9911796707
TMI Blog2016 (10) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... year. Accordingly, this ground of the Revenue’s appeal is dismissed. Club expenses paid by assessee for membership of its employees - Held that:- In assessee’s own case for the A.Y. 2005-06 held the assessee has given the name of the employees, date, amount, name of the club, nature of payment and period. The club membership has been paid in respect of 28 employees. It is noticed from the period mentioned in the chart that payments are annual subscription or subscription for part of the year. It is not a case where the assessee has paid corporate fee to the club. There is no payment for the period exceeding one year so that the benefit may be given to the employees for more than a year. The expenditure as club membership fee is an expenditure for the purpose of the business. Hence, the expenditure is allowable u/s 37 Holding the donation made by the assessee to DAV Trust was expenditure incurred wholly and exclusively for the purpose of business of the assessee - Held that:- In assessee’s own case for the A.Y. 2006-07 Voluntary payments made by an employer for the general welfare and benefit of the employees on grounds of commercial expediency are revenue expenditure, deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore confirm the order of the ld CIT(A) who has allowed the rent payment as incurred for the purposes of the assessee’s business. Accordingly, this ground of the Revenue’s appeal is dismissed. Deleting the expenses for payment made to Zuari Investment Ltd - Held that:- For the purposes of invocation of section 35D, two conditions are prescribed. Firstly, the nature of expenditure should be as specified in section 35(2) and secondly, the expenditure should be incurred either before the commencement of the business, or where the business has been commenced, in connection with the extension of the undertaking or in connection with the set up of a new unit. Nothing has been brought on record to satisfy the above two conditions. Further, the Revenue has taken the ground that these expenses are with respect to the shipping division whose income was offered on the basis of Tonnage Scheme. However, there is nothing on record and which has been brought to our notice which suggest that these expenses are with respect to the Shipping Business subject to Tonnage tax scheme. In light of these, we are unable to accede to the position of the Revenue that the expenses are covered by the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. In the instant case, the return of income was originally filed on 30.09.2008, notice u/s 143(2) was issued on 3.9.2009, assessment order was thereafter passed on 31.12.2010 and subsequently, the order of the ld CIT(A) was passed on 30.03.2012. Accordingly, the proceedings for the impunged assessment year were pending before the Assessing officer and the provisions of section 80 A(6) will apply in the instant case. As we have stated above, the authorities below have not examined the matter after taking into consideration the provisions of section 80A(6) of the Act. In the interest of justice and fair play, we deem it appropriate to refer the matter back to the file of the AO to examine the matter a fresh taking into consideration the above discussions. Notional interest in respect of investment in subsidiary companies without providing any nexus between investments and loans - CIT(A) has given a finding that “the assessee claimed that these investments were made out of surplus funds available with the assessee, however, no supporting evidence was furnished. “ The onus to establish that the investments are made out of surplus funds and not borrowed funds is on the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances, the disallowances made deserve to be deleted and claim made by the appellant deserves to be allowed. 2. That the Ld. Assessing Officer erred in disallowing the claim of ₹ 28,12,000/- on the ground of notional interest in respect of investment in subsidiary companies without proving any nexus between investments and loans and the Ld. CIT (Appeals) further erred in confirming the same. Hence the disallowance made on this account should be deleted. 3. That the Ld. Additional Commissioner erred in not allowing the expenditure of education cess of ₹ 2,41,59,485/- from income claimed by the appellant and the Ld. CIT(Appeals) erred in confirming the same. The education cess was actually paid on income tax and is not a part of income tax as per the provisions of section 40(a)(ii) and is hence an allowable expenditure. Therefore the claim for deduction from income for expenditure of education cess should be allowed. Grounds of revenue s appeal: On the facts and in the circumstances of the case, the Ld. CIT (A), Kota has erred in:- i) allowing deductions u/s 80IA on Captive Power Plant claimed by the assessee at ₹ 41,59,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax liability as income for A.Y. 2005-06 and not for A.Y. 2008-09. The Assessing Officer has observed that it is seen from the computation of income that a sum of ₹ 2,48,82,876/- had been claimed as deduction on account of incentive on prepayment of