March 7, 2019

1. Yes, If we are to go by the latest judgment of the SC delivered on 28.02.2019, dismissing a whole batch of appeals pending from 2011, on the non-contentious issue of what all payments to employees have to be included under PF coverage and what alone stand excluded.
Link to the judgment copied below

2. The appeals in question were filed by:–

2.1. Vivekananda Vidya Mandir & others; [ The only Respondent]

2.2.Surya Roshni Ltd; [Petitioner]

2.3.U Flex Ltd; [Petitioner]

2.4. Montage Enterprises Pvt.Ltd [ Petitioner]

3. Let us now examine the anatomy of the obsolete, badly drafted definition of “Basic Wages” found in Section 2(b) of the Employees Provident Fund & Miscellaneous Provisions Act, 1952

3.1. In my assessment, this Section, which must have been re-drafted to give room for only ONE interpretation and thus take it beyond interpretational vagaries and the litigations triggered by these, has not been rectified for 67 long years now and that is the sole reason for the waste of society’s time and money on needless litigation.

3.2. Section (b)–“basic wages” MEANS,
* “all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case, in accordance with the terms of the contract of employment which are paid or payable in cash to him [ including chq payments and bank transfers]”

HAVING SAID ALL THIS, the Section continues:–
(i) the cash value of any food concession [ is anything clear from this ?];

(ii) any dearness allowance [DA, which is stipulated to be included in PF deduction through Section 6!];

(iii) house rent allowance [ how much Sir ? can an employer give 50/60% of the salary as HRA ???–maximum % not given]
* At the time of PF Inspection, some Officers say the maximum permissible HRA is only 20% of basic wages; some others say that their Commissionorate allows up to 30%!!!];

(iv) overtime “allowance”
* Allowance means any sum paid as a lump sum or as a percentage of the basic pay–can an employer pay , say,50% of the “basic wages” as overtime allowance and claim exemption from PF deduction ?
** the Law maker MUST have used the expression “actual overtime paid as per the Factories Act , 1948, or the Shop & Establishments Act of the concerned State for people working in offices!;

(v)” bonus, commission or any other similar allowance”
* is it bonus payable under the Payment of Bonus Act ?–not specified;
* “any other similar allowance”–can there be an expression more vague than this ???,
“all payable to the employee in respect of his employment or work done in such employment”;

(vi) any “presents” made by the employer!– how much in relation to basic wages ? how frequent ? The law Maker is SILENT.

4. To render some sanity to the impermissibly vague definition [ the worst I have seen], the SC, as early as in 1963, gave a landmark judgment in the case of ,–
Bridge and Roof Co. (India) Ltd. vs. Union of India, (1963) 3 SCR 978

4.1. In this case, the SC laid down a clear distinction between what payments to employees have to be included in PF and what not, thus:–

“whatever is payable by all concerns or earned by all permanent employees had to be included in basic wage for the purpose of deduction under Section 6 of the Act.

It is only such allowances not payable by all concerns or may not be earned by all employees of the concern, that would stand excluded from deduction”.

5. In spite of this clear judgement, Companies, thinking they were smarter than the Law Maker and giving payments under myriad and often weird names like these, which have been specifically mentioned in the latest SC Judgment cited in the title:–

5.1. Transport Allowance;

5.2. Travel Allowance;

5.3. Conveyance Allowance;

5.4. Lunch Incentive;

5.5. Management Allowance;

5.6. Special Allowance;

5.7. Medical Allowance;

5.8. Education Allowance;

5.9. Food Concession;

5.10. Special Holiday Allowance;

5.11. Night Shift Allowance;

5.12. City Compensatory Allowance etc

6. The SC dismissed all the petitions and came down heavily on the petitioners and the respondent saying thus:–
“The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees.”

7. Modi has ended the “Inspector Raj” to make doing business in India and thus generating employment and growth easy.

7.1. It is for the Industry and Business now to reciprocate , not yield to the misguidance and false hopes given by some tax professionals [ they do not have any stake in your business, mind that–all these four companies who lost the case in the SC will have to pay huge sums by way of PF Contribution along with interest and penalty, not your “advisor”.] and comply with the SPIRIT of the Law. You DO know it when you are trying to avoid compliance.

8. Litigation should only stem from GENUINE interpretational differences, especially when the Law Maker has drafted the Law with a prejudiced mind or in sheer ignorance.

Ramdas Iyer
Independent Analyst