Critical Analysis of Recent Supreme Court Judgement in the case of Checkmate Services (P) Ltd. v. CIT (2022) 448 ITR 518

Ajay Rastogi, Sr. Advocate

Checkmate Services Pvt. Ltd. reported in (2022) 448 ITR 518 dated 12/10/2022

The Apex Court in its judgment, while affirming the judgments of various High Courts which have decided the issue of allowability of deduction u/s 43B relating to employees’ contribution in favour of the revenue, has drawn distinction between Employers’ Contribution and Employees’ Contribution on the ground that employees’ contribution are held in Trust by the employer and, therefore, it is the obligation of the employer to make payment of the same within timeline prescribed under the relevant statute in order to claim deduction u/s 43B of I.T. Act and accordingly, the Apex Court has held:

“Nevertheless, the assessee are given some leeway in that as long as deposits are made beyond the due date, but before the due date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which were held in trust, as it is in the case of employees contributions – which are deducted from their income”.

It would be apt to mention that the Hon’ble Court has also noticed provisions of Section 36(1)(va) and Section 2(24)(x) which remain unnoticed in its earlier judgment in the case of Alom Extrusions for coming to the conclusion that non-obstante clause u/s 43B or anything contained in that provision (43B) would not absolve the assessee’s from its liability to deposit employees contribution on or before the due date under the relevant statute as a condition precedent for claim of deduction.

The Apex Court in its judgment has duly countered the argument of hardship being caused to the assessee’s due to loosing the deduction once and forever in cases where payment is not made within the stipulated timeline under the relevant statute. Further, the Apex Court in its judgment has elaborately dealt the various settled proposition of law regarding interpretation of taxing statute while coming to the conclusion that deduction u/s 43B can be allowed in respect of employees’ contribution only if the same is paid within the timeline allowed under the relevant statute and the non-obstante clause of Section 43B is subject to timeline of payment prescribed under the relevant statute.

However, this judgment can be helpful to the assessees in cases where the due date for payment of statutory dues under the relevant enactment falls post the due date of filing of return u/s 139(1). One such example is that of bonus payable to employees under Payment of Bonus Act, 1965 which are provided in the accounts as ascertained liability but not paid within the timeline prescribed u/s 43B i.e. upto the date of filing of return. As per Section 19 of the said Act, eight months from the close of the accounting year has been allowed for payment of bonus. The relevant section is reproduced hereunder:

“19. Time-limit for payment of bonus

[All amounts] payable to an employee by way of bonus under this Act shall be paid in cash by his employer,-

(a) where there is a dispute regarding payment of bonus pending before any authority under section 22, within a month from the date on which the award becomes enforceable or the settlement comes into operation, in respect of such dispute;

(b)in any other case, within a period of eight months from the close of the accounting year.

PROVIDED that the appropriate government or such authority as the appropriate government may specify in this behalf may, upon an application made to it by the employer and for sufficient reasons, by order, extend the said period of eight months to such further period or periods as it thinks fit; so, however, that the total period so extended shall not in any case exceed two years.”

Thus, the bonus paid upto November (eight months from the end of closing of accounting year i.e. on 31st of March of every year) is fully allowable dehors of the non-obstante clause in Section 43B as according to the aforesaid judgment, no disallowance u/s 43B can be made relying on non-obstante clause, if the payments have been made within the timeline stipulated under the relevant enactment.