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Cess on income tax - s.40.ii not applicable hence not disallowable for this provision alone - should be allowed liberally and without restrictions. |
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Cess on income tax - s.40.ii not applicable hence not disallowable for this provision alone - should be allowed liberally and without restrictions. |
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Cess on income tax: Cess on income –tax is levied for some specific purposes. This is calculated as per prescribed formulae and /or as a percentage, of the amount of income tax plus surcharge on income tax from year to year and in specified manner for all or some type of assesses. For this purpose, we need to refer to provisions of the Finance Act of relevant year. Examples: Example of such cess are primary education cess, secondary education cess, higher education cess, health cess etc. Such amount of cess are for specified purposes like education and health. The amount of such cess is shared between the Central Government and State Governments. For the purpose of this write-up it is not necessary to delve into such details. Amount of cess is not tax on income or a rate or tax on profits or gains: The amount of such cess cannot be considered as ‘tax on income other than agricultural income’, for the purposes of the Constitution of Indian, and for which the Central Government has specific authority to levy ‘ tax on income other than agricultural income’ , under the Constitution of India. Amount of cess is a fees or service charge though computed and collected in collective manner: Amount of cess is in nature of a fees and charge for specific services to the society. Assessee being a part of society, avails such services to some extent directly and to some extent collectively. An individual and his family avails education and health services directly from government spending, whereas a business man a business organisation avail the same for individual benefits and by way of availing resources from society- by availing services of educated and healthy people from the society. To a greater extent, it is possible only because of government spending on education that business organisations get engineers, doctors, scientists at very competitive rates of salary in comparison to MBA and CA where education is not subsidies as in case of Engineers and Doctors. Though author himself is qualified CA,CMA,CS yet he feels that remuneration of doctors and engineers must be much more. This is unfortunate that in our country paper work and many times un-necessary paper work get higher rewards than much higher productive work of doctors, engineers, and scientists. When health services are good, business organisation get healthy people who are more productive and efficient. It is also important aspect to note that from time to time similar cess have been levied on indirect taxes also. Such cess, like basis tax (say Central Excise duty or Customs duty VAT , sales tax or GST) . In those cases, tax and cess both constitute cost of goods and services, as the case may be. The same is allowable, if the cost of goods and services are allowable. Therefore, there is no reason to disallow Cess on income- tax. Therefore, in view of author, cess for education and health is in nature of a fees, service or charge for people in common and business organisations who draw manpower from the public which are looked after for education and health by The Central and state Governments. Accordingly the provisions for allowing such cess against any type of income falling under any head of income should be allowed liberally and there should not be any bar to disallow such CESS. References of Illustrative Judgments: References of some of Judgments in which cess has been allowed with relevant portion of headnotes/ editorial summary on tmi are reproduced below with highlights added: TAX APPEAL NO.17 OF 2013 AND TAX APPEAL NO. 18 OF 2013 Dated: - 28 February 2020 Addition u/s 40(a)(ii) - Allowable deduction in the year of its payment - Education Cess and Higher and Secondary Education Cess - whether the expression “any rate or tax levied” as it appears in Section 40(a)(ii) includes “cess”? - HELD THAT:- In the Income Tax Act, 1922, Section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession '. In the corresponding Section 40(a)(ii) the expression “cess” is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income Tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression “cess” and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) . The effect of such omission is that the provision in Section 40(a)(ii) does not include, “cess” and consequently, “cess” whenever paid in relation to business, is allowable as deductable expenditure. There is no scope for such implications, when construing a taxing statute. Even, though, “cess” may be collected as a part of income tax, that does not render such “cess”, either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii). The mode of collection, is really not determinative in such matters. In the present case, though the claim for deduction was not raised in the original return or by filing revised return, the Appellant – Assessee had indeed addressed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner (Appeals) or the ITAT, before whom such deduction was specifically claimed was duty bound to consider such claim. - Decided in favour of assessee. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT In D.B. Income Tax Appeal No. 52/2018. Dated: - 31 July 2018 Eucation cess is a disallowable expenditure u/s 40(a)(ii) - Held that:- In view of the circular of CBDT No. 91/58/66 ITJ (19), dated May 18, 1967 where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision M/S. SRD NUTRIENTS PRIVATE LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE GUWAHATI [2017 (11) TMI 655 - SUPREME COURT OF INDIA] referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue is required to be reversed and the said issue is answered in favour of the assessee. 2020 (5) TMI 82 - ITAT KOLKATA DCIT, CENTAL CRICLE-2 (1) , KOLKATA VERSUS M/S PAHARPUR COOLING TOWERS LTD. AND (VICE-VERSA) ITA No.217 to 219/Kol/2018 And C.O No.94-96/Kol/2018 (a/o ITA No.217-219/Kol/2018) Dated: - 28 February 2020 Adding educational cess u/s 40(a)(ii) - HELD THAT:- This issue of educational cess disallowance u/s 40(a)(ia) is no more res integra as in CHAMBAL FERTILISERS AND CHEMICALS LTD., PR. COMMISSIONER OF INCOME TAX, KOTA. VERSUS JCIT, RANGE-2, KOTA., M/S. CHAMBAL FERTILIZERS AND CHEMICALS LTD., GADEPAN, DISTT. KOTA. [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] holds that the relevant statutory provision to this effect as well as the CBDT’s circular issued way back on 18.05.1967 do not include “Cess”. 2019 (10) TMI 1243 - ITAT KOLKATA DCIT, CIRCLE-2 (1) , KOLKATA VERSUS ITC INFOTECH INDIA LTD. I.T.A. Nos. 67/Kol/2015 and 485/Kol/2019 Dated: - 23 October 2019 Educational cess disallowance made in both the lower proceedings u/s. 40(a)(ii) - CHAMBAL FERTILISERS AND CHEMICALS LTD., PR. COMMISSIONER OF INCOME TAX, KOTA. VERSUS JCIT, RANGE-2, KOTA., M/S. CHAMBAL FERTILIZERS AND CHEMICALS LTD., GADEPAN, DISTT. KOTA. [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] have already held the same to be not sustainable. Learned CIT-DR took pains to refer to the tribunal's latter decision in ACIT vs. Srei Infrastructure Finance Ltd. [2019 (2) TMI 1721 - ITAT KOLKATA] that the issue stands adjudicated in the Revenue's favour. We are informed that the hon'ble jurisdictional high court has restored the very issue back to the tribunal for fresh adjudication. We therefore follow hon'ble Rajasthan high court's decision (supra) to conclude that the both lower authorities have erred in disallowing educational cess u/s. 40(a)(ii) - Decided in favour of assessee. ITA Nos.1111 & 1112/PUN/2017, CO.Nos.23 & 24/PUN/2019 (Arising out of ITA Nos.1111 & 1112/PUN/2017) Dated: - 25 July 2019 Allowability educational cess paid on income tax as expenses - HELD THAT:- Education Cess, which is not disallowable item, on its payment, the cess is an allowable expenditure as per provision of section 40(a)(ii) of the Act. Considering the settled nature of the issue as per the ratio laid down in the above referred case by CHAMBAL FERTILISERS AND CHEMICALS LTD., PR. COMMISSIONER OF INCOME TAX, KOTA. [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] ITA No.1232/PUN/2017, CO No. 40/PUN/2019 (Arising out of ITA No. 1232/PUN/2017) Dated: - 28 February 2020 Allowable deduction while computing the taxable income - education cess and secondary & higher education cess paid on the Income Tax and Surcharge - Claim raised for the first time before the Tribunal and they have not claimed this deduction in the return of income also - HELD THAT:- We find the ground raised by assessee in cross objection is legal in nature, hence, the same is admitted in line with the decision of Hon'ble Supreme court of India in the case of NTPC Ltd. Vs. CIT [1996 (12) TMI 7 - SUPREME COURT] We find this issue has already been adjudicated by the Pune