Holding

A deduction under s.36(1)(va) is permissible only if the employer deposits the employee’s contribution on or before the statutory due date, and the non‑obstante clause of s.43B does not alter this requirement.

Summary

The appellants, including Checkmate Services Pvt. Ltd., deposited employees' EPF and ESI contributions after the statutory due dates and claimed deductions under s.36(1)(va) of the Income Tax Act, 1961. The Assessing Officer disallowed the deduction, holding that the amounts constituted "income" under s.2(24)(x) and were not deductible because they were not deposited on or before the due date. The appellants argued that the non‑obstante clause in s.43B and the deletion of the second proviso by the Finance Act, 2003, should permit deduction if the amounts were paid before filing the return. The Supreme Court examined the legislative history of s.36(1)(va), s.36(1)(iv) and s.43B, emphasizing the distinction between employer’s and employee’s contributions and the condition that employee contributions must be deposited by the due date. It held that the non‑obstante clause of s.43B does not override the deposit‑by‑due‑date requirement for employee contributions. Consequently, the Court dismissed the appeals, confirming that no deduction is available for belated deposits.

Issues considered

The applicability of s.36(1)(va) when employee contributions are deposited after the statutory due date.
Whether the non‑obstante clause in s.43B overrides the deposit‑by‑due‑date condition for deductions under s.36(1)(va).
The distinction between employer’s contribution (s.36(1)(iv)) and employee’s contribution (s.36(1)(va)) for deduction purposes.
The retrospective effect of the Finance Act, 2003’s deletion of the second proviso to s.43B on the right to claim deductions.
The requirement of strict compliance with conditions attached to deductions under tax statutes.

Legislation cited

Employees' Provident Funds and Miscellaneous Provisions Act, 1952
Employees' State Insurance Act, 1948
Employees' State Insurance (Central) Regulations, 1950
Finance Act, 1987
Finance Act, 1989
Finance Act, 2003
Finance Act, 2021
Income Tax Act, 1961s. 2(24)(x), s. 36(1)(iv), s. 36(1)(va), s. 43B

Subjects

Income Tax ActSection 36(1)(va)Section 36(1)(iv)Section 43BEmployee contributionProvident FundEmployees' State InsuranceDeduction eligibilityStatutory due dateInterpretation of tax statutesNon‑obstante clause

Judgment

[2022] 10 S.C.R. 1065 1065

CHECKMATE SERVICES P. LTD. A
v.
COMMISSIONER OF INCOME TAX-1
(Civil Appeal No. 2833 of 2016)
OCTOBER 12, 2022 B
[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 C
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’ D
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 E
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 F
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 G
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 H
1065
1066 SUPREME COURT REPORTS [2022] 10 S.C.R.

A 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
B 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
C 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
D 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
E 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
F 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
G 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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CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1067
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assessee as an employer by way of contribution towards a A
recognized provident fund”. However, the phraseology of Section
36(1)(va) differs from Section 36(1)(iv). It enacts that “any sum
received by the assessee from any of his employees to which the
provisions of sub-clause (x) of clause (24) of section 2 apply, if
such sum is credited by the assessee to the employee’s account
B
in the relevant fund or funds on or before the due date.” “ 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. [Para 33][1088-E-G]
2.3. The differentiation is also evident from the fact that C
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 D
the two. [Para 34][1088-H; 1089-A-B]
3. The intent of the lawmakers was clear that sums referred
to in clause (b) of Section 43B, i.e., “sum payable as an employer,
by way of contribution” refers to the contribution by the employer.
The reference to “due date” in the second proviso to Section E
43B was to have the same meaning as provided in the explanation
to Section 36(1)(va). Parliament therefore, through this
amendment, sought to provide for identity in treatment of the
two kinds of payments: those made as contributions, by the
employers, and those amounts credited by the employers, into
the provident fund account of employees, received from the latter, F
as their contribution. Both these contributions had to necessarily
be made on or before the due date. [Para 37][1090-C-E]
4. One of the rules of interpretation of a tax statute is that
if a deduction or exemption is available on compliance with certain
conditions, the conditions are to be strictly complied with. This G
rule is in line with the general principle that taxing statutes are
to be construed strictly, and that there is no room for equitable
considerations. Deductions are to be granted only when the

H
1068 SUPREME COURT REPORTS [2022] 10 S.C.R.

A conditions which govern them are strictly complied with. [Paras
48 and 49][1100-C-E]
5. When Parliament introduced Section 43B, what was on
the statute book, was only employer’s contribution (Section
34(1)(iv)). At that point in time, there was no question of
B employee’s contribution being considered as part of the
employer’s earning. On the application of the original principles
of law it could have been treated only as receipts not amounting
to income. When Parliament introduced the amendments in 1988-
89, inserting Section 36(1)(va) and simultaneously inserting the
second proviso of Section 43B, its intention was not to treat the
C disparate nature of the amounts, similarly. The memorandum
introducing the Finance Bill clearly stated that the provisions –
especially second proviso to Section 43B - was introduced to
ensure timely payments were made by the employer to the
concerned fund (EPF, ESI, etc.) and avoid the mischief of
D employers retaining amounts for long periods. That Parliament
intended to retain the separate character of these two amounts,
is evident from the use of different language. Section 2(24)(x)
too, 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
E 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. The significance of this provision is that on the one
hand it brought into the fold of “income” amounts that were
F 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)). The other important
feature is that this distinction between the employers’
contribution (Section 36(1)(iv)) and employees’ contribution
G required to be deposited by the employer (Section 36(1)(va)) was
maintained - and continues to be maintained. On the other hand,
Section 43B covers all deductions that are permissible as
expenditures, or out-goings forming part of the assessees’ liability.
These include liabilities such as tax liability, cess duties etc. or
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1069
INCOME TAX-1

interest liability having regard to the terms of the contract. Thus, A
timely payment of these alone entitle an assessee to the benefit
of deduction from the total income. 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.
B
To pass muster, actual payments were a necessary pre-condition
for allowing the expenditure. [Para 52][1103-B-H; 1104-A-B]
6. The distinction between an employer’s contribution which
is its primary liability under law – in terms of Section 36(1)(iv),
and its liability to deposit amounts received by it or deducted by
it (Section 36(1)(va)) is crucial. The former forms part of the C
employers’ income, and the later retains its character as an
income (albeit deemed), by virtue of Section 2(24)(x) - unless
the conditions spelt by Explanation to Section 36(1)(va) are
satisfied i.e., depositing such amount received or deducted from
the employee on or before the due date. In other words, there is D
a marked distinction between the nature and character of the
two amounts – the employer’s liability is to be paid out of its
income whereas the second is deemed an income, by definition,
since it is the deduction from the employees’ income and held in
trust by the employer. This marked distinction has to be borne
while interpreting the obligation of every assessee under Section E
43B. [Para 53][1104-B-E]
7. The non-obstante clause in Section 43B 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 F
form of tax, interest payment and other statutory liability. In the
case of these liabilities, what constitutes the due date is defined
by the statute. Nevertheless, the assessees are given some leeway
in that as long as deposits are made beyond the due date, but
before the date of filing the return, the deduction is allowed. That, G
however, cannot apply in the case of amounts which are held in
trust, as it is in the case of employees’ contributions- which are
deducted from their income. They are not part of the assessee
employer’s income, nor are they heads of deduction per se in the

H
1070 SUPREME COURT REPORTS [2022] 10 S.C.R.

A form of statutory pay out. They are others’ income, monies, only
deemed to be income, with the object of ensuring that they are
paid within the due date specified in the particular law. They have
to be deposited in terms of such welfare enactments. It is upon
deposit, in terms of those enactments and on or before the due
dates mandated by such concerned law, that the amount which is
B
otherwise retained, and deemed an income, is treated as a
deduction. Thus, it is an essential condition for the deduction
that such amounts are deposited on or before the due date. If
such interpretation were to be adopted, the non-obstante clause
under Section 43B or anything contained in that provision would
C not absolve the assessee from its liability to deposit the employee’s
contribution on or before the due date as a condition for deduction.
[Para 54][1104-F-H; 1105-A-C]
Commissioner of Income Tax v. Alom Extrusions Ltd.,
(2010) 1 SCC 489 : [2009] 15 SCR 1154 –
D distinguished.
Commissioner of Customs v. Dilip Kumar & Co, 2018
(9) SCC 1 : [2018] 7 SCR 1191 – followed on.
Eagle Flask Industries Ltd. v. Commissioner of Central
Excise, 2004 Supp (4) SCR 35; State of Jharkhand v
E Ambay Cements (2005) 1 SCC 368 : [2004] 6 Suppl.
SCR 125; Commissioner of Income Tax v. Ace Multi Axes
Systems Ltd., (2018) 2 SCC 158 : [2017] 12 SCR 21;
Ajmera Housing Corporation & Ors. v. Commissioner
of Income, 2010 (8) SCC 739 : [2010] 10 SCR 183 and
F Commissioner of Income Tax-III v Calcutta Knitwears,
Ludhiana 2014 (6) SCC 444 : [2014] 5 SCR 855 –
relied on.
Allied Motors (P) Ltd. v. Commissioner of Income Tax,
(1997) 3 SCC 472 : [1997] 2 SCR 780; M.M. Aqua
G Technologies Ltd. v. Commissioner of Income Tax, Delhi,
2021 SCC OnLine SC 575 and Union of India & Ors.
v. Exide Industries Limited & Ors., (2020) 5 SCC 274 –
referred to.
Commissioner of Income Tax v. State Bank of Bikaner,
(2014) 363 ITR 70; Essae Teraoka Pvt. Ltd. v. Deputy
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1071
INCOME TAX-1

