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2017 (5) TMI 1650 - AT - Income TaxMaintainability of the appeal before the ITAT in view of CBDT Circular No. 21 of 2015 dated 10.12.2015 - whether the tax effect has to be computed taking into account the surcharge and education cess? - Held that - On combined reading of section 2(43) of the Act which defines tax to means income-tax chargeable under the provisions of this Act, Section 4 which is a charging section which states that income-tax shall be charged only where the Finance Act enacts that income shall be charged for any assessment year at rate or ratesspecified therein and Clause 2 of the Finance Act 2005 which provides that income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax shall be increased by a surcharge for purposes of the Union calculated in each case in the manner provided therein, it is crystal clear that tax includes surcharge. Surcharge forms part of tax and is nothing else but tax. The surcharge therefore has to be included while computing the tax effect. Coming to the issue of whether education cess is part of tax and whether the same has to be included while working out the tax effect clause 2 (11) of the Finance Act clearly provides that education cess is an additional surcharge for the purposes of the Union and thus the ratio decidendi of the Hon ble Supreme Court decision KERALA VERSUS K. SRINIVASAN 1971 (11) TMI 2 - SUPREME COURT will equally apply to education cess and the same is part of tax. It is clear that surcharge and additional surcharge referred as education cess forms part of tax and are to be considered while working out the tax effect for determining threshold for filing the appeal by the Revenue in terms of CBDT Circular No. 21/2015 dated 10.12.2015. In the instant case, where the tax is so computed after including surcharge and education cess, the tax effect would come to ₹ 10,06,362/- which is above the prescribed limit of ₹ 10 lacs for filing the appeal before the ITAT. Hence the subject appeal filed by the Revenue is clearly maintainable.
Issues Involved:
1. Deletion of capital gain assessed by CIT(A). 2. Computation of tax effect including surcharge and education cess. 3. Maintainability of the Revenue's appeal in view of CBDT Circular No. 21 of 2015. Issue-wise Detailed Analysis: 1. Deletion of Capital Gain Assessed by CIT(A): The Revenue filed an appeal against the order of the CIT(A), Ajmer, dated 26.03.2016, where the CIT(A) deleted the capital gain of ?44,84,675/- assessed in the A.Y. 2005-06. This deletion was challenged by the Revenue, leading to the present appeal. 2. Computation of Tax Effect Including Surcharge and Education Cess: The core issue was whether the tax effect should include surcharge and education cess. If included, the tax effect would be ?10,06,362/-, exceeding the ?10 lacs threshold set by CBDT Circular No. 21 of 2015, making the appeal maintainable. Excluding these components, the tax effect would be ?8,96,935/-, below the threshold, rendering the appeal non-maintainable. The AR relied on decisions from the Coordinate Bench, which held that tax computation should exclude surcharge and education cess. However, the Tribunal referred to the Supreme Court's decision in CIT vs. K. Srinivasan, which stated that "income tax" includes surcharge and additional surcharge, as per legislative history and practices. 3. Maintainability of the Revenue's Appeal in View of CBDT Circular No. 21 of 2015: The Tribunal examined the provisions of the Income Tax Act, 1961, and the Finance Act, 2005. Section 2(43) defines "tax" to include income tax and super tax, and Section 4 charges income tax as per the Finance Act. The Finance Act, 2005, specifies that income tax shall be increased by a surcharge for Union purposes, indicating that surcharge forms part of the tax. Clause 2(11) of the Finance Act, 2005, further clarifies that education cess is an additional surcharge for Union purposes. Thus, both surcharge and education cess are part of the tax, aligning with the Supreme Court's interpretation in CIT vs. K. Srinivasan. The Tribunal also referred to a similar issue in Chambal Fertilizers & Chemicals Limited, where it was held that education cess is an additional surcharge and partakes the nature of tax. Thus, surcharge and education cess must be included while computing the tax effect for determining the appeal's maintainability. Conclusion: The Tribunal concluded that surcharge and education cess form part of the tax and should be included in the tax effect computation. Therefore, the tax effect in this case is ?10,06,362/-, above the ?10 lacs threshold, making the Revenue's appeal maintainable. The Registry was directed to fix the hearing to address the arguments on merit. The matter was disposed of with these directions. Order Pronounced: The order was pronounced in the open court on 15/05/2017.
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