deferred Sales tax liabilities allowed against fixed capital investment of unit Gadepan-I. The assessee was requested to furnish its reply. Vide letter dated 13.12.2010, it is submitted that as regard to the prepayment of sales tax liability which is in accordance with the notified scheme of Rajasthan Govt., is a capital receipt and hence not taxable as revenue receipt. The assessee has filed its submission but not found acceptable by the Assessing Officer for the following reasons: (i) Since the assessee has collected the amount of sales tax but the payment has been made after availing incentive benefit as per the scheme of the State Government as claimed, the incentive received is a business receipt and the same has to be treated accordingly. (ii) No details of scheme of the State Government have been furnished so as to verify the claim of the assessee with regard conversion of this amount into an interest free l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax to deposit the amount of deferred tax even before the stipulated due date of deposit. The payment is to be on the basis of net present value as specified in that notification. Net present value has been mentioned as percentage of amount payable and such percentage varies as per the period of month between the actual date of payment and the extended date of payment. However Board Circular 496 dated 25.9.87 stated that statutory liability is to be treated as paid in case the State Govt. makes an amendment that sales tax deferred under the scheme is to be treated as actually paid. Benovelent Circular of Board are mandatory. The liability is not that of sales tax but it is a liability of loan. Hence the decision of special bench in the case Sulzer India Ltd. is squarely applicable. It will be useful to reproduce Head Note in the case of Sulzer India Ltd. Business income-Profits chargeable to tax under s.41(1)Payment of net present value against deferred sales-tax liability Assessee company obtained incentive by way of sales-tax deferral schemes of 1983 and 1988 notified by the Government of Maharashtra-As per the said schemes, the sales-tax collected by the assessee during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her convertible into money or not, arising from business or the exercise of a profession, as profits and gains of business or profession. Therefore, what is to be examined is whether the waiver of loan would amount to a perquisite so as to be taxable, as such, under s. 28. The Bombay High Court in the case of Mahindra Mahindra Ltd. Vs. CIT (2003) 182 CTR (Bom) 34 : (2003) 261 ITR 501(Bom) : (2003) 128 Taxman 394 (Bom), has explained that s. 28(iv) seeks to charge the value of any benefit or perquisite, meaning thereby that the benefit must be in kind; the Court further held that waiver of loan is in respect of money transaction and, therefore, would not be in nature of any benefit or perquisite as construed in s. 28(iv). 2.21 The argument of the ld. DR that scheme of Rajasthan Govt is different is not of relevance. In the case of Maharashtra, the scheme of receipt of prepayment of loan was by a State Corporation while in Rajasthan it has been implemented by State Govt. The implementing agency may be different but the nature of the scheme is the same 2.22 We therefore hold that Ld.CIT(A) was not justified in confirming the addition of ₹ 12,06,33,254/- as provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Assessment years 2005-06 and 2007-08 and club expenses have been allowed as business expenses. The Hon ble ITAT while deciding the appeals for A.Y. 2006-07 and 2007-08 in ITA No. 268/JP/2010 and 374, 536/JP/2010 has held that the club expenses were allowable. The Hon ble ITAT relied on its own order in A.Y. 2005-06. Accordingly, the ld. CIT(A) had deleted the addition of ₹ 10,16,659/-. 9. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the Assessing Officer but admitted that the Hon ble ITAT in earlier years had deleted the addition made by the Assessing Officer with regard to club expenses. 10. At the outset, the ld AR has vehemently supported the order of the ld. CIT(A) and prayed to uphold the order. 11. We have heard the rival contentions of both the parties, perused the material available on the record and the earlier orders passed by the Coordinate Bench. In assessee s own case for the A.Y. 2005-06 passed in ITA No. 445/JP/2009 order dated 09/09/2011, the Coordinate Bench has held as under:- 10.2 The details of payments made to club expenses are available at pages 158 to 161 of the paper book. In these detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in pari materia with the position in the current year. Thus, the findings given in those years apply mutatis mutandis in the current year as well. The decision of appellate authorities on this issue is being disputed further and thus have not reached finality. Therefore, donation made to DAV trust is disallowed and added to the total income of the assessee company. 13. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had deleted the addition by following the earlier orders of the Hon ble ITAT by observing that the Hon ble ITAT while deciding the appeals for A.Y. 2006-07 and 2007-08 in ITA No. 268/JP/2010 and 374, 536/JP/2010 has held that payment to DAV Trust for running of school was allowable expenditure. Accordingly, the ld. CIT(A) had deleted the addition of ₹ 22,93,923/-. 