Bench of the Tribunal in the case of DCIT Vs. Bajaj Allianz General Insurance Company Limited [2019 (8) TMI 370 - ITAT PUNE] wherein held education Cess, which is not disallowable item, on its payment, the cess is an allowable expenditure as per provision of section 40(a)(ii) - Decided in favour of assessee. Appeal of Revenue by way of SLP(CIVIL): Appeal of Revenue by way of SLP(CIVIL) is pending. The order of the Supreme Court, as contained in RECORD OF PROCEEDINGS, is reproduced below: Observation of author on the SLP: As can be seen SLP was filed belatedly with a petition for condonation of delay. This shows that the revenue and its counsels were not serious. The question framed ( as reproduced in order) is patently wrong. On plain reading of the question one would feel that this question can be raised only by assesse and not by the revenue. Whereas the appeal has been preferred by revenue through JOINT COMMISSIONER OF INCOME TAX RANGE II as Petitioner. The fact is that in case of Chambal Fertiliser The Tribunal disallowed claim for cess and on appeal of assesse, the High Court allowed the same. The judgments of Tribunal is reported at CHAMBAL FERTILIZERS & CHEMICALS LIMITED VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-2, KOTA AND DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA VERSUS CHAMBAL FERTILIZERS & CHEMICALS LIMITED [2016 (10) TMI 1115 - ITAT JAIPUR ] Therefore, assesse preferred appeal before Rajasthan High Court which was allowed, as already discussed. Now the revenue has preferred the appeal before the Supreme Court. As per the question framed by revenue in their petition it is contented or stated that The High Court and the ITAT both have held that the education cess is disallowable expenditure u/s 40(a)(ii) of the I.T. Act. This again shows gross negligence of the team of Income-tax Department, the petitioner and senior counsels of the petitioner. This is also pertinent that on 11.03.2019 revenue was represented by presence of three learned counsels of revenue and respondent was represented by presence of four learned counsels. Even if there was a mistake in petition, the counsels of revenue should have pointed out the mistake and corrected the question by proper prayer and petition with leave of honourable Supreme Court. The counsels of respondent seems to have adopted strategy to pray for dismissal of appeal, at the time of final hearing , for the reason that question is not arising out of proceedings before lower courts. This may be a good strategy, however, author feels that even counsels of respondent / assesse- Chambal Fertilisers Ltd failed in discharging their duty properly and timely by pointing out the wrong question and seeking dismissal of appeal at initial stage of proceedings so that valuable time of their lordships could be saved. However, with due respect to all, it seems that at higher levels of fees, it is difficult to overcome the god made greed causing long drawn litigations. Counsels of assesse, in case of SLP before the Supreme Court in case of Chambal Fertilizer must prepare case properly and must give special efforts to counter various points raised in appeal before Tribunals in the following cases: 2019 (2) TMI 1721 - ITAT KOLKATA ACIT, CIRCLE-9 (1) , NEW DELHI. VERSUS SREI INFRASTRUCTURE FINANCE LTD. AND VICE-VERSA. I.T.A. No. 1302/Del/2012, 1318/Del/2012 (Assessment Year: 2008-09) Dated: - 27 February 2019 And 2016 (10) TMI 1115 - ITAT JAIPUR ITA No. 459/JP/2012, ITA No. 558/JP/2012 Dated: - 28 October 2016 In which Tribunal had disallowed the claim. Unfortunately in judgment of Rajasthan High Court allowing the claim by reversing the judgment of Tribunal all contentions as raised before Tribunal have not been discussed. In case of SREI Infra, honorable Calcutta High Court has restored the matter to the Tribunal, vide order dated 08.08.2019 in ITAT no. 121 of 2019 SREI INFRASTRUCTURE FINANCE LTD. VERSUS PRINCIPAL COMMISSIONER OF INCOME TAX AND KOLKATA (2019 (8) TMI 809 - CALCUTTA HIGH COURT). Therefore, it is expected that in view of other judgments of Kolkata Tribunal in case of ITC Infotech and Pahar Pur (supra.) Kolkata Tribunal will allow the same. (this is subject to judgment of the Supreme Court, in case of Chambal Fertilizer Ltd on the issue as discussed earlier). Time for SLP against judgment of Bombay High Court is available: In view of judgment being dated 28022020 time to file SLP is available to revenue, and it is getting extended due to LOCK-DOWN.
By: DEV KUMAR KOTHARI - May 15, 2020
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