Commissioner of Income Tax, (2014) 366 ITR 408; A
Commissioner of Income Tax v. Nipso Polyfabriks Ltd.,
(2013) 350 ITR 327; Commissioner of Income-Tax Vs.
Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court);
Commissioner of Income-Tax and another v. Sabari
Enterprises, [2008] 298 ITR 141 (Karnataka High
B
Court); Commissioner of Income Tax v. Pamwi Tissues
Ltd., [2009] 313 ITR 137 (Bombay High Court) and
Commissioner of Income-Tax, Udaipur v. Udaipur
Dugdh Utpadak Sahakari Sandh Ltd., [2013] 35
taxmann.com 616 (Rajasthan High Court) – referred
to. C
Case Law Reference
[2009] 15 SCR 1154 distinguished Para 10
[1997] 2 SCR 780 referred to Para 10
[2010] 10 SCR 183 relied on Para 46 D
[2014] 5 SCR 855 relied on Para 47
(2020) 5 SCC 274 referred to Para 47
2004 Supp (4) SCR 35 relied on Para 48
[2004] 6 Suppl. SCR 125 relied on Para 49 E

[2017] 12 SCR 21 relied on Para 49
[2018] 7 SCR 1191 followed Para 50
CIVIL APPELLATE JURISDICTION : Civil Appeal No.2833
of 2016. F
From the Judgment and Order dated 14.10.2014 of the High Court
of Gujarat at Ahmedabad in Tax Appeal No.680 of 2014.
With
Civil Appeal Nos.2830 Of 2016, 159 Of 2019, 2832, 2831 of 2016, G
7248, 7249, 7251-7253, 7254, 7247, 7246, 7245, 7250, 7243, 7244 of 2022
Balbir Singh, ASG, Arvind Datar, Tushar Hemani, Arvind P. Datar,
Pritesh Kapur, Arijit Prasad, Sr. Advs., S. Santanam Swaminadhan, Rahul
Sharma, Ms. Rubina Virmani, Ms. Abhilasha Shrawat, Anubhav Gupta,
Kartik Malhotra, Ms. Nishtha Khurana, Ms. Aarthi Rajan, Ms. Manisha H
1072 SUPREME COURT REPORTS [2022] 10 S.C.R.

A T. Karia, Ms. Sukhda Kalra, Ms. Nidhi Nagpal, Adarsh Kumar, Haris
Beeran, Mushtaq Salim, Azhar Assees, Usman Ghani Khan, Radha
Shyam Jena, Ms. Anushree Prashit Kapadia, Ms. Vaibhavi Parikh, Ravi
Singh Chhikara, Ms. Radha Rangaswamy, Ms. Ranjeeta Rohatgi, Ms.
Vishakha, Ms. Seema Bengani, Rupesh Kumar, Adit Khorana, Udai
Khanna, Rajan Kr. Chourasia, Raj Bahadur Yadav, Mohit D. Ram, Ms.
B
Monisha Handa, Rajul Shrivastav, Anubhav Sharma, Nachiketa Joshi,
Deepak Shah, Ms. Sucheta Joshi, Ms. Himadri Haksar, Anand Sukumar,
S. Sukumaran, Bhupesh Kumar Pathak, Ms. Meera Mathur, Aniruddha
Deshmukh, Judy James, Ramesh Babu M. R., Purvish Jitendra Malkan,
Advs. for the appearing parties.
C The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. Leave granted. Berger Paints India Ltd. v Commissioner of
Income Tax, Kolkata-IV & Anr.1was the lead matter while hearing this
D batch of appeals. However, the parties agreed to treat Checkmate
Services Pvt. Ltd. v Commissioner of Income Tax-I2as 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 (hereinafter, “IT Act”), and whether the
appellant assessees are entitled to deduction of amounts deposited by
E them towards contribution in terms of The Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952 (hereinafter, “EPF Act”), The
Employees’ Provident Funds Scheme, 1952 (hereinafter, “EPF Scheme”),
The Employees’ State Insurance Act, 1948 (hereinafter, “ESI Act”),
The Employees’ State Insurance (Central) Regulations, 1950 (hereinafter,
F “ESI Regulations”) or any other provident or superannuation fund.
2. In the years under consideration, the Assessing Officers
(hereinafter, “AO”) had ruled that the appellants had belatedly deposited
their employees’ contribution towards the EPF and ESI, considering the
due dates under the relevant acts and regulations. Consequently, the AO
ruled that by virtue of Section 36(1)(va) read with Section 2(24)(x) of
G
the IT Act, such sums received by the appellants constituted
“income”.Those amounts could not have been allowed as deductions
1
Berger Paints India Ltd. v Commissioner of Income Tax, Kolkata-IV & Anr., Civil
Appeal No. 2830 of 2016.
2
Checkmate Services Pvt. Ltd. v Commissioner of Income Tax-I, C.A. No. 2383 of
H 2016.
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1073
INCOME TAX-1[S. RAVINDRA BHAT, J.]

under Section 36(1)(va) of the IT Act when the payment was made A
beyond the relevant due date under the respective acts. In other words,
as per the AO, as such sums were paid beyond the due dates as
prescribed under the respective acts, the right to claim such sums as
allowable deduction while computing the income was lost forever. The
assessees’ pleas were unsuccessful before the Income Tax Appellate
B
Tribunal (hereafter, “ITAT”). Ultimately, in the case of the impugned
judgment, the Gujarat High Court too rejected its pleas.3
3. Noticing a division of opinion on the issue, with the High Courts
of Bombay, Himachal Pradesh, Calcutta, Guwahati and Delhi favouring
the interpretation beneficial to the assesses on the one hand, and the
High Courts of Kerala and Gujarat preferring the interpretation in favour C
of the Revenue on the other, this court granted special leave to appeal in
all these cases.
The relevant statutory provisions of the IT Act
4.The relevant provisions of the IT Act, with amendments, made
from time to time, are as extracted below: D
“Section 2. Definitions.
In this Act, unless the context otherwise requires, -
***
(24) “income” includes —
E
-***
(x) any sum received by the assessee from his employees as
contributions to any provident fund or superannuation fund
or any fund set up under the provisions of the Employees’
State Insurance Act, 1948 (34 of 1948), or any other fund for
the welfare of such employees;…”4 F
***
“Section 36. Other deductions.
(1) The deductions provided for in the following clauses shall
be allowed in respect of the matters dealt with therein, in
G
computing the income referred to in section 28-
***
3
Commissioner of Income Tax-I v Checkmate Services P. Ltd., Tax Appeal No. 680 of
2014, dated 14.10.2014.
4
Inserted by the Finance Act, 1987 (11 of 1987), w.e.f. 01.04.1988.
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1074 SUPREME COURT REPORTS [2022] 10 S.C.R.

A (iv) any sum paid by the assessee as an employer by way of
contribution towards a recognized provident fund or an
approved superannuation fund, subject to such limits as may
be prescribed for the purpose of recognizing the provident
fund or approving the superannuation fund, as the case may
be; and subject to such conditions as the Board may think fit
B
to specify in cases where the contributions are not in the nature
of annual contributions of fixed amounts or annual
contributions fixed on some definite basis by reference to the
income chargeable under the head “Salaries” or to the
contributions or to the number of members of the fund;”
C ***
(va) any sum received by the assessee from any of his
employees to which the provisions of sub-clause (x) of clause
(24) of section 2 apply, if such sum is credited by the assessee
to the employee’s account in the relevant fund or funds on or
D before the due date.
Explanation 1. -For the purposes of this clause, “due
date”means the date by which the assessee is required as an
employer to credit an employee’s contribution to the employee’s
account in the relevant fund under any Act. rule, order or
E notification issued thereunder or under any standing order,
award, contract of service or otherwise.”
Explanation 2.-For the removal of doubts, it is hereby clarified
that the provisions of section 43B shall not apply and shall
be deemed never to have been applied for the purposes of
F determining the “due date” under this clause.”5
(Emphasis supplied)
5. With effect from 01.04.1984, Section 43B was inserted. It reads
inter alia, as follows:
G “Section 43B. Certain deductions to be only on actual
payment.
Notwithstanding anything contained in any other provision
of this Act, a deduction otherwise allowable under this Act in
respect of—
5
H Explanation 2 inserted by Act No. 13 of 2021, w.e.f. 01.04.2021.
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1075
INCOME TAX-1[S. RAVINDRA BHAT, J.]

