Provident Fund: know more

Recap: Contribution must be on the actual basic wage. Not on a notional 15000. That's to say if the basic wage is 8496 then calculate contribution on 8496. If the basic wage is 17564 pay contribution on maximum of 15000. - Section 9-A says no change can be implemented in the conditions of service of an employee without following the proper procedure. However this section won't come into effect if there is a settlement or agreement between the employer and the employee. We then ended with : Is a software company covered by the industrial disputes act ? Is the employer bound to pay contribution on the entire salary even though it's not mandatory under the provident fund act?

Lets begins with question that all software companies pose? – Are we an industry under the industrial disputes Act? - Well why not? But this will be better accepted if it comes from the horse’s mouth. So who is the horse? – The Supreme Court of India. In 2013 Tata consultancy services approached the supreme court on an altogether different point – whether software is a good under the sales tax Act. The contention was that software is intangible and therefore not a good that can be taxed. This matter was referred to a bench of 5 judges. Finally software was held to be a good which could be taxed. This was the thought process of the supreme court in 2005.

In 2010 the Supreme court passed judgement in another case. Commissioner of Income Tax Vs Oracle Software India. Putting the question in simple words the supreme court had to decide what was the ambit of “industrial undertaking” under section 80(IA) of the Income Tax Act. Again a software industry – Oracle – before the supreme court. So what did the supreme court say ? – “processing of blank CDs, dedicating them to a specific use, constitutes a manufacture”. Therefore an industrial undertaking and therefore taxable.

This judgement has wide consequences. The word chosen by the Supreme court is “manufacture”. A mere processing of a CD and dedicating them to a specific use was called manufacture.

Now a quick glance of the definition of Industry by the supreme court in the context of the Industrial disputes Act. In the case of Corporation of the city of Nagpur vs Its employees the supreme court held if an establishment is doing both industrial functions and non-industrial functions then the predominant function would decide the question. i.e. if the establishment is predominantly an industry it would be an industry.

Section 2(j) of the Industrial Disputes Act defines Industry as follows :

“industry” means any business, trade, undertaking, manufacture, or calling of employers and includes any calling, service, employment, handicraft or industrial occupation or avocation of workmen”

Explaining the definition of industry, supreme court in BWSSB case said that what requires to be seen is the Organisation of the venture, including the relations between the two limbs viz. labour and management. If the mutual relations, the method of employment and the process of co-operation in the carrying out of the work bear close resemblance to the organization method, remuneration, relationship of employer and employee and the like then it is industry.

So Software industries – what do you think ??? Industry or not ? Well, I said yes already….

Now why did we talk of software and industry? Last time we discussed provident fund contribution on a notional 15,000 rupees and a reversion to payment of contribution on the actual basic wage, the hurdle under section 9-A of the Industrial disputes Act. This is when software industries who were paying provident fund contributions came up with the question on their being covered by the Industrial Disputes Act so as to attract section 9-A.

Now that it is answered, can industries including software industries revert to paying contributions on actual basic wage than a notional 15000?

Again, catch you next week with more !!!

Until then enjoy the spice of life !!!!

By K. Sribhoomi Yesaswini

(The author is a practising lawyer with expertise in labour laws for the past 13 years.)