14. Now the Revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the Assessing Officer but admitted that the Hon ble ITAT in earlier years had deleted the addition made by the Assessing Officer with regard to DAV Trust. 15. At the outset, the ld AR has vehemently supported the order of the ld. CIT(A) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the matter, in the facts of this case, where there is no dispute about the bona fides in creation of the trusts or utilisation of the funds contributed by the assessee to the trusts, we have no hesitation in holding that the expenditure incurred by the assessee by way of contribution to the welfare trust of the employees was rightly held to be deductible under section 37 of the Income- tax Act. By respectfully following the order of the Coordinate Bench in assessee s own case for the A.Y. 2006-07, we uphold the order of the ld. CIT(A) for this assessment year. Accordingly, this ground of the Revenue s appeal is dismissed. 17. Ground No. 5 of the Revenue s appeal is against deleting the addition of ₹ 11,71,382/- on account of depreciation disallowed on catalyst. This issue came up for discussion/deliberation during the assessment proceedings for the earlier assessment years where the facts are found to be similar to those of the assessment year under consideration. The assessee s appeal for earlier years has been allowed by the CIT (A) and the department is in further appeal before the Hon ble ITAT and the order is still awaited. This being so, the claim of deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gratuity. However, from perusal of copy of ledger account, it is not possible to link whether the claim so made has been disallowed in the earlier years and nature of reason for disallowing the same during the course of assessment. Thus, in absence of relevant and proper details, this claim of the assessee is not verifiable, therefore, the same is disallowed which works out to ₹ 3,49,57,657/- and added to the total income. 23. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had deleted the addition by observing as under:- The assessee vide letter dated 19.09.2011 submitted as under: Our submission in this regard is as under:- The deduction for certain statutory liabilities covered u/s 43B is allowable on payment basis only, so above referred amount was disallowed in respective earlier years due to non-payment. There are multiple dates of payment in case of leave encashment and bonus. We have enclosed a year wise break up of unpaid statutory liabilities covered u/s 43B as on 01.04.2007 and the same was not allowed in the respective years as certified by the auditors. As the assessee has paid/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. It was seen that assessee did not claim these expenditure and made payment of part of the expenditure in the current year and also written back part of the expenditure as discussed in Ground No. 7. The said findings of the ld CIT(A) remain uncontroverted before us. The ld CIT(A) has carried out the necessary verification of the assessee s claim which is also certified by the Tax Auditor. We therefore do not find any infirmity in the order of ld CIT(A) and accordingly uphold the said order. Accordingly, this ground of the Revenue s appeal is dismissed. 27. Ground No. 7 of the Revenue s appeal is against allowing rent paid for flat of ₹ 10,80,000/- to a person specified U/s 40A(2)(b), the Assessing Officer has observed that the assessee company has paid rent @ ₹ 90,000/- per month to the specified person u/s 40A(2)(b). Vide para No. 10 of this office letter dated 06.12.2010, the assessee was asked to give the details. In response to above, the assessee has filed reply as per point No. 10 vide letter dated 13.12.2010, which is reproduced as under:- In this regard we wish to submit before your goodself that referred accommodation is used exclusively as gues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties and perused the material available on the record. The ld CIT(A) has given a finding that the employees of the assessee company stayed at the guest house in respect of which an amount of ₹ 10,80,000 has been paid as rent. Further, the Revenue has not brought on record any material evidence to suggest that the rent paid was excessive vis- -vis an accommodation of same size and facility in the same locality. We therefore confirm the order of the ld CIT(A) who has allowed the rent payment as incurred for the purposes of the assessee s business. Accordingly, this ground of the Revenue s appeal is dismissed. 