Kiran Raj

The Supreme Court Division Bench of Justice J.B. Pardiwala and Justice Sandeep Mehta has issued notice and agreed to examine whether an employer can claim an income-tax deduction for employees’ Provident Fund and Employees’ State Insurance contributions that are deposited after the due dates prescribed under the respective welfare laws. The Court was hearing an appeal by an assessee-employer challenging a decision of the Delhi High Court, which held that employees’ PF/ESI amounts paid late are not deductible even if remitted before filing the income-tax return. Noting divergent views on the interpretation of the relevant “due date”, the Bench indicated it would consider the issue and directed that notice be returnable in four weeks.

The revenue contended that employees’ contributions are treated as income of the employer under the Act and are deductible only if deposited within the statutory due dates under the respective welfare laws. The assessee relied on a line of judicial precedents holding that both employers and employees’ contributions would be governed by the provisions permitting deduction if payment was made before the return filing deadline.

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The High Court upheld the revenue’s position, holding that employees’ contributions stand on a different footing from employer’s contributions and are governed by a distinct statutory scheme. Aggrieved by this view, the assessee approached the Supreme Court, contending that divergent judicial interpretations existed across High Courts on the issue, warranting consideration by the apex court.

The Court recorded that the High Court had taken the view that “employer's contributions under Section 36(1)(iv) and employees’ contributions covered under Section 36(1)(va) read with Section 2(24)(x) are fundamentally different in nature and must be treated separately.”

It noted the finding that “employees' contribution deducted from their salaries are deemed to be income under Section 2(24)(x) and are held in trust by the employer,” and that deduction is permissible only if “they deposit these amounts on or before the statutory due date under Section 36(1)(va).”

The Court took note of the reasoning that “the non-obstante clause in Section 43B cannot be applied to employees' contributions governed by Section 36(1)(va).” It was also recorded that the precedent in Alom Extrusions had been distinguished on the ground that “the same has not considered Sections 2(24)(x) and 36(1)(va).”

The Bench noted the observation that “Explanation 5 to Section 43B was not considered at all while arriving at the decision that employees' contribution must be deposited on or before the due dates under relevant statutes.”

The Court further recorded that there were “two school of thoughts as regards the interpretation of the words ‘due date’.” One line of authority supported the view that delayed deposit of employees’ contributions results in the amount remaining income of the employer unless deposited within the statutory due date. The other view treated employees’ and employer’s contributions alike, allowing deduction if payment was made before the due date for filing the return.

Having noticed the extensive and conflicting body of High Court decisions supporting both interpretations, the Bench recorded that “in view of the conflicting opinion, as referred to above, we would like to look into this issue.”

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The Court directed that “issue notice, returnable in four weeks. Dasti, in addition, is permitted.”

Advocates Representing the Parties

For the Petitioners: Mr. S. Ganesh, Senior Advocate; Mr. Diggaj Pathak, Advocate-on-Record; Mr. Anukalp Jain, Advocate; Mr. Abhijit Mittal, Advocate; Ms. Shweta Sharma, Advocate; Ms. Trishita Bera, Advocate; Ms. Nishtha Nanda, Advocate; Ms. Shaivya Singh, Advocate; Ms. Vaibhavi Pathak, Advocate

Case Title: Woodland (Aero Club) Private Limited Director v. Assistant Commissioner of Income Tax

Case Number: Petition for Special Leave to Appeal (C) No. 1532 of 2026

Bench: Justice J.B. Pardiwala, Justice Sandeep Mehta