*** A
(b) any sum payable by the assessee as an employer by way
of contribution to any provident fund or superannuation fund
or gratuity fund or any other fund for the welfare of
employees, or
*** B

shall be allowed (irrespective of the previous year in which
the liability to pay such sum was incurred by the assessee
according to the method of accounting regularly employed
by him) only in computing the income referred to in section
28 of that previous year in which such sum is actually paid C
by him:
Provided that nothing contained in this section shall apply in
relation to any sum which is actually paid by the assessee on
or before the due date applicable in his case for furnishing
the return of income under sub-section (1) of section 139in D
respect of the previous year in which the liability to pay such
sum was incurred as aforesaid and the evidence of such
payment is furnished by the assessee along with such return.6
Explanation : For the removal of doubts, it is hereby declared
that where a deduction in respect of any sum referred to in E
clause (a) or clause (b) of this section is allowed in computing
the income referred to in section 28 of the previous year (being
a previous year relevant to the assessment year commencing
on the 1st day of April, 1983, or any earlier assessment year)
in which the liability to pay such sum was incurred by the F
assessee, the assessee shall not be entitled to any deduction
under this section in respect of such sum in computing the
income of the previous year in which the sum is actually paid
by him.”
(Emphasis supplied)
G
By Section 9 of the Finance Act, 1989, the following second
proviso was added:
“Provided further that no deduction shall, in respect of any
sum referred to in clause (b), be allowed unless such sum has
6
Second proviso w.e.f. 1989. H
1076 SUPREME COURT REPORTS [2022] 10 S.C.R.

A actually been paid in cash or by issue of a cheque or draft or
by any other mode on or before the due date as defined in the
Explanation below clause (va) of sub-section (1) of section
36, and where such payment has been made otherwise than
in cash, the sum has been realised within fifteen days from
the due date.”
B
By Section 21 of the Finance Act, 2003, the above second proviso
was omitted.
Thereafter, by Finance Act, 2021 the following Explanation 5 was
added, w.e.f. 01.04.2021:
C “Explanation 5.-For the removal of doubts, it is hereby
clarified that the provisions of this section shall not apply
and shall be deemed never to have been applied to a sum
received by the assessee from any of his employees to which
the provisions of sub-clause (x) of clause (24) of section 2
D applies.”
6. The time limit for deposit of employees’ contribution under the
relevant acts / regulations are follows:
A. EPF Scheme:
Chapter VI: Declaration, Contribution Cards, and
E
Returns
38. Mode of payment of contributions
“(1)The employer shall, before paying the member his
wages in respect of any period or part of period for
F which contribution are payable, deduct the employee’s
contribution from his wages which together with his own
contribution as well as an administrative charge of such
percentage of the pay (basic wages, dearness allowance,
retaining allowance, if any, and cash value of food
concessions admissible thereon) for the time being
G payable to the employees other than an excluded
employee and in respect of which provident fund
contributions are payable, as the Central Government
may fix, he shall within fifteen days of the close of every
month pay the same to the Fund electronic through
H internet banking of the State Bank of India or any other
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1077
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Nationalised Bank or through Pay Gov platform or A
through scheduled banks in India including private
sector banks authorized for collection on account of
contributions and administrative charge:
(Emphasis supplied)
7. In addition to the above, a five-day grace period was allowed B
to employers in terms of the Manual of Accounting Procedure (Part-I
General). However, the grace period was discontinued by circular bearing
No. WSU/9(1)(2013)/Settlement/35631 dated 08.01.2016, made
applicable to contributions for January 2016 onwards.
B. ESI Regulations: C

“31. Time for payment of contribution - An employer
who is liable to pay contributions in respect of any
employee shall pay those contributions within 21 days
of the last day of the calendar month in which the
contributions fall due” D
(Emphasis supplied)
7
8. A circular had explained the rationale for introduction of
Section 43B:
“Disallowance of unpaid statutory liability - Section 43B E
***
35.2 Several cases have come to notice where taxpayers do
not discharge their statutory liability such as in respect of
excise duty, employer’s contribution to provident fund,
Employees’ State Insurance Scheme, etc., for long periods of F
time, extending sometimes to several years. For the purpose
of their income-tax assessments, they claim the liability as
deduction on the ground that they maintain accounts on
mercantile or accrual basis. On the other hand, they dispute
the liability and do not discharge the same. For some reason G
or the other, undisputed liabilities also are not paid.
35.3 To curb this practice, the Finance Act has inserted a
new section 438 to provide that deduction for any sum payable
by the assessee by way of tax or duty under any law for the
7
Circular No. 372 dated 08-12-1983. H
1078 SUPREME COURT REPORTS [2022] 10 S.C.R.

A time being in force or any sum payable by the assessee as an
employer by way of contribution to any provident fund or
superannuation fund or gratuity fund or any other fund for
the welfare- of employees shall irrespective of the previous
year in which the liability to pay such sum was incurred, be
allowed only in computing the income of that previous year
B
in which such sum is actually paid by the assessee.”
9. The scope and effect of the newly inserted Section 36(1)(va)
and the newly inserted provisos to Section 43B of the IT Act were
elaborated in a Central Board of Direct Taxes (hereinafter, “CBDT”)
circular bearing No. 495.8 Relevant extracts of the circular are as follows:
C
“Measures of penalising employers who misutilise
contributions to the provident fund or any fund set up under
the provisions of the Employees’ State Insurance Act, 1948,
or any other fund for welfare of employees

D 12.1 The existing provisions provide for a deduction in respect
of any payment by way of contribution to a provident fund or
superannuation fund or any other fund for welfare of
employees in the year in which the liability is actually
discharged [section 438]. The effect of the amendment brought
about by the Finance Act, is that no deduction will be allowed
E in the assessment of the employer(s) unless such contribution
is paid to the fund on or before the “due date”. Due date
means the date by which an employer is required to credit the
“contribution” to the employee’s account in the relevant fund
under the provisions of any law or term of contract of service
F or otherwise [Explanation to section 36(1 )(va) of the Finance
Act]).”
Appellants’ Contentions
10. Mr. Arvind P. Datar, learned senior counsel appearing for
some of the appellants, relied upon the judgment of this court in
G Commissioner of Income Tax v. Alom Extrusions Ltd.9 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. The court rejected the Revenue’s appeal
8
Circular No. 495 dated 22.09.1987.
9
Commissioner of Income Tax v. Alom Extrusions Ltd., (2010) 1 SCC 489.
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1079
INCOME TAX-1[S. RAVINDRA BHAT, J.]

and held that the omission of the second proviso to Section 43B was A
curative and therefore operated retrospectively. Mr. Datar 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
B
were paid within the specified due date. Under the second proviso to
Section 43B, a further constraint was placed on the employer – it was
eligible for deduction only if it paid the contribution before the date for
filing of return of income, and necessarily enclosed with the return of
income, which resulted in a lot of hardship to the employers. On a
representation to the Government about this, the Kelkar committee was C
setup by the Central Government, which considered the issue, and based
upon its recommendation, the relevant provisions of the Finance Act,
2003 were introduced, resulting in the deletion of the second proviso of
Section 43B. Mr. Datar also highlighted that the court in AlomExtrustions
took note of the fact that the first proviso which came into force from
D
01.04.1988 was not on the statute book when the assessments were
made in the previous decision of Allied Motors (P) Ltd. v Commissioner
of Income Tax. 10
11. Reliance was placed upon the judgment in Alom Extrustions
to say that this court was alive to the inconvenience caused to the
assesses, if the Revenue’s contention was to be accepted that the Finance E
Act, 2003 was operative prospectively. It was submitted that the ratio
and logic in Alom Extrustions was followed by no less than forty High
Courts. Examples include the Allahabad High Court in Sagun Foundry
Pvt Ltd v. Commissioner of Income Tax11; the Rajasthan High Court in
Commissioner of Income Tax v. State Bank of Bikaner 12 ; the F
Karnataka High Court in Essae Teraoka Pvt. Ltd. v. Deputy
Commissioner of Income Tax13; and the Himachal Pradesh High Court
in Commissioner of Income Tax v. Nipso Polyfabriks Ltd.14
12. It was submitted that only the impugned judgments of the
Gujarat High Court and Kerela High Court in Commissioner of Income G
10
Allied Motors (P) Ltd. v Commissioner of Income Tax, (1997) 3SCC 472.
11
Sagun Foundry Pvt Ltd v. Commissioner of Income Tax, ITA/87/2006.
12
Commissioner of Income Tax V. State Bank of Bikaner, (2014) 363 ITR 70.
13
Essae Teraoka Pvt. Ltd. v. Deputy Commissioner of Income Tax, (2014) 366 ITR
408.
14
Commissioner of Income Tax v. Nipso Polyfabriks Ltd., (2013) 350 ITR 327. H
1080 SUPREME COURT REPORTS [2022] 10 S.C.R.

A Tax v. Merchem Ltd.15 have taken a different view and distinguished
Alom Extrusions. It was submitted that views of the Gujarat and Kerela
High Court were incorrect. Counsel urged that Section 43B had to be
understood in the context of the existing laws. Mr. Datar emphasized
that under the EPF Act and ESI Act, the employer was liable to make a
composite payment. The liability comprised of the employer’s contribution
B
and the contribution collected from the employee. If this were to be kept
in mind, the deletion of the second proviso to Section 43B, and the opening
non-obstante clause in Section 43B had to be given full meaning. As a
consequence, under Section 43B, at the time of paying the employers’
contribution, the employer is under legal obligation to pay not only its
C contribution but also that of the employee, as a single payment to the PF
authority under the governing law. The insistence upon payment of actual
payment of employees’ contribution in Explanation to Section 36(1)(va)
was expressly overridden by the non obstanteclause.
13. It was argued that the Parliament was alive to the fact that
D 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 interpretation in the impugned judgment of the Gujarat
High Court and that of the Kerala High Court, focusing only on Section
36(1)(va) is contrary to what Parliament intend.It was argued by learned
E counsel that Alom Extrusions correctly found that the law hindered and
caused practical difficulties to assesses; as a result, it was omitted. To
give full effect to the omission was that amendment declared to be
retrospective in effect by this court. Further, the non-obstante clause in
the opening phrase in Section 43B was deemed sufficient to override
F other provisions, including Section 36(1).
14. Lastly, it was submitted that the scheme of the IT Act was
such that business income or its deductions were spelt out under Section
36, and Section 37 was a residual deduction clause whereby expenditures
other than those falling within Sections 28-36, expressly laid out for
G commercial or business purposes, were allowed as deductions. If the
scheme of the IT Act were to be kept in mind, the restrictive condition in
Section 36(1)(va) i.e., the stipulation that the employees’ contribution
must be paid within the time specified, failing which no deduction was
permissible, was in fact intended to be expressly overridden by Section
15
H Commissioner of Income Tax v. Merchem Ltd., ITA No. 402/2009.
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1081
INCOME TAX-1[S. RAVINDRA BHAT, J.]

