 36(1)(va) of the Income Tax Act would stand. 

The Court went on to hold that the learned judges in the decision of Alom Extrusions Ltd. have found the provisions having application in different fields and the present Court would not take a different view with respect to employee’s contribution and hence follow the ratio given by Merchem Ltd.  Further, if the contribution is not paid to the welfare fund within the due date provided under the relevant statute, it remains as an income in the books of accounts of the assessee/employer company. Hence, employee’s contributions which the employer deducts from the salary of the employees, it is not remitted into the fund within the due date, the employer not only has defaulted the stipulation in the labor legislation but has received an income being an illegal enrichment.


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