CHECKMATE SERVICES P. LTD. versus COMMISSIONER OF INCOME TAX-1

Citation: [2022] 10 S.C.R. 1065 · Decided: 12-10-2022 · Supreme Court of India · Bench: UDAY UMESH LALIT · Disposal: Dismissed

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Judgment (excerpt)

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1065
   [2022] 10 S.C.R. 1065
1065
CHECKMATE SERVICES P. LTD.
v.
COMMISSIONER OF INCOME TAX-1
(Civil Appeal No. 2833 of 2016)
OCTOBER 12, 2022
[UDAY UMESH LALIT CJI, S. RAVINDRA BHAT AND
SUDHANSHU DHULIA, JJ.]
Income Tax Act, 1961 – s.36(1)(va) and s.43B – Allowable
deductions – Assessee-appellants had belatedly deposited their
employees’ contribution towards the EPF and ESI, considering the
due dates under the relevant acts and regulations – Whether by
virtue of s.36(1)(va) r/w s.2(24)(x), such sums received by appellants
constituted “income” and could not be allowed as deductions u/
s.36(1)(va) when the payment was made beyond the relevant due
date under the respective acts – Held: 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 – There is
distinction between an employer’s contribution which is its primary
liability under law – in terms of s.36(1)(iv), and its liability to deposit
amounts received by it or deducted by it (s.36(1)(va)) – The former
forms part of the employers’ income, and the later retains its
character as an income (albeit deemed), by virtue of s.2(24)(x) -
unless the conditions spelt by Explanation to s.36(1)(va) are satisfied
i.e., depositing such amount received or deducted from the employee
on or before the due date – There is thus a marked distinction
between the nature and character of the two amounts – This marked
distinction has to be borne while interpreting the obligation of every
assessee under s.43B – The non-obstante clause u/s.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 – Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952 – Employees’ Provident
Funds Scheme, 1952 – Employees’ State Insurance Act, 1948 –
Employees’ State Insurance (Central) Regulations, 1950
Interpretation of Statutes – Tax statute – Deduction or
exemption, when available – Held: If a deduction or exemption is
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SUPREME COURT REPORTS
[2022] 10 S.C.R.
available on compliance with certain conditions, the conditions are
to be strictly complied with – Deductions are to be granted only
when the conditions which govern them are strictly complied with.
Dismissing the appeals, the Court
HELD : 1.1. Section 43B falls in Part-V of the Income Tax
Act, 1961. The Parliament’s endeavour in introducing Section
43B [which opens with its non-obstante clause] was to primarily
ensure that deductions otherwise permissible and hitherto
claimed on mercantile basis, were expressly conditioned, in
certain cases upon payment. In other words, a mere claim of
expenditure in the books was insufficient to entitle deduction.
The assessee had to, before the prescribed date, actually pay the
amounts – be it towards tax liability, interest or other similar
liability spelt out by the provision. [Para 30][1087-B-C]
1.2. What is apparent is that the scheme of the Act is such
that Sections 28 to 38 deal with different kinds of deductions,
whereas Sections 40 to 43B spell out special provisions, laying
out the mechanism for assessments and expressly prescribing
conditions for disallowances. In terms of this scheme, Sections
40 - 43B are concerned with and enact different conditions, that
the tax adjudicator has to enforce, and the assessee has to comply
with, to secure a valid deduction. [Para 31][1087-C-D, E-F]
2.1. 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 (including depreciation). Each of these deductions, has its
contours, depending upon the expressions used, and the
conditions that are to be met. It is therefore necessary to bear in
mind 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. [Para
32][1087-F-H]
2.2. The Parliament treated contributions under Section
36(1)(va) differently from those under Section 36(1)(iv). The latter
[“employers’ contribution”] is described as “sum paid by the
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assessee as an employer by way of contribution towards a
rec

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