Supreme Court Issues Notice on Delayed Employees’ PF/ESI Deduction Dispute

Woodland (Aero Club) Pvt. Ltd. filed a Special Leave Petition challenging the Delhi High Court’s judgment which had decided the issue of the allowability of the delayed deposit of employees’ contributions to the Provident Fund and ESI in favor of the Revenue. The High Court held that employees’ contributions deducted from salaries are deemed income under Section 2(24)(x) and can be allowed as a deduction only if deposited within the statutory due date prescribed under the respective welfare laws, and that Section 43B has no application to such contributions.

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The assessee contended that there exist two divergent lines of High Court authority on the interpretation of “due date” under Section 36(1)(va), leading to prolonged litigation across the country.

Main Issue: Whether employees’ contributions to PF and ESI, deposited after the due date under the respective welfare statutes but before the due date of filing return under Section 139(1), are allowable as deduction under the Income-tax Act, 1961.

SC Held: The Supreme Court noted that there are two competing schools of thought on the issue. One line of judgments treats employees’ contributions as income under Section 2(24)(x), allowable only if deposited within the statutory due date under the PF/ESI laws, and holds that Section 43B does not apply.

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The other line of judgments holds that no distinction should be made between employers’ and employees’ contributions and that Section 43B permits deduction if payment is made before the due date of filing the return. The Supreme Court issued notice in the SLP, indicating that the issue requires authoritative examination.

To Read Full Judgment, Download PDF Given Below