2024 (3) TMI 306 - AT - Income Tax

Deduction u/s 80G - Corporate Social Responsibility (CSR) donations - expenditure was disallowed u/s 37(1) - assessee claimed that though the expenditure was disallowed in the computation of income following section 37(1) however, since the institutions to whom the assessee had donated the funds are eligible u/s 80G assessee is entitled for deduction of 50% of the amount expended in terms of section 80G - assessee is a residential corporate entity stated to be engaged in the business of providing services in terms of operating and supporting the network, development and delivery of software based solutions for telecommunication industry - HELD THAT - Undisputedly, expenditure incurred towards CSR is specifically prohibited from being allowed as deduction towards business expenditure by insertion of Explanation 2 to Section 37(1) of the Act by Finance Act, 2014 w.e.f 01.04.2015. However, there is no such corresponding amendment to section 80G of the Act. Only condition for claiming deduction u/s 80G as per the existing provision is the institute to which donation is made must have been registered under section 80G - Once the aforesaid condition is fulfilled, the donor is entitled to avail the deduction. This is also the view expressed by the Co-ordinate Bench in case of Honda Motorcycle and Scooter India Pvt. Ltd. 2023 (8) TMI 1179 - ITAT DELHI Before us, it is the specific contention of assessee that the institutes to whom the assessee has donated the CRS fund are registered u/s 80G of the Act. Thus we direct the AO to allow assessee s claim of deduction under section 80G of the Act, subject to, factual verification of assessee s claim that the donee institutions are registered under section 80G of the Act and other conditions of section 80G of the Act are fulfilled. Ground is allowed for statistical purposes. Lower rate of Dividend Distribution Tax (DDT) as per the provisions of DTAA as against applicability of rate of tax u/s 115-O - HELD THAT - We find, issue in dispute is squarely covered by the decision of the Special Bench of ITAT in the case of Total Oil India (P.) Ltd. 2021 (6) TMI 855 - ITAT MUMBAI - Hence, respectfully following the ratio laid down therein, we reject assessee s claim. Deduction of Education Cess ( EC ) and Secondary Higher Education Cess ( SHEC ) levied on income tax payable on the total income - HELD THAT - As in view of amendment u/s 40(a)(ii) of the Act by Finance Act, 2022 with retrospective effect from 01.04.2005, the claim of the assessee is not allowable. This is so because as per the amended provision, Education Cess and Secondary Higher Education Cess partake the character of income tax. In this context, we refer to decision of M/s. Chambal Fertilisers and Chemicals Ltd. 2022 (12) TMI 1098 - SC ORDER - Accordingly, ground raised is dismissed.

Summary

Issues involved:
1. Disallowance of deduction claimed under section 80G of the Act for Corporate Social Responsibility (CSR) donations.
2. Lower rate of Dividend Distribution Tax (DDT) as per the provisions of Double Taxation Avoidance Agreement (DTAA) versus the applicability of the rate of tax under section 115-O of the Act.
3. Claim for deduction of Education Cess (‘EC’) and Secondary Higher Education Cess (‘SHEC’) levied on income tax payable on the total income.
4. Levy of interest under section 234A, 234B, and 234C of the Act.

Issue 1: Disallowance of deduction under section 80G of the Act for CSR donations
The assessee challenged the disallowance of deduction claimed under section 80G of the Act for CSR donations. The Assessing Officer did not allow the claim, stating that CSR expenditure, being mandatory, does not qualify for tax deduction under section 80G. The First Appellate Authority upheld this decision, emphasizing that CSR expenditure is not voluntary and does not form part of business expenditure. However, the assessee argued that since the institutions receiving the CSR funds are registered under section 80G, the deduction should be allowed. The Tribunal agreed with the assessee, citing precedents and noting that there is no corresponding amendment to section 80G prohibiting such deductions. The Tribunal directed the Assessing Officer to verify the registration of the donee institutions under section 80G and allowed the deduction.

Issue 2: Lower rate of Dividend Distribution Tax (DDT) under DTAA
The assessee raised the issue of a lower rate of DDT as per the DTAA compared to the rate under section 115-O of the Act. The First Appellate Authority rejected the claim, following a decision of the ITAT Special Bench. The Tribunal, considering the Special Bench decision against the assessee, also rejected the claim, stating that the issue is squarely covered by the Special Bench decision.

Issue 3: Deduction of Education Cess and Secondary Higher Education Cess
The assessee claimed a deduction for Education Cess and Secondary Higher Education Cess levied on income tax payable. The Tribunal dismissed the claim, citing an amendment to the Act that classified these cesses as income tax. Referring to a Supreme Court decision, the Tribunal held that the claim for deduction was not allowable under the amended provision.

Issue 4: Levy of interest under section 234A, 234B, and 234C
The Tribunal considered the issue of the levy of interest under sections 234A, 234B, and 234C of the Act as consequential and did not require adjudication.

This summary provides a detailed overview of the judgment, addressing each issue involved and the Tribunal's decision on each matter.