43B. The philosophy behind Section 43B (which was introduced A
01.04.1984) was to ensure actual payment of certain specified and
statutory dues, before a particular date. These dues either by way of tax
or other levies, (including interest-payment towards loan or contributions
deducted by statutes such as EPF Act) were to be made within a specified
date under such enactments which cast those obligations. This was only
B
a condition for the grant of deduction. The second proviso to Section
43B had imposed further restrictive condition which was omitted in 2003.
Therefore, the non-obstante clause of Section 43B was operative
propriae vigore entitling the assessees to claim deduction made by them
in respect of contributions to PF authorities provided the entire amounts
were paid before the return of income was filed. C
15. Mr. Tushar Hemani, learned senior counsel appearing on behalf
of Suzlon Energy Ltd. supported the submissions of Mr. Datar. He relied
upon Section 2(c) of the EPF Act and highlighted that the contribution
payable by the employer was a composite amount - referred to as the
amount payable in respect of an employee under the scheme. It was D
submitted that similarly Section 6 of the Act and paragraphs 28, 30 & 38
of the EPF Scheme establish that what was payable as contribution by
the employer was not only the contribution in respect of its obligation to
deposit amounts in the account of the employee, but its contribution as
well as the contribution of the employee. Pointedly, Mr. Hemani referred
Section 30 of EPF Act: E

“30 (1) The employer shall in the first instance, pay both the
contribution payable by himself (in this Scheme referred to
as the employer’s contribution) and also, on behalf of the
member employed by him directly or by or through a
contractor, the contribution payable by such member (in the F
scheme referred to as the member’s contribution):
(2) In respect of employee employed by or through a
contractor, the contractor shall recover the contribution
payable by such employee (in this Scheme referred to as the
member’s contribution) and shall pay to the principal employer G
the amount of member’s contribution so deducted together
with an equal amount of contribution (in this Scheme referred
to as the employer’s contribution) and also administrative
charges.
H
1082 SUPREME COURT REPORTS [2022] 10 S.C.R.

A (3) It shall be the responsibility of the principal employer to
pay both the contributions payable by himself in respect of
the employees directly employed by him and also in respect of
the employees employed by or through a contractor and also
administrative charges.”
B Likewise, Regulation 31 of the ESI Regulations spells out the time
for payment – within 21 days of the last day of the calendar month in
which the contribution was due.
16. Learned senior counsel referred to clause 2(c) of the fourth
schedule of the IT Act:
C “Part A
Recognized Provident Funds
Definitions.
2. In this Part, unless the context otherwise requires, —
D ***
(c) “contribution” means any sum credited by or on behalf of
any employee out of his salary, or by an employer out of his
own moneys, to the individual account of an employee, but
does not include any sum credited as interest.”
E The EPF Act, EPF Scheme, ESI Act and ESI Regulations as well
as provisions of the IT Act refer to employee’s contribution as part of
the contribution that the employer has to make under the relevant Act.
Parliament was alive to this: consequently, the term ‘sum payable by
the assessee as an employer by way of contribution” in Section 43B(b)
of the IT Act means both its contribution and the sum collected from the
F employees as the latter’s contribution.
17. An alternative submission was that any sum paid by the
employer / assessee as contribution included both employee’s and
employer’s contributions and was allowed as deduction under Section
36(1)(iv) of the IT Act. What was contemplated under Section 36(1)(va)
G was the amount which was received and not deducted by the employer
assessee from its employees. Both Sections 2(24)(x) read with Section
36(1) (va) refer to any sum received by the assessee from its employees
as contributions as against any sum deducted by the assessee from the
payments made to employees. Received and deducted are two different
terms and cannot be used interchangeably.
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1083
INCOME TAX-1[S. RAVINDRA BHAT, J.]

18. Again, reference was made to Clause 30 of the EPF Scheme A
and Regulations under the ESI Act, and it was submitted that under both
the EPF & ESI Acts, when employees were employed by or through a
contractor, the latter was supposed to recover the contribution payable
by such employee, with the amount of such member’s contribution paid
to the principal employer, deducted together with an equal amount of its
B
contribution along with administrative charges. Such contribution was
received by the principal employer. But for Section 2(24)(x) read with
Section 36(1)(va) of the IT Act, such transaction would remain in the
Balance Sheet as receivable and payable. However, by deeming fiction,
such receipt was treated as income first and upon payment of the said
sum so received by the due date so defined under the respective statutes, C
the same was allowed as deduction while computing the income under
the provisions of the IT Act. Therefore, Section 36 (1)(va) of the IT Act
had limited operation to allow such sum so received from the employees.
The deduction from the employees’ salary as contribution was governed
by Section 36(1)(iv) of the IT Act. Contributions of employees engaged
as contract labour were to be recovered by such contractor and then D
paid over to the principal employer. This, coupled with the principal
employer contribution along with administrative charges, was to be
remitted to the EPF account within the specified time.
19. Mr. Preetesh Kapoor, learned senior counsel appearing for
one of the appellants, adopted the submissions of the other senior counsels. E
He urged, besides, that the Parliamentary concern in omitting the second
proviso to Section 43B was to avoid the difficulties faced by the assessees
which they would now re-experience ifw the Gujarat and Kerala High
Court views were to be accepted. He urged that the Kelkar’s
Committee’s recommendations resulted in the 2003 amendments, the
F
object and purport of which would be negated if the Revenue’s views
were to prevail.
20. Mr. Kapoor urged this court to adopt an interpretation that
would be pragmatic and in consonance with fairness. So long as the
assessee concerned deposited PF and other dues before the date of
filing the return, no fiscal consequence of it being taxed should take G
place. Counsel submitted that deposit after due date would be visited
with fine or other adverse consequences under the relevant statute.
Revenue’s Contentions
21. The learned Additional Solicitor General (hereinafter, “ASG”),
Mr. Balbir Singh, for the Revenue argued that in Alom Extrusions, the H
1084 SUPREME COURT REPORTS [2022] 10 S.C.R.

A 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. However, with respect to employees’
B
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
C override Section 36(1)(va).
22. The learned ASG further submitted that by Section 2(24)(x),
any sum “received by the assessee” from the employees as
contribution to any provident fund or superannuation fund etc. the
welfare of such employees was deemed to be included in the income of
D the assessee. This was introduced in the Finance Act of 1988. This
inclusion, and the amendments to Section 36 and 43B were part of the
scheme. Therefore, the deletion of second proviso to Section 43B could
not result in that provision overriding the conditions imposed for obtaining
deduction, specifically that were part of Section 36.

E 23. It was argued that it was with introduction of Section 43B
with effect from 01.04.1984, that the law insisted upon actual payment
of amounts claimed as deductions, enumerated under the provision.
Section 43B(b) spoke of sum payable by the employer by way of
contribution to a welfare or provident fund. It could be understood that
the provision took in both employee’s and employer’s contribution.
F Parliament then took note of the circumstance that many assessees
claimed deductions on the ground of their maintaining accounts on
mercantile or accrual basis and failed to discharge the liability.
Consequently, by Finance Act 1987, Section 2(24) (x), and Section 36(1)
(va) as well as second proviso to Section 43B were inserted. From that
G date the statute treated employee’s and employer’s contribution
differently.
24. It was urged that but for the above interpretation there was
no rationale to bring within the fold of “income” – by Section 2(24)(x)
– employee’s contribution received by the employer and providing a
deduction by Section 36 (1)(va) and permitting the deduction only if that
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1085
INCOME TAX-1[S. RAVINDRA BHAT, J.]

contribution were paid in accordance with the statute governing the fund A
(EPF/ESI Act). The second proviso to Section 43B then underwent a
cosmetic change and later was deleted. There was also a new proviso
added under Section 43B for permitting deduction on contributions paid
before the returns were filed.
25. This took in only the employer’s contribution especially since B
Section 2(24) and sub-clause (va) were retained. The employee’s
contributions, as Merchem Ltd. noticed, stood on a different footing,
since it was collected from the employee as a deduction in their salary
itself. This would in effect be deemed income of the assessee, as had
been specifically indicated in the definition of “income” under Section
2(24)(x), a provision introduced w.e.f. 01.04.1988 under the Finance C
Act, 1987.
26. The Revenue further contended that in terms of provisions of
Section 36(1)(va) with respect to any sum received by the assessee
from any of its employees to which provision of Section 2 (24 (x) applied,
if credited by the assessee to the employees’ account in the relevant D
fund or funds on or before the due date, the assessee was entitled to the
deduction. It was submitted that even the Explanation to Section 36(1)
(va) made it clear that for the purpose of that provision, “due date”
meant the date by which the assessee, as an employer, had to credit the
employees’ contribution to the employees’ account in the relevant fund E
under any law or rule or regulation issued thereunder or under any standing
order, etc. Therefore, during the relevant assessment year, if the employer
did not deposit the entire amount towards employees’ contribution with
the PF authorities on or before the due date under the EPF/ESI Act, to
the extent there was shortfall in deposit of the employees’ contribution/
ESI contribution, the assessee was not entitled to the deduction. F

27. The learned ASG further submitted that Section 43B which
was applicable to employers’ contribution to any provident fund or any
other fund for the welfare of the employees, and the amendment to
Section 43B, which enacted that any such amount of employers’
contribution was deposited by the employer on or before the due date of G
filing of the return under Section 139 was entitled to deduction in the
relevant year, was not applicable with respect to employees’ contribution.
It was argued therefore, that when the assessee did not deposit the
employees’ contribution in the PF account before the due date provided
under the EPF/ESI Act, the assessee was disentitled to deduction under H
1086 SUPREME COURT REPORTS [2022] 10 S.C.R.