32. Ground No. 8 of the Revenue s appeal is against deleting the expenses of ₹ 89,41,361/- for payment made to Zuari Investment Ltd. The Assessing Officer has made a table regarding payment to the different companies, which is reproduced hereunder:- Voucher No. Date Amount Remarks 1900006179 31.08.2007 28,09,000/- Consultancy charges to ZIL for enhancing WC limit 1900011258 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue nature but has alleged that the expenses are deferred revenue covered under section 35D And allowed a deduction of 1/10th according to the provisions of that section. We humbly submit that the Ld. AO erred in applying section 35D. Section 35D reads as follows:- //Section 35D : Amortisation of Preliminary Expenses (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),- (i) Before the commencement of his business, or (ii) After the commencement of his business in connection with the extension of his industrial undertaking or in connection with his setting up a new industrial unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. Hence the disallowance of ₹ 89,41,361/- u/s 35D deserves to be deleted. 4.102. I have gone through the AO s findings and assessee s submission. The A.O. disallowed the expenditure on the ground that the expenses were covered u/s 35D and therefore only 10% was allowed in the current year. The assessee on the other hand that the expenditure were paid to Zuari Investment for various kind of services (arranging term loan, consultancy for enhancing working capital etc.). Section 35D applies on expenditure in relation to extension of industrial undertaking or expenditure incurred before commencement of business for setting up new unit. The A.O. did not bring anything on record to show that these expenditures were incurred before commencement of business or after commencement of business in relation to extension of industrial undertaking or for setting up new unit. In view of the above, the A.O. is directed to delete addition of ₹ 89,41,361/-. 34. Now the revenue is in appeal before us. The ld. CIT DR has vehemently supported the order of the Assessing Officer. 35. At the outset, the ld AR of the assessee has supported the order of the ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For ready reference the copies of bills and vouchers are once again annexed herewith. As per the copies of bills annexed (which incidentally are the supporting documents to the voucher ) it is evident that the payment is for the Software Consultancy charges. The L d AO has alleged that no supporting documents have been provided but has yet come to the conclusion that the payment is covered by section 35D. 4.122 I have gone through the AO s findings and assessee s submission. The A.O. disallowed the expenditure on the ground that the expenses were covered u/s 35D and therefore only 10% was allowed in the current year. The assessee on the other hand that the expenditure were paid to ISG Novasoft Technology for software consultancy services. The A.O. mentioned in his order that no supporting vouchers were produced. I fail to understand how he reached to the conclusion that the same was covered by section 35D. Section 35D applies on expenditure in relation to extension of industrial undertaking or expenditure incurred before commencement of business or for setting up new unit. The A.O. did not bring anything on record to show that these expenditure were incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 7, 2007. For the purpose of verification of the accounts of FPU as on November 7, 2007, CFCL and TFL appointed professional accounting firms M/s V. Sankar Aiyar Co. and Grant Thornton respectively and advised them to submit a joint report on the assets and liabilities of FPU on the date of sale transaction. As per the joint report submitted by them, the details of current assets and current liabilities were provided and NCA was worked out on the date of sale i.e. November 7, 2007. There was a reduction in NCA by ₹ 93,77,295/- as against the provisional NCA, which was considered at the time of agreement signing on November 7, 2007. A copy of the report submitted by M/s V Sankar Aiyar Co. and M/s Grant Thornton was provided during the course of assessment hearing. Further, one more adjustment of ₹ 2,19,250/- in NCA was agreed by both the parties towards additional ex-gratia liability towards FPU employees. Based on the above changes in NCA, a supplementary agreement dated March 04, 2008 was entered between CFCL and TFL towards final determination of the sale consideration of ₹ 22,63,18,455/-. The provisions of section 50B of the IT Act are applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same has been offered for tax at regular rates. As mentioned earlier, the sales consideration was originally decided at ₹ 23,59,15,000/- in pursuance to the Business Purchase Agreement dated 07.11.2007. The consideration was subsequently revised to ₹ 22,63,18,455/- vide supplementary agreement dated 04.03.2008. However, in the Assessment order dated 31.12.2010 the total sale consideration was taken at ₹ 2359.15 lac (as per original Business Purchase Agreement), which should have been ₹ 2263.18 lac. The assessee had provided copies of both the agreements viz. Business Purchase agreement dated 07.11.2007 and supplementary agreement dated 04.03.2008 during the assessment proceedings but due cognizance of the second agreement was not taken. Further, the business of Food Processing Unit was sold as a going concern on a slump sale basis. All the assets (movable as well as immovable) and liabilities related to the said unit were sold to the M/s Temptation Foods Limited and the net worth was computed as per the provisions of section 50B of the Income tax Act, 1961 (as detailed out above). Whereas, fixed assets which as per depreciation chart were ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has to be taken at ₹ 2263.18 lacs, secondly, as per the provisions of section 50B deduction for all other assets has to be allowed as per book value. The A.O. failed to do so. In view of the above, the A.O. is directed to delete the addition of ₹ 11,48,87,000/-. 44. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the Assessing Officer. 45. At the outset, the ld AR of the assessee has relied on the order of the ld. CIT(A). 46. We have heard the rival contentions of both the parties and perused the material available on the record. It is not in dispute that the assessee company has sold its food processing unit situated at Sonepat, Haryana as a going concern on a slump sale basis to M/s Temptation Food Ltd. Further, it is also not disputed that the provisions of section 50B are applicable to determine the capital gains on the said transaction. What is being disputed is the value of sale consideration which has been agreed between the two parties. In this regard, it is apparent from the records that the assessee has entered into two agreements the Business Purchase agreement dated 07.11.2007 and supplementary agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment can be doubted on account of the reason that the purchaser has not independently confirmed the same. In our view, it is advisable to seek an independent confirmation and we donot see anything wrong in the action of the AO in seeking an independent confirmation from the party concerned who has executed the supplementary agreement. Having said that where the AO was ceased of the information that assessee has entered into a supplementary agreement and the buyer has only confirmed the existence of the original business purchase agreement, the burden of proof lies on whom. In our view, the AO should have confronted the assessee about the information collected u/s 133(6) from the buyer and secondly, the AO should have sought further information from the buyer specifically asking about the existence of the supplementary agreement. There is nothing on record to suggest such discharge of burden by the Revenue. Further, there is nothing on record to suggest that ld CIT(A) has called for a remand report from the AO in this regard or the assessee company has submitted any confirmation from the buyer about the existence of the supplementary agreement or submitted that the agreement is regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to recovery in HRSG. The Revenue s ground is against the action of the ld CIT(A) in allowing deductions u/s 80IA on Captive Power Plant claimed by the assessee at ₹ 41,59,57,420/-. The Assessing Officer has observed that in the computation of income filed alongwith the return of income, the assessee company has claimed deduction U/s 80IA of the Act on the Captive Power Plant at ₹ 41,59,57,420/-. The assessee company was requested to furnish the details, for which the assessee company has furnished reply vide point No. 7 of letter dated 29/10/2010 and 30/12/2010, which is reproduced at page No. 6 to 13 of the assessment order. The Assessing Officer has further observed that on perusal of the return of income filed, it is seen that the assessee company has claimed deduction @ 100% of the income attributable to the power generation plant. It is claimed that the Power Generation Plant has been installed to generate power to be consumed entirely by the assessee company itself on captive basis in the manufacturing activities i.e. for running the fertilizers plant. The assessee has claimed deduction by averring that even in respect of a plant of which the production is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he production of unit was separately considered, then it was liable for duties other taxes applicable for such generation of power which is admittedly not found to be paid. Thus, the facts are in pari materia with the position in the current year as well and hence the findings given there apply mutatis mutandis in the year under consideration also. In this regard, though the CIT(A) has allowed the deduction under section 80IA in the assessment year 2004-05 but the department has gone in further appeal before Hon ble ITAT on this issue. It is also noted that the Hon ble ITAT has decided this issue in favour of the assessee company for the assessment years 1999-00 2000-01, however the department has preferred further appeal u/s 260A on this issue with the High Court. Therefore in view of the above facts, the claim of ₹ 41,59,57,420/- u/s 80IA is disallowed and added to the total income of the assessee. 48. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had restricted the deduction to ₹ 37,97,01,880/- instead of ₹ 41,59,57,420/- by observing as under:- 4.22 The A.O. disallowed claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of CERC can be taken as sale price in open market. Accordingly, for calculating profits of captive power plant the transfer price of electricity u/s 80IA(8) is taken at ₹ 4.48 per KWH. This resulted in excess claim of sale price of power by ₹ 64,02,938/-. Cost of Gas Consumed It was seen that in the annual report for the F.Y. 2007-08, the assessee has shown the following figures:- Electricity generated through Stream Turbine/Generator Quality 160073.44 MWH Unit per SM 3 of Gas 2.57 KWH/SM 3 Cost per unit 2.62 Rs./KWH From the above, the assessee was asked to the following discrepancies:- (i). (a). 