CBDT Clarification on Deductions under S.43B(b) on account of Employer’s Contribution to Employee Welfare Funds
The CBDT vide Circular No. 22/2015 dt. 17th Dec., 2015 has clarified the issue of “allowability of employer’s contribution to funds for the welfare of employees in terms of section 43B(b) of the Income Tax Act”.
CBDT noticed that as per section 43B of the Act certain deductions are admissible only on payment basis, whereas some field officers disallow employer’s contributions to provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, if it has been paid after the ‘due dates’, as per the relevant Acts.
The CBDT examined the issue in light of the judicial decisions in the case of Commissioner vs. Alom Extrusions Ltd,  185 TAXMAN 416 (SC), wherein the Apex Court held that the amendments made in section 43B of the Act, i.e. deletion of second proviso and amendment in the first proviso, being curative in nature are retrospectively applicable from 1.04.1988. It further held that by deleting the second proviso to section 43B of the Act and amending the first proviso, the contribution to welfare funds have been brought at par with the other duty, cess, fee, etc. Thus, the proviso is equally applicable to the welfare funds also. Therefore the deduction is allowable to the employer assessee if he deposits the contributions to welfare funds on or before the ‘due date” of filing of return of income.
Accordingly, w.e.f. 1.4.1988, the settled position, as per judgement of the Apex Court in the above matter, is that if the assessee deposits any sum payable by it by way of tax, duty, cess or fee by whatever name called under any law for the 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, on or before the ‘due date’ applicable in his case for furnishing the return of income under section 139(1) of the Act, no disallowance can be made under section 43B of the Act.
The CBDT has further decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/ Tribunals may be withdrawn / not pressed upon.
Also the CBDT has clarified that this Circular does not apply to claim of deduction relating to employee’s contribution to welfare funds which are governed by section 36(l)(va) of Income Tax.