A Section 36 in the relevant assessment order, though the assessee might
have deposited the employees’ contribution on or before the due date of
filing of the return under Section 139 of the IT Act.
28. It was also urged that the difference in language between
Sections 36 and 43B was because the two provisions had differing
B objectives. Whereas Section 36 dealt with deductions that were not
covered in the previous provisions, Section 36(1)(va), with its Explanations,
was directly concerned with the meaning of “due date” which was the
date by which the assessee was required as an employer “to credit an
employee’s contribution to the employee’s account in the relevant
fund under any Act.” On the other hand, Section 43B was introduced
C to ensure that sums that could otherwise be treated as deductions,
particularly, those shown as payable, based on the mercantile method of
accounting, would not be eligible to such treatment, unless those payments
were actually made when they fell due: such as tax dues, statutory or
interest liabilities. The limited exception carved out by the proviso to
D Section 43B was that if such amount wa[s actually paid by the assessee
“on or before the due date applicable in his case for furnishing the
return of income under sub-section (1) of section 139 in respect of
the previous year in which the liability to pay such sum was incurred”
and the assessee furnished evidence of such payment along with the
return, there would be entitlement for deduction.
E
29. It was urged that Section 43B spoke of sum payable by the
employer or the ‘employer’s contribution’, payable by the employer
without deduction from the salary of the employee. Employees’
contribution was remitted to the fund by the employer, and they were
deducted from the employees’ salary. Such deduction was statutorily
F enabled. Deduction from the salary of the employee, no doubt, was the
responsibility of the employer, as was the remittance, to the fund. That
nevertheless, did not change the basic nature of the contribution, which
was of the employee. A contribution deducted from the employee’s salary
and deposited by the employer, could not be termed as employer’s
G contribution. A distinction existed so far as contributions payable under
the EPF Act and the ESI Act. The employer’s contribution had to be
paid by the employer itself. In that case there was no deduction from the
employees’ salary. The employee’s contribution, on the other hand, was
to be deducted from the salary payable to the employee into the relevant
fund.
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1087
INCOME TAX-1[S. RAVINDRA BHAT, J.]

Analysis and Conclusions A
30. The factual narration reveals two diametrically opposed views
in regard to the interpretation of Section 36(1)(va) on the one hand and
proviso to Section 43(b) on the other. If one goes by the legislative history
of these provisions, what is discernible is that Parliament’s endeavour in
introducing Section 43B [which opens with its non-obstante clause] was B
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. C

31. Section 43B falls in Part-V of the IT Act. 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, Section D
40 (which too starts with a non-obstante clause overriding Sections 30-
38), deals with what cannot be deducted in computing income under the
head “Profits and Gains of Business and Profession”. Likewise, Section
40A(2) opens with a non-obstante clause and spells out what expenses
and payments are not deductible in certain circumstances. Section 41 E
elaborates conditions which apply with respect to certain deductions
which are otherwise allowed in respect of loss, expenditure or trading
liability etc. If we consider 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. F

32. 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 G
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. In this scheme the deduction
made by employers to approved provident fund schemes, is the H
1088 SUPREME COURT REPORTS [2022] 10 S.C.R.

A subject matter of Section 36 (iv). It is noteworthy, that this provision
was part of the original IT Act; it has largely remained unaltered. On the
other hand, Section 36(1)(va) was specifically inserted by the Finance
Act, 1987, w.e.f. 01-04-1988. Through the same amendment, by Section
3(b), Section 2(24) – which defines various kindsof “income” – inserted
clause (x). This is a significant amendment, because Parliament intended
B
that amounts not earned by the assessee, but received by it, - whether
in the form of deductions, or otherwise, as receipts, were to be treated
as income. The inclusion of a class of receipt, i.e., amounts received (or
deducted from the employees) were to be part of the employer/assessee’s
income. Since these amounts were not receipts that belonged to the
C assessee, but were held by it, as trustees, as it were, Section 36(1)(va)
was inserted specifically to ensure that if these receipts were deposited
in the EPF/ESI accounts of the employees concerned, they could be
treated as deductions. Section 36(1)(va) was hedged with the condition
that the amounts/receipts had to be deposited by the employer, with the
EPF/ESI, on or before the due date.The last expression “due date”
D
was dealt with in the explanation as the date by which such amounts had
to be credited by the employer, in the concerned enactments such as
EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount
on or before the due date) has not been enacted in relation to the
employer’s contribution (i.e., Section 36(1)(iv)).
E 33. The significance of this is that Parliament treated contributions
under Section 36(1)(va) differently from those under Section 36(1)(iv).
The latter (hereinafter, “employers’ contribution”) 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
F 36(1)(va) differs from Section 36(1)(iv). It enacts that “any sum
received by the assessee from any of his employees to which the
provisions of sub-clause (x) of clause (24) of section 2 apply, if
such sum is credited by the assessee to the employee’s account in
the relevant fund or funds on or before the due date.” The essential
character of an employees’ contribution, i.e., that it is part of the
G 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.
34. It is therefore, manifest 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
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1089
INCOME TAX-1[S. RAVINDRA BHAT, J.]

these contributions is separately dealt with in different clauses of Section A
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.
35. It is instructive in this context to note that the Finance Act, B
1987, introduced to Section 2(24), the definition clause (x), with effect
from 1 April 1988; it also brought in Section 36(1)(va). The memorandum
explaining these provisions, in the Finance Bill, 1987, presented to the
Parliament, is extracted below:
“Measures of penalising employers mis-utilising contributions C
to the provident fund or any funds set up under the provisions
of the Employees State Insurance Act, 1948, or any other fund
for the welfare of employees -
12.1. The existing provisions provide for a deduction in respect
of any payment by way of contribution to the provident fund D
or a superannuation fund or any other fund for welfare of
employees in the year in which the liabilities are actually
discharged (Section 43B). The effect of the amendment brought
about by the Finance act, is that no deduction will be allowed
in the assessment of the employer, unless such contribution is
paid into the fund on or before the due date. “Due date” E
means the date by which an employer is required to credit the
contribution to the employees account in the relevant fund or
under the relevant provisions of any law or term of the contract
of service or otherwise.
(Explanation to Section 36 (1) of the Finance Act) F
12.2. In addition, contribution of the employees to the various
funds which are deducted by the employer from the salaries
and wages of the employees will be taxed as income within
brackets insertion of new [clause (x) in clause (24) of Section
2] of the employer, if such contribution is not credited by the G
employer in the account of the employee in the relevant fund
by the due date. Where such income is not chargeable to tax
under the head “profits and gains of business or profession”
it will be assessed under the head “income from other
sources.”
H
1090 SUPREME COURT REPORTS [2022] 10 S.C.R.

A 36. Significantly, the same Finance Act, 1987 also introduced
provisos to Section 43B, through amendment (clause 10 of the Finance
Bill). The memorandum explaining the Bill, pertinently states, in relation
to second proviso to Section 43B that:
“…The second proviso seeks to provide that no deduction
B shall be allowed in regard to the sum referred to in clause (b)
unless such sum has actually been paid during the previous
year on or before the due date. The due date for the purposes
of this proviso shall be the due date as under Explanation to
clause (va) of sub-section (1) of Section 36.”
C 37. It is evident that the intent of the lawmakers was clear that
sums referred to in clause (b) of Section 43B, i.e., “sum payable as an
employer, by way of contribution” refers to the contribution by the
employer. The reference to “due date” in the second proviso to Section
43B was to have the same meaning as provided in the explanation to
Section 36(1)(va). Parliament therefore, through this amendment, sought
D to provide for identity in treatment of the two kinds of payments: those
made as contributions, by the employers, and those amounts credited by
the employers, into the provident fund account of employees, received
from the latter, as their contribution. Both these contributions had to
necessarily be made on or before the due date.
E 38. This court had occasion to consider the object of introducing
Section 43B, in Allied Motors. The court held, after setting out extracts
of the Budget speech of the Finance Minister, for 1983-84, that:
“Section 43B was, therefore, clearly aimed at curbing the
activities of those tax-payers, who did not discharge their
F statutory liability of payment of excise duty, employer’s
contribution to provident fund, etc., for long periods of time
but claimed deductions in that regard from their income on
the ground that the liability to pay these amounts had been
incurred by them in the relevant previous year. It was to stop
G this mischief that Section 43B was inserted.”
39. Original Section 43B(b) enabled the assessee/employer to
claim deduction towards contribution as an employer, “by way of
contribution to any provident fund”. The second proviso was
substituted by Finance Act, 1989 with effect from 01.04.1989 and read
as under:
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1091
INCOME TAX-1[S. RAVINDRA BHAT, J.]