1 Unit of GAS in SM 3 produces =2.57 KWH of power (b). So 1 KWH of power is generated = 1 SM 3 ofGas 2.57 (c). So for 1,60,073,440.KWH = 1 60073440 will require 2.57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s 80IA is restricted to ₹ 37,97,01,880/-. This ground of appeal is therefore partly allowed. 49. Now the assessee as well as the revenue is in appeal before us. The ld. AR of the assessee has reiterated the arguments made before the ld. CIT(A) and submitted that this is the tenth year of claim and the Hon ble ITAT, Jaipur Bench in assessee s own case for the assessment year 1999-2000 and for the subsequent assessment years up to A.Y. 2007-08 has held that the deduction U/s 80IA would be allowable to the appellant in respect of the captive power plant. Therefore, he prayed to allow the appeal on this ground. Further, in respect of determination of market value of electricity captively supplied, the ld AR referred to the decision of the Coordinate Bench of the Tribunal in case of Additional CIT vs Jindal Steel and Power Ltd (16 SOT 509) where it was held as under: 15. Therefore, from the aforesaid, it can be deduced that market value is an expression which denotes a price arrived at between the buyer and the seller in the open market wherein the transactions take place in the normal course of trading and competition in contrast to a situation where the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. It is an environment where one of the players has the compulsive legislative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of preset statutory guidelines. Therefore, the price determined in such a scenario cannot be equated with a situation where the price is determined in the normal course of trade and competition. Therefore, the price determined as per the Power Purchase Agreement cannot be equated with market value as understood in common parlance. We see no reason for not holding so for the purposes of section 80-IA(8) also. 17. In this background, we may make a gainful reference to the decision of the Hon ble Calcutta High Court in the case of CAIT v.Manmatha Nath Mukherjee [1958] 34 ITR 567, which has been relied on by the assessee before us. The issue before the Hon ble Calcutta High Court was in the context of the Bengal Agricultural Income-tax Act, 1944. Shorn of other details, the question considered by the Hon ble High Court, relevant for the present, was whether the procurement rate of paddy offered by the State could be considered to be the market value of paddy. In this background, the following observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictions of supplying surplus power to the State Electricity Board, it would have supplied power to the ultimate consumers at rates similar to those of the Board or such other competitive rates, meaning thereby that price received by the assessee would be in the vicinity of ₹ 3.72 per unit i.e. charged by the Board from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee s undertaking generating electric power for transfer of power for captive consumption at the rate of ₹ 3.72 per unit corresponds to the market value of power. Therefore, on this aspect, we uphold the stand of the assessee and set aside order of the CIT(A) and direct the Assessing Officer to allow relief to the assessee under section 80-IA as claimed. Assessee succeeds on this ground. The ld AR further referred to the decision of the Coordinate Bench of the Tribunal in case of West Coast Paper Mills Ltd vs Additional CIT (33 ITR(Trib) 560) where it was held as under: 32. We have heard the rival submissions and also perused the relevant findings of the authorities below and the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the buyer and the seller in the open market condition i.e., in an unrelated and uncontrolled transactions. Open market conditions refers to the conditions and price available for the public at large. In the present case, the market value of supply of electricity by power unit of the assessee to the paper division of the assessee has to be seen from the angle, if the paper unit has to purchase the electricity directly from the Karnataka Electricity Board (as both the power units as well as the paper units are situated in Karnataka), then what is the price which would be paid by the paper unit to the Karnataka Electricity Board. The transfer of the price as contemplated in section 80-IA(8) has to be seen having regard to the arm's length condition, i.e., what would be the price under uncontrolled transactions in the open market. If the paper division has been purchasing the electricity form the Karnataka Electricity Board at an average cost of ₹ 5.80, which fact is not in dispute, then the same price should be considered as market value for benchmarking the price at which power units are supplying