Madhya Pradesh High Court Ruling on Allowances
The Madhya Pradesh High Court, in the case of Montage Enterprises Pvt. Ltd ('Petitioner') vs. Employees' Provident Fund, has held that certain allowances like conveyance allowance, transportation allowance, and special allowance should be treated as part of Basic wages under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 ('EPF Act'). Accordingly, provident fund ('PF') contributions should be remitted on such allowances.
Presently, most organizations are not considering these other allowances for the calculation of P.F. liability. Can someone suggest what further action should be taken based on the above judgment?
From India, Pune
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The Madhya Pradesh High Court, in the case of Montage Enterprises Pvt. Ltd ('Petitioner') vs. Employees' Provident Fund, has held that certain allowances like conveyance allowance, transportation allowance, and special allowance should be treated as part of Basic wages under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 ('EPF Act'). Accordingly, provident fund ('PF') contributions should be remitted on such allowances.
Presently, most organizations are not considering these other allowances for the calculation of P.F. liability. Can someone suggest what further action should be taken based on the above judgment?
From India, Pune
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P.F. is only calculate on Basic Salary (Basic pay + D.A.) nothing else. Decision may vary case to case.. but basic formula for P.F. is only calculate on Basic pay + D.A. Regards, Jigar
From India, Ahmadabad
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From India, Ahmadabad
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Dear fiends I am attaching the notification in this regard for your reference and records regards alphonse
From India, Madras
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166From India, Madras
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Case Details as follows:
The Employees' Provident Fund Organisation ('EPFO') has, in a recent internal communication, forwarded the aforesaid judgment to its officers and directed them to utilize this judgment as per the merits of the case.
Facts of the Case
- The petitioner has two categories of employees, namely Non-Executive and Executive, whose salary includes the following components:
Category
Components
Non-Executive
- Basic Salary
- Variable Dearness Allowance ('VDA')
- Conveyance Allowance
Executive
- Basic Salary
- House Rent Allowance
- Special Allowance
- The petitioner was remitting PF contributions for Non-Executive employees on two components of salary, namely Basic Salary and VDA, and for Executive employees on Basic Salary.
The PF office contended that the company was paying basic wages to its employees in the guise of various allowances to avoid the PF liability and thus issued a summons to the petitioner for determination of the PF dues.
- In its assessment order, the PF office held that both conveyance allowance and special allowance are part of basic wages and have to be considered while remitting PF liability.
- Against the assessment order, the petitioner filed an appeal before the Employees' Provident Fund Appellate Tribunal, which was dismissed by the appellate authority.
- Aggrieved by the above dismissal, the petitioner filed a petition before the Madhya Pradesh High Court.
PF Department's Contention
- The PF department contended that basic wages include all emoluments earned by the employees under all circumstances. The department placed reliance on the ruling of the honorable Supreme Court in the case of M/s Bridge and Roofs Co. Ltd. vs. Union of India and others, wherein the principle of universality was laid down to determine whether the PF contribution was payable on a particular component of salary.
Petitioner's Contention
- The petitioner contended that the company is not liable to deduct provident fund from the wages of the employees except on basic wages and VDA, and the petitioner placed reliance on the ruling of the honorable Supreme Court in the case of Manipal Academy of Higher Education vs. Provident Fund Commissioner.
Madhya Pradesh High Court Ruling
- Based on the facts of the case and the principle of law laid down in the case of Manipal Academy (Supra), the high court held that since there was no criteria to decide the special allowance and the fact that both the conveyance and special allowance were universally, necessarily, and ordinarily paid to all the employees across the board, both the above allowances would have to be considered while determining the PF liability.
2 AIR 1963 SC 1474
3 Under the principle of 'universality,' what is payable universally, necessarily, and ordinarily in all concerns and is earned by all the permanent employees is included for the purpose of PF contribution.
4 (2008) 5 SCC 428
From India, Pune
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The Employees' Provident Fund Organisation ('EPFO') has, in a recent internal communication, forwarded the aforesaid judgment to its officers and directed them to utilize this judgment as per the merits of the case.
Facts of the Case
- The petitioner has two categories of employees, namely Non-Executive and Executive, whose salary includes the following components:
Category
Components
Non-Executive
- Basic Salary
- Variable Dearness Allowance ('VDA')
- Conveyance Allowance
Executive
- Basic Salary
- House Rent Allowance
- Special Allowance
- The petitioner was remitting PF contributions for Non-Executive employees on two components of salary, namely Basic Salary and VDA, and for Executive employees on Basic Salary.
The PF office contended that the company was paying basic wages to its employees in the guise of various allowances to avoid the PF liability and thus issued a summons to the petitioner for determination of the PF dues.
- In its assessment order, the PF office held that both conveyance allowance and special allowance are part of basic wages and have to be considered while remitting PF liability.
- Against the assessment order, the petitioner filed an appeal before the Employees' Provident Fund Appellate Tribunal, which was dismissed by the appellate authority.
- Aggrieved by the above dismissal, the petitioner filed a petition before the Madhya Pradesh High Court.
PF Department's Contention
- The PF department contended that basic wages include all emoluments earned by the employees under all circumstances. The department placed reliance on the ruling of the honorable Supreme Court in the case of M/s Bridge and Roofs Co. Ltd. vs. Union of India and others, wherein the principle of universality was laid down to determine whether the PF contribution was payable on a particular component of salary.
Petitioner's Contention
- The petitioner contended that the company is not liable to deduct provident fund from the wages of the employees except on basic wages and VDA, and the petitioner placed reliance on the ruling of the honorable Supreme Court in the case of Manipal Academy of Higher Education vs. Provident Fund Commissioner.
Madhya Pradesh High Court Ruling
- Based on the facts of the case and the principle of law laid down in the case of Manipal Academy (Supra), the high court held that since there was no criteria to decide the special allowance and the fact that both the conveyance and special allowance were universally, necessarily, and ordinarily paid to all the employees across the board, both the above allowances would have to be considered while determining the PF liability.
2 AIR 1963 SC 1474
3 Under the principle of 'universality,' what is payable universally, necessarily, and ordinarily in all concerns and is earned by all the permanent employees is included for the purpose of PF contribution.
4 (2008) 5 SCC 428
From India, Pune
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From the perspective of provisioning in the books of accounts, one state's PF commissioner issues a demand notice based on one formula, while another state issues a demand based on a different formula. The auditor recommends incorporating this information as notes to accounts in the annual report. However, there is concern that doing so may lead to further exposure, as other regional PF commissioners may also raise issues.
Proposed Solution and Legal Advice
The proposed solution is unclear. After seeking legal advice, it was determined that no provision needs to be made in the books, and the status quo should be maintained. Despite this, the auditors are insisting on including this information in the notes.
Any thoughts on this matter?
From India, Bangalore
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Proposed Solution and Legal Advice
The proposed solution is unclear. After seeking legal advice, it was determined that no provision needs to be made in the books, and the status quo should be maintained. Despite this, the auditors are insisting on including this information in the notes.
Any thoughts on this matter?
From India, Bangalore
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Clubbing of allowances with basic pay under PF Act.pdf
EPF Act.ppt