“…Provided further that no deduction shall in respect of any A
sum referred to in clause (b) be allowed unless such sum has
actually been paid in cash or to by issue of a cheque or draft
or by any other mode on or before the due date as defined in
the explanation below Clause (va) of sub-section (1) of Section
36, and where such payment has been made otherwise than
B
in cash, the same has been realised within 15 days from the
due date.”
40. The position in law remained unchanged for 14 years. The
Central Government then constituted the Kelkar Committee, to suggest
tax reforms. The report suggested amendments inter alia, to Section
43B. The relevant extract of the report is as follows: C

“In terms of the provisions of section 43B of the Income-tax
Act, deduction for statutory payments relating to labour, taxes
and State and public financial institutions are allowed as
deductions, if they are paid during the financial year. However,
under the provisions payment of taxes and interest to State D
and public financial institution are deemed to have been paid
during the financial year even if they are paid by the due
date of filing of return. Further if the liability is discharged
in the subsequent year after the due date of filing of return,
the payment is allowed as a deduction in the subsequent year. E
In the case of statutory payment relating to labour, the
deduction for the payment is disallowed if such payment is
made any time after the last date of payment of the about
related liability. Trade and industry across the country
represented that the delayed payment of statutory liability
related to labour should be accorded the same treatment as F
delayed payment of taxes and interest, i.e. they should be
allowed in the year of account.
Since the objective of the provision is to ensure that a tax-
payer does not avail of any statutory liability without actually
making a payment for the same, we are of the view that these G
objectives would be served if the deduction for the statutory
liability relating to labour are allowed in the year of payment.
The complete disallowance of such payments is too harsh a
punishment for delayed payments. Therefore, we recommend
that the deduction for delayed payment of statutory liability H
1092 SUPREME COURT REPORTS [2022] 10 S.C.R.

A relating to labour should be allowed in the year of payment
like delayed taxes and interest.”
Based on the report, the Union introduced amendments to the IT
Act, including an amendment to Section 43B; the memorandum explaining
the provisions in the Finance Bill, 2003 in the matter of Section 43B.
B inter alia, reads thus:
“The Bill also proposes to provide that in case of deduction
of payments made by the assessee as an employer by way of
contribution to any provident fund or superannuation fund
or any other fund for the welfare of the employees shall be
C allowed in computing the income of the year in which such
sum is actually paid. In case the same is paid before the due
date of filing the return of income for the previous year, the
allowance will be made in the year in which the liability was
incurred.

D These amendments will take effect from 1st April, 2004 and
will accordingly apply in relation to the assessment year 2004-
05 and subsequent years.”
41. The Notes on Clauses inter alia, reads as follows:
“It is also proposed to amend the first proviso to the said
E section so as to omit the references of clause (a), clause (c),
clause (d), clause (e) and clause (f) which is consequential in
nature.
It is also proposed to omit the second proviso to the said
section. These amendments will take effect from 1st April, 2004
F and will, accordingly, apply in relation to the assessment year
2004-2005 and subsequent years.”
42. The rationale for introduction of Section 43B was explained
by this court in M.M. Aqua Technologies Ltd. vs. Commissioner of
Income Tax, Delhi:16
G “19. The object of Section 43B, as originally enacted, is to
allow certain deductions only on actual payment. This is made
clear by the non-obstante Clause contained in the beginning
of the provision, coupled with the deduction being allowed
16
M.M. Aqua Technologies Ltd. vs. Commissioner of Income Tax, Delhi, 2021 SCC
H OnLine SC 575.
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1093
INCOME TAX-1[S. RAVINDRA BHAT, J.]

irrespective of the previous years in which the liability to pay A
such sum was incurred by the Assessee according to the
method of accounting regularly employed by it. In short, a
mercantile system of accounting cannot be looked at when a
deduction is claimed under this Section, making it clear that
incurring of liability cannot allow for a deduction, but only
B
“actual payment”, as contrasted with incurring of a liability,
can allow for a deduction.”
43. This condition, i.e., of payment of actual amount on or before
the due date to enable deduction, continued for 14 years. By the
amendment of 2003, the second proviso was deleted. This court
interpreted the law, in the light of these developments, in Alom Extrusions. C
The court considered the effect of omission of the second proviso, and
observed as follows:
“10. “Income” has been defined under Section 2(24) of the
Act to include profits and gains. Under Section 2(24)(x), any
sum received by the assessee from his employees as D
contributions to any provident fund/superannuation fund or
any fund set up under the Employees’ State Insurance Act,
1948, or any other fund for the welfare of such employees
constituted income. This is the reason why every assessee(s)
[employer(s)] was entitled to deduction even prior to 1-4- E
1984, on mercantile system of accounting as a business
expenditure by making provision in his books of accounts in
that regard. In other words, if an assessee(s) [employer(s)] is
maintaining his books on accrual system of accounting, even
after collecting the contribution from his employee(s) and even
without remitting the amount to the Regional Provident Fund F
Commissioner (RPFC), the assessee(s) would be entitled to
deduction as business expense by merely making a provision
to that effect in his books of accounts. The same situation
arose prior to 1-4-1984, in the context of assessees collecting
sales tax and other indirect taxes from their respective G
customers and claiming deduction only by making provision
in their books without actually remitting the amount to the
exchequer. To curb this practice, Section 43-B was inserted
with effect from 1-4-1984, by which the mercantile system of
accounting with regard to tax, duty and contribution to welfare
H
1094 SUPREME COURT REPORTS [2022] 10 S.C.R.

A funds stood discontinued and, under Section 43-B, it became
mandatory for the assessee(s) to account for the aforestated
items not on mercantile basis but on cash basis. This situation
continued between 1-4-1984 and 1-4-1988, when Parliament
amended Section 43-B and inserted the first proviso to Section
43-B.
B
11. By this first proviso, it was, inter alia, laid down, in the
context of any sum payable by the assessee(s) by way of tax,
duty, cess or fee, that if an assessee(s) pays such tax, duty,
cess or fee even after the closing of the accounting year but
before the date of filing of the return of income under Section
C 139(1) of the Act, the assessee(s) would be entitled to
deduction under Section 43-B on actual payment basis and
such deduction would be admissible for the accounting year.
This proviso, however, did not apply to the contribution made
by the assessee(s) to the labour welfare funds. To this effect,
D the first proviso stood introduced with effect from 1-4-1988.
***
15. By the Finance Act, 2003, the amendment made in the
first proviso equated in terms of the benefit of deduction of
tax, duty, cess and fee on the one hand with contributions to
E the Employees’ Provident Fund, superannuation fund and
other welfare funds on the other. However, the Finance Act,
2003, bringing about this uniformity came into force with
effect from 1-4-2004. Therefore, the argument of the
assessee(s) is that the Finance Act, 2003, was curative in
F nature, it was not amendatory and, therefore, it applied
retrospectively from 1-4-1988, whereas the argument of the
Department was that the Finance Act, 2003, was amendatory
and it applied prospectively, particularly when Parliament
had expressly made the Finance Act, 2003 applicable only
with effect from 1-4-2004.
G
***
18. However, as stated above, the second proviso resulted in
implementation problems, which have been mentioned
hereinabove, and which resulted in the enactment of the
Finance Act, 2003, deleting the second proviso and bringing
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1095
INCOME TAX-1[S. RAVINDRA BHAT, J.]

about uniformity in the first proviso by equating tax, duty, A
cess and fee with contributions to welfare funds. Once this
uniformity is brought about in the first proviso, then, in our
view, the Finance Act, 2003, which is made applicable by
Parliament only with effect from 1-4-2004, would become
curative in nature, hence, it would apply retrospectively with
B
effect from 1-4-1988.
19. Secondly, it may be noted that, in Allied Motors (P)
Ltd. v. CIT [(1997) 3 SCC 472 : (1997) 224 ITR 677] , the
scheme of Section 43-B of the Act came to be examined. In
that case, the question which arose for determination was,
whether sales tax collected by the assessee and paid after the C
end of the relevant previous year but within the time allowed
under the relevant sales tax law should be disallowed under
Section 43-B of the Act while computing the business income
of the previous year? That was a case which related to
Assessment Year 1984-1985. The relevant accounting period D
ended on 30-6-1983. The Income Tax Officer disallowed the
deduction claimed by the assessee which was on account of
sales tax collected by the assessee for the last quarter of the
relevant accounting year. The deduction was disallowed under
Section 43-B which, as stated above, was inserted with effect
from 1-4-1984 E

***
22. It is important to note once again that, by the Finance
Act, 2003, not only is the second proviso deleted but even the
first proviso is sought to be amended by bringing about a F
uniformity in tax, duty, cess and fee on the one hand vis-à-vis
contributions to welfare funds of employee(s) on the other.
This is one more reason why we hold that the Finance Act,
2003 is retrospective in operation. Moreover, the judgment
in Allied Motors (P) Ltd. [(1997) 3 SCC 472 : (1997) 224
ITR 677] was delivered by a Bench of three learned Judges, G
which is binding on us. Accordingly, we hold that the Finance
Act, 2003 will operate retrospectively with effect from 1-4-
1988 (when the first proviso stood inserted).
23. Lastly, we may point out the hardship and the invidious
discrimination which would be caused to the assessee(s) if H
1096 SUPREME COURT REPORTS [2022] 10 S.C.R.

A the contention of the Department is to be accepted that the
Finance Act, 2003, to the above extent, operated prospectively.
Take an example, in the present case, the respondents have
deposited the contributions with RPFC after 31st March (end
of accounting year) but before filing of the returns under the
B Income Tax Act and the date of payment falls after the due
date under the Employees’ Provident Fund Act, they will be
denied deduction for all times. In view of the second proviso,
which stood on the statute book at the relevant time, each of
such assessee(s) would not be entitled to deduction under
Section 43-B of the Act for all times. They would lose the
C benefit of deduction even in the year of account in which
they pay the contributions to the welfare funds, whereas a
defaulter, who fails to pay the contribution to the welfare fund
right up to 1-4-2004, and who pays the contribution after 1-
4-2004, would get the benefit of deduction under Section 43-
D B of the Act.”
44. There is no doubt that in Alom Extrusions, this court did
consider the impact of deletion of second proviso to Section 43B, which
mandated that unless the amount of employers’ contribution was deposited
with the authorities, the deduction otherwise permissible in law, would
E not be available. This court was of the opinion that the omission was
curative, and that as long as the employer deposited the dues, before
filing the return of income tax, the deduction was available.
45. A reading of the judgment in Alom Extrusions, would reveal
that this court, did not consider Sections 2(24)(x) and 36(1)(va).
F Furthermore, the separate provisions in Section 36(1) for employers’
contribution and employees’ contribution, too went unnoticed. The court
observed inter alia, that:
“15. …It is important to note once again that, by Finance
Act, 2003, not only the second proviso is deleted but even the
first proviso is sought to be amended by bringing about an
G
uniformity in tax, duty, cess and fee on the one hand vis-a-vis
contributions to welfare funds of employee(s) on the other.
This is one more reason why we hold that the Finance Act,
2003, is retrospective in operation. Moreover, the judgement
in Allied Motors (P) Limited (supra) is delivered by a Bench
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1097
INCOME TAX-1[S. RAVINDRA BHAT, J.]

of three learned Judges, which is binding on us. Accordingly, A
we hold that Finance Act, 2003 will operate retrospectively
with effect from 1st April, 1988 [when the first proviso stood
inserted]. Lastly, we may point out the hardship and the
invidious discrimination which would be caused to the
assessee(s) if the contention of the Department is to be
B
accepted that Finance Act, 2003, 2003, to the above extent,
operated prospectively. Take an example - in the present case,
the respondents have deposited the contributions with the
R.P.F.C. after 31st March [end of accounting year] but before
filing of the Returns under the Income Tax Act and the date
of payment falls after the due date under the C
Employees’ Provident Fund Act, they will be denied deduction
for all times. In view of the second proviso, which stood on
the statute book at the relevant time, each of such assessee(s)
would not be entitled to deduction under Section 43B of the
Act for all times. They would lose the benefit of deduction
D
even in the year of account in which they pay the contributions
to the welfare funds, whereas a defaulter, who fails to pay the
contribution to the welfare fund right upto 1st April, 2004,
and who pays the contribution after 1st April, 2004, would
get the benefit of deduction under Section 43B of the Act. In
our view, therefore, Finance Act, 2003, to the extent indicated E
above, should be read as retrospective. It would, therefore,
operate from 1st April, 1988, when the first proviso was
introduced. It is true that the Parliament has explicitly stated
that Finance Act, 2003, will operate with effect from 1st April,
2004. However, the matter before us involves the principle of
F
construction to be placed on the provisions of Finance Act,
2003".
46. A discussion on the Principles of interpretation of tax statutes
is warranted. In Ajmera Housing Corporation & Ors. vs.
Commissioner of Income17 this court held as follows:
G
“27. It is trite law that a taxing statute is to be construed
strictly. In a taxing Act one has to look merely at what is said
in the relevant provision. There is no presumption as to a tax.
Nothing is to be read in, nothing is to be implied. There is no
17
Ajmera Housing Corporation & Ors. vs. Commissioner of Income, 2010 (8) SCC
739. H
1098 SUPREME COURT REPORTS [2022] 10 S.C.R.

A room for any intendment. There is no equity about a tax. (See:
Cape Brandy Syndicate v. Inland Revenue Commissioners
(1921) 1 KB 64 and Federation of A.P. Chambers of Commerce
and Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC
550. In interpreting a taxing statute, the Court must look
squarely at the words of the statute and interpret them.
B
Considerations of hardship, injustice and equity are entirely
out of place in interpreting a taxing statute. (Also see:
Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar
Mills Ltd. 1961 (2) SCR 189.)”
47. Likewise, this court underlined the rule, regarding interpretation
C of taxing statutes, in Commissioner of Income Tax-III v Calcutta
Knitwears, Ludhiana.18 Recently, in Union of India & Ors. vs. Exide
Industries Limited &Ors,19 this court examined, and repelled a challenge
to the constitutionality of Section 43B, especially the provision requiring
actual payment, in respect of leave encashment benefit of employees.
D The court observations in this regard are relevant:
“20. Section 43B, however, is enacted to provide for
deductions to be availed by the Assessee in lieu of liabilities
accruing in previous year without making actual payment to
discharge the same. It is not a provision to place any embargo
E upon the autonomy of the Assessee in adopting a particular
method of accounting, nor deprives the Assessee of any lawful
deduction. Instead, it merely operates as an additional
condition for the availment of deduction qua the specified
head.

F 21. Section 43B bears heading “certain deductions to be only
on actual payment”. It opens with a non-obstante clause. As
per settled principles of interpretation, a non obstante Clause
assumes an overriding character against any other provision
of general application. It declares that within the sphere
allotted to it by the Parliament, it shall not be controlled or
G overridden by any other provision unless specifically provided
for. Out of the allowable deductions, the legislature
consciously earmarked certain deductions from time to time
and included them in the ambit of Section 43B so as to subject
18
Commissioner of Income Tax-III v Calcutta Knitwears, Ludhiana 2014 (6) SCC 444.
19
H Union of India & Ors. vs. Exide Industries Limited & Ors., 2020 (5) SCC 274.
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1099
INCOME TAX-1[S. RAVINDRA BHAT, J.]

such deductions to conditionality of actual payment. Such A
conditionality may have the inevitable effect of being different
from the theme of mercantile system of accounting on accrual
of liability basis qua the specific head of deduction covered
therein and not to other heads. But that is a matter for the
legislature and its wisdom in doing so.
B
22. The existence of Section 43B traces back to 1983 when
the legislature conceptualised the idea of such a provision in
the 1961 Act. Initially, the provision included deductions in
respect of sum payable by Assessee by way of tax or duty or
any sum payable by the employer by way of contribution to
any provident fund or superannuation fund. It is noteworthy C
that the legislature explained the inclusion of these deductions
by citing certain practices of evasion of statutory liabilities
and other liabilities for the welfare of employees...”
***
D
23. With the passage of time, the legislature inserted more
deductions to Section 43B including cess, bonus or
commission payable by employer, interest on loans payable
to financial institutions, scheduled banks etc., payment in lieu
of leave encashment by the employer and repayment of dues
to the railways. Thus understood, there is no oneness or E
uniformity in the nature of deductions included in Section
43B. It holds no merit to urge that this Section only provides
for deductions concerning statutory liabilities. Section 43B
is a mix bag and new and dissimilar entries have been inserted
therein from time to time to cater to different fiscal scenarios, F
which are best determined by the government of the day. It is
not unusual or abnormal for the legislature to create a new
liability, exempt an existing liability, create a deduction or
subject an existing deduction to override regulations or
conditions.
G
24. The leave encashment scheme envisages the payment of a
certain amount to the employees in lieu of their unused paid
leaves in a year. The nature of this payment is beneficial and
pro-employee. However, it is not in the form of a bounty and
forms a part of the conditions of service of the employee. An
H
1100 SUPREME COURT REPORTS [2022] 10 S.C.R.

A employer seeking deduction from tax liability in advance, in
the name of discharging the liability of leave encashment,
without actually extending such payment to the employee as
and when the time for payment arises may lead to abhorrent
consequences. When time for such payment arises upon
retirement (or otherwise) of the employee, an employer may
B
simply refuse to pay. Consequently, the innocent employee
will be entangled in litigation in the evening of his/her life
for claiming a hard-earned right without any fault on his part.
Concomitantly, it would entail in double benefit to the employer
- advance deduction from tax liability without any burden of
C actual payment and refusal to pay as and when occasion
arises. It is this mischief Clause (f) seeks to subjugate.”
48. One of the rules of interpretation of a tax statute is that if a
deduction or exemption is available on compliance with certain conditions,
the conditions are to be strictly complied with.20 This rule is in line with
D the general principle that taxing statutes are to be construed strictly, and
that there is no room for equitable considerations.
49. That deductions are to be granted only when the conditions
which govern them are strictly complied with. This has been laid down
in State of Jharkhand v Ambay Cements21as follows:
E “23…. In our view, the provisions of exemption clause should
be strictly construed and if the condition under which the
exemption was granted stood changed on account of any
subsequent event the exemption would not operate.
24. In our view, an exception or an exempting provision in a
F taxing statute should be construed strictly and it is not open
to the court to ignore the conditions prescribed in the
industrial policy and the exemption notifications.
25. In our view, the failure to comply with the requirements
renders the writ petition filed by the respondent liable to be
G dismissed. While mandatory rule must be strictly observed,
substantial compliance might suffice in the case of a directory
rule.
20
See for e.g., Eagle Flask Industries Ltd. v. Commissioner of Central Excise, 2004
Supp (4) SCR 35.
21
State of Jharkhand v Ambay Cements, (2005) 1 SCC 368.
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1101
INCOME TAX-1[S. RAVINDRA BHAT, J.]

26. Whenever the statute prescribes that a particular act is to A
be done in a particular manner and also lays down that failure
to comply with the said requirement leads to severe
consequences, such requirement would be mandatory. It is
the cardinal rule of interpretation that where a statute provides
that a particular thing should be done, it should be done in
B
the manner prescribed and not in any other way. It is also
settled rule of interpretation that where a statute is penal in
character, it must be strictly construed and followed. Since
the requirement, in the instant case, of obtaining prior
permission is mandatory, therefore, non-compliance with the
same must result in cancelling the concession made in favour C
of the grantee, the respondent herein.”
This was also reaffirmed in a number of judgments, such as
Commissioner of Income Tax v. Ace Multi Axes Systems Ltd.22
50. The Constitution Bench, in Commissioner. of Customs v. Dilip
Kumar & Co. 23 endorsed as following: D
“24. In construing penal statutes and taxation statutes, the
Court has to apply strict rule of interpretation. The penal
statute which tends to deprive a person of right to life and
liberty has to be given strict interpretation or else many
innocents might become victims of discretionary decision- E
making. Insofar as taxation statutes are concerned, Article
265 of the Constitution [ “265. Taxes not to be imposed save
by authority of law.—No tax shall be levied or collected except
by authority of law.”] prohibits the State from extracting tax
from the citizens without authority of law. It is axiomatic that
taxation statute has to be interpreted strictly because the State F
cannot at their whims and fancies burden the citizens without
authority of law. In other words, when the competent
legislature mandates taxing certain persons/certain objects
in certain circumstances, it cannot be expanded/interpreted
to include those, which were not intended by the legislature.
G
***
34. The passages extracted above, were quoted with approval
by this Court in at least two decisions being CIT v. Kasturi &
22
Commissioner of Income Tax v. Ace Multi Axes Systems Ltd., 2018 (2) SCC 158
23
Commissioner. of Customs v. Dilip Kumar & Co,2018 (9) SCC 1. H
1102 SUPREME COURT REPORTS [2022] 10 S.C.R.

A Sons Ltd. [CIT v. Kasturi & Sons Ltd., (1999) 3 SCC 346]
and State of W.B. v. Kesoram Industries Ltd. [State of
W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]
(hereinafter referred to as “Kesoram Industries case [State
of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201]”, for
brevity). In the later decision, a Bench of five Judges, after
B
citing the above passage from Justice G.P. Singh’s treatise,
summed up the following principles applicable to the
interpretation of a taxing statute:
‘(i) In interpreting a taxing statute, equitable considerations
are entirely out of place. A taxing statute cannot be interpreted
C on any presumption or assumption. A taxing statute has to be
interpreted in the light of what is clearly expressed; it cannot
imply anything which is not expressed; it cannot import
provisions in the statute so as to supply any deficiency;
(ii) Before taxing any person, it must be shown that he falls
D within the ambit of the charging section by clear words used
in the section; and
(iii) If the words are ambiguous and open to two
interpretations, the benefit of interpretation is given to the
subject and there is nothing unjust in a taxpayer escaping if
E the letter of the law fails to catch him on account of the
legislature’s failure to express itself clearly.’”
51. The analysis of the various judgments cited on behalf of the
assessee i.e., Commissioner of Income-Tax v. Aimil Ltd. 24 ;
Commissioner of Income-Tax and another v. Sabari Enterprises25;
F Commissioner of Income Tax v. Pamwi Tissues Ltd.26; Commissioner
of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari
Sandh Ltd.27 and Nipso Polyfabriks (supra) would reveal that in all
these cases, the High Courts principally relied upon omission of second
proviso to Section 43B (b). No doubt, many of these decisions also dealt
G 24
Commissioner of Income-Tax Vs. Aimil Ltd., [2010] 321 ITR 508 (Delhi High Court).
25
Commissioner of Income-Tax and another Vs. Sabari Enterprises, [2008] 298 ITR
141 (Karnataka High Court).
26
Commissioner of Income Tax Vs. Pamwi Tissues Ltd., [2009] 313 ITR 137 (Bombay
High Court).
27
Commissioner of Income-Tax, Udaipur v. Udaipur Dugdh Utpadak Sahakari Sandh
H Ltd., [2013] 35 taxmann.com 616 (Rajasthan High Court).
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1103
INCOME TAX-1[S. RAVINDRA BHAT, J.]

with Section 36(va) with its explanation. However, the primary A
consideration in all the judgments, cited by the assessee, was that they
adopted the approach indicated in the ruling in Alom Extrusions. As
noticed previously, Alom Extrutions did not consider the fact of the
introduction of Section 2(24)(x) or in fact the other provisions of the
Act.
B
52. When Parliament introduced Section 43B, what was on the
statute book, was only employer’s contribution (Section 34(1)(iv)). At
that point in time, there was no question of employee’s contribution being
considered as part of the employer’s earning. On the application of the
original principles of law it could have been treated only as receipts not
amounting to income. When Parliament introduced the amendments in C
1988-89, inserting Section 36(1)(va) and simultaneously inserting the
second proviso of Section 43B, its intention was not to treat the disparate
nature of the amounts, similarly. As discussed previously, the memorandum
introducing the Finance Bill clearly stated that the provisions – especially
second proviso to Section 43B - was introduced to ensure timely payments D
were made by the employer to the concerned fund (EPF, ESI, etc.) and
avoid the mischief of employers retaining amounts for long periods. That
Parliament intended to retain the separate character of these two
amounts, is evident from the use of different language. Section 2(24)(x)
too, deems amount received from the employees (whether the amount
is received from the employee or by way of deduction authorized by the E
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. The significance of this provision
is that on the one hand it brought into the fold of “income” amounts that F
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)). The other important feature is that this distinction
between the employers’ contribution (Section 36(1)(iv)) and employees’
contribution required to be deposited by the employer (Section 36(1)(va)) G
was maintained - and continues to be maintained. On the other hand,
Section 43B covers all deductions that are permissible as expenditures,
or out-goings forming part of the assessees’ liability. These include
liabilities such as tax liability, cess duties etc. or interest liability having
regard to the terms of the contract. Thus, timely payment of these alone H
1104 SUPREME COURT REPORTS [2022] 10 S.C.R.

A entitle an assessee to the benefit of deduction from the total income.
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 pre-condition for allowing
the expenditure.
B
53. The distinction between an employer’s contribution which is
its primary liability under law – in terms of Section 36(1)(iv), and its
liability to deposit amounts received by it or deducted by it (Section
36(1)(va)) is, thus crucial. The former forms part of the employers’
income, and the later retains its character as an income (albeit deemed),
C by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation
to Section 36(1)(va) are satisfied i.e., depositing such amount received
or deducted from the employee on or before the due date. In other
words, there is a marked distinction between the nature and character
of the two amounts – the employer’s liability is to be paid out of its
D income whereas the second is deemed an income, by definition, since it
is the deduction from the employees’ income and held in trust by the
employer. This marked distinction has to be borne while interpreting the
obligation of every assessee under Section 43B.
54. In the opinion of this Court, the reasoning in the impugned
E 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. 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
F 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. In the
case of these liabilities, what constitutes the due date is defined by the
statute. Nevertheless, the assessees are given some leeway in that as
long as deposits are made beyond the due date, but before the date of
G filing the return, the deduction is allowed. That, however, cannot apply
in the case of amounts which are held in trust, as it is in the case of
employees’ contributions- which are deducted from their income. They
are not part of the assessee employer’s income, nor are they heads of
deduction per se in the form of statutory pay out. They are others’
income, monies, only deemed to be income, with the object of
H
CHECKMATE SERVICES P. LTD. v. COMMISSIONER OF 1105
INCOME TAX-1[S. RAVINDRA BHAT, J.]

ensuring that they are paid within the due date specified in the A
particular law. They have to be deposited in terms of such welfare
enactments. It is upon deposit, in terms of those enactments and on or
before the due dates mandated by such concerned law, that the amount
which is otherwise retained, and deemed an income, is treated as a
deduction. Thus, it is an essential condition for the deduction that such
B
amounts are deposited on or before the due date. If such interpretation
were to be adopted, 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.
55. In the light of the above reasoning, this court is of the opinion C
that there is no infirmity in the approach of the impugned judgment. The
decisions of the other High Courts, holding to the contrary, do not lay
down the correct law. For these reasons, this court does not find any
reason to interfere with the impugned judgment. The appeals are
accordingly dismissed. D

Bibhuti Bhushan Bose Appeals dismissed.
(Assisted by : Preetam Bharti, LCRA)

E

F

G

H