the electricity to the paper division. If the taxes and duties are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the learned Commissioner (Appeals) on this issue and allow ground No. 8, is treated as allowed. The ld AR further referred to the decision of the Coordinate Bench of the Tribunal in case of Everready Spinning Mills Pvt Ltd vs. Assistant CIT (145 TTJ 393) where it was held as under: 6. We have perused the orders and heard the contention of learned D.R. The short question arising here is whether the per unit rate of electricity, for the purpose of computing the profits of the windmills of the assessee, has to be taken at ₹ 2.70 or at ₹ 3.50. ₹ 2.70 was the price given by Electricity Board to the assessee for the electricity generated by the windmills but, such electricity when supplied by the Electricity Board to the yarn manufacturing unit of the assessee, they had charged from the assessee ₹ 3.50 per unit. There is no dispute that the power manufactured by the assessee from its windmills though meant for the use of captive consumption in its yarn manufacturing unit, was not physically the same as was actually used by the yarn manufacturing units. The windmills were disparately situated vis- -vis produced by the assessee was supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated with a situation where the price is determined in the normal course of competitive environment. Thus, the price at which assessee sold its power to the Electricity Board cannot be equated with market rate as understood for the purpose of Section 80-IA(8) of the Act. Now the question that remains is whether the price recorded by the assessee at ₹ 3.50 per unit for purchasing power from the Electricity Board for its yarn manufacturing unit can be considered the market value. Assessee undoubtedly is an industrial consumer and the Board supplies power to such industrial consumers at the rate of ₹ 3.50 per unit. Had the assessee not been saddled with the restrictions of supplying surplus power to the State Electricity Board, it would have supplied the power to ultimate customers at a price not less than ₹ 3.50 per unit, being the rate charged by the Board from its industrial consumers. Thus, under the given circumstances, it would be appropriate to hold that the consideration recorded by the assessee for transfer of power for captive consumption, which is at the rate of ₹ 3.50 per unit, corresponds to the market value of such power. Though the ld. CIT(Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated 15% of the above amount can be attributed to recovery of energy worth ₹ 18,51,26,755/- which comes to ₹ 2,77,69,013/-. In our view, what is relevant to determine is the treatment of steam worth ₹ 18,51,26,755/- and how the same has been accounted for while computing the deduction under section 80IA. Secondly, the assessee has identified both direct and indirect expenses which have been allocated to Captive power plant following certain allocation methodology which has been accepted by the Revenue. Following the same methodology, the expenses in relation to generation of steam needs to be identified and properly accounted for. The ld CIT(A) has not given any basis as to how he has determined 15% an appropriate basis. Similar is the case where the ld CIT(A) has held that the cost of gas consumption has been understated by ₹ 20,83,589/- In our view, the matter require a fresh examination and we accordingly set aside these two matters to the file of the AO. 52.2 Now, coming to determination of the market value of the electricity generated and supplied by the captive power plant, the assessee took this value equal to ₹ 4.52 per unit on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Chapter under the heading C-Deductions in respect of certain incomes , where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be. (5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading C.-Deductions in respect of certain incomes , no deduction shall be allowed to him thereunder. ; (b) after sub-section (5) as so inserted, the following subsection shall be inserted, namely:- (6) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading C-Deductions in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r eligible business does not correspond to the market value of such goods or services as on the date of the transfer, then, for the purposes of any deduction under this Chapter, the profits and gains of such undertaking or unit or enterprise or eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date. The Explanation as proposed in the said sub-section provides that (i) in relation to any goods or services sold or supplied, market value means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; (ii) in relation to any goods or services acquired, market value means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the open market, subject to statutory or regulatory restrictions, if any. The said Explanation is clarificatory in nature. This amendment will take effect retrospectively from 1st April, 2009. We now refer to the Memorandum explaining the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n market, subject to statutory or regulatory restrictions, if any. This amendment will take effect from 1st April, 2009 and will accordingly apply to all cases where the proceedings are pending before any authority on or after such date. Further, with a view to preventing the misuse of the tax holiday under section 80-IA of the Income-tax Act, it is proposed to amend the Explanation to the said section to clarify that nothing contained in the said section shall apply in relation to a business referred to in subsection (4) of the said section which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by an undertaking or enterprise referred to in sub-section (1) thereof. This amendment will take effect retrospectively from 1st April, 2000 and will, accordingly, apply in relation to assessment year 2000-01 and subsequent years. The provisions of section 80A(6) provides that notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading C-Deductions in respect of certain incomes , the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TC Ltd [2016] 7 ITR OL 166 (Cal) where the Hon ble High Court has held as under: 17. We have considered the submission advanced by Mr. Khaitan but we are unable to agree with him. The benefit under Section 80-IA was intended to encourage the business of generating power. An entrepreneur who wants to avail the benefit of Section 80IA cannot hope to get any benefit more than what has been contemplated by the Act. It was a fortuitous circumstance that the entrepreneur in this case has a home consumption of electricity which any other entrepreneur engaged in the generation of electricity would not have. But that cannot be a reason why two entrepreneurs engaged in the same business will get benefit at rates computed differently. In order to avoid any such discrimination, the legislature has taken care to provide that the price which can be charged has to be the same, which electricity would fetch in the open market. It is true that at the relevant point of time the explanation added to sub-section 8 of Section 80-IA quoted above was not there in the statute. But this fact by itself does not advance the case of the assessee because what was already there during the relevant assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distribution licensee and the rate at which the generating companies can sell electricity to the distribution licensee are governed respectively by Sections 61 and 62 of the Electricity Act 2003. There is tariff regulatory commission which fixes both the rates for sale and purchase of electricity by the distribution licensee. There are provisions in Section 62 so that the generating companies can recover expected revenue on the basis of the tariff fixed by the commission. There are similarly provisions in Section 61 so that the distribution licensee can derive reasonable return. There is thus an in-built mechanism to ensure permissible profit both to the generating companies and the distribution licensees. The assessee's generating unit cannot as such claim any benefit under Section 80-IA of the I. T. Act computed on the basis of rates chargeable by the distribution licensee from the consumer. The benefit can only be claimed on the basis of the rates fixed by the tariff regulation commission for sale of electricity by the generating companies. The above decision of the Hon ble High Court though has been rendered in the context of section 80IA(8) read with the explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 lakhs and the same is added to the total income. 54. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had confirmed the addition made by the Assessing Officer by observing as under:- The A.O. disallowed interest related to investment in subsidiary. On one hand, assessee was paying interest on the loans taken and on the other hand, made investments in subsidiary company. The income from subsidiary company (dividend) is exempt under Income Tax Act and in view of section 14 of the I.T. Act, no expenditure can be allowed in relation to such investment. The assessee claimed that these investments were made out of surplus funds available with the assessee, however, no supporting evidence was furnished. Therefore, disallowance of interest amounting to ₹ 28,12,000/- is confirmed. 55. Now the assessee is in appeal before us. The ld. AR of the assessee has reiterated the arguments made before the ld. CIT(A) and prayed to allow the appeal on this ground. 56. At the outset, the ld CIT DR has vehemently supported the orders of the lower authorities. 57. We have heard the rival contentions of both the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not a tax and hence not disallowable u/s 40(a)(ii) of the Act on the basis of following submission:- (1) That on a plain reading of the above provision of section 40(a) (ii), it is evident that a sum paid of any rate or tax is expressly disallowed by this sub-clause in two cases : (i) where the rate is levied on the profit or gains of any business or profession, and (ii) where the rate or tax is assessed at a proportion of or otherwise on the basis of any such profits or gains. It is evident that nowhere in the said section it has been mentioned that education cess is not allowable. Education cess is neither levