2021 (1) TMI 825 - AT - Income Tax

Claim of deduction for the payment made towards education cess and secondary and higher education cess - prohibition on the deduction of any amount paid towards cess in Sec. 40(a)(ii), while computing the income chargeable under the head profits and gains of business or profession - HELD THAT - Respectfully following the decision in Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT and Chambal Fertilizers Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT we hold that the assessee shall be entitled for deduction of education cess and higher secondary education cess while computing income chargeable under the head profits and gains of business or profession . - Decided in favour of assessee.

Summary

Issues:
1. Deduction for education cess and secondary & higher education cess.
2. Admissibility of deduction under section 40(a)(ii) of the Income Tax Act, 1961.

Issue 1: Deduction for education cess and secondary & higher education cess

The appeal before the Appellate Tribunal ITAT Mumbai concerned the deduction for education cess and secondary & higher education cess claimed by the assessee. The assessee filed an additional ground of appeal for this deduction, citing a pure question of law based on a Supreme Court judgment. The Tribunal admitted this additional ground for adjudication, considering the impact on the tax liability of the assessee. The counsel for the assessee referred to judicial positions established by the Bombay High Court and the Rajasthan High Court, emphasizing that the expression "cess" should not be included in the provision of section 40(a)(ii) of the Act. On the contrary, the Departmental Representative argued that "cess" should be treated as "tax" and hence not deductible when computing income under the head "profit or gains of any business or profession."

Issue 2: Admissibility of deduction under section 40(a)(ii) of the Income Tax Act, 1961

The Tribunal analyzed the legal positions taken by the Bombay High Court and the Rajasthan High Court regarding the deduction of education cess and higher & secondary education cess. Referring to the judgment in Sesa Goa Ltd. case, the Bombay High Court observed that the absence of any reference to "cess" in section 40(a)(ii) indicated no prohibition on deducting amounts paid towards "cess." The High Court concluded that reading such a prohibition would go beyond the legislative intent. The Rajasthan High Court also supported this view, considering precedents and legal interpretations. Consequently, the Tribunal held in line with the decisions of the High Courts, allowing the deduction of education cess and higher & secondary education cess while computing income under the head "profits and gains of business or profession."

In conclusion, the Appellate Tribunal ITAT Mumbai partially allowed the appeal, permitting the deduction for education cess and secondary & higher education cess based on the legal interpretations provided by the Bombay High Court and the Rajasthan High Court. The judgment clarified the admissibility of such deductions under section 40(a)(ii) of the Income Tax Act, 1961, emphasizing the distinction between "cess" and "tax" for income computation purposes.