(2009) 319 ITR 306 (SC)
Deductions allowed only on actual payment
Yes to both. The employer's contribution is deductible if paid by the return due date, and the amendment deleting the restrictive proviso is curative and applies retrospectively.
Where the employer's contribution to provident fund is paid after the statutory due date but before the return is filed, is the deduction allowable — and does the amendment removing the earlier restriction operate retrospectively?
The assessee paid its own contributions to provident fund and similar welfare funds after the due dates prescribed under the relevant welfare legislation, but before the due date for filing its income tax return. Under the provision as originally enacted, a second proviso had required such contributions to be paid by the due date under the welfare statute, and only other categories of payment enjoyed the relaxation allowing payment up to the return due date. That second proviso was subsequently deleted, placing employer contributions on the same footing as other payments. The question was whether the deletion applied to earlier years.
High Courts had divided on the retrospectivity of the deletion. The Supreme Court took up the question to settle the position.
For the assessee
The deletion of the restrictive proviso removed an anomaly under which employers' welfare contributions were treated worse than taxes, duties and other statutory dues. An amendment that cures a defect and removes unintended hardship is curative in nature and should be read as operating from the inception of the provision.
For the Revenue
The amendment was expressed to take effect from a specified date, and a fiscal provision is presumed to operate prospectively. Applying it to earlier years would reopen concluded positions and confer a benefit Parliament did not extend to those years.
The Court examined the legislative history and the purpose of the provision, which was to ensure that statutory dues were actually paid rather than merely provided for, while allowing a reasonable window running to the filing of the return. It found that the original scheme created an unintended discrimination: employers who paid their welfare fund contributions shortly after the welfare statute's due date but well before filing lost the deduction permanently, whereas the same delay in paying taxes or duties was forgiven. The deletion of the second proviso removed that discrimination and brought employer contributions into line with other categories. The Court held that an amendment of this character is curative — it remedies an unintended consequence rather than conferring a new benefit — and that such amendments are to be read as operating retrospectively from the date the provision was introduced. It followed that the employer's contributions paid before the return due date were deductible in the earlier years as well.
Carried into Section 37 of the IT Act 2025, which retains the actual-payment rule. Read this case strictly alongside Checkmate Services: Alom Extrusions concerns the employer's own contribution and permits payment up to the return due date, while Checkmate holds that the employees' contribution is different in character and must reach the fund by the welfare statute's deadline. Conflating the two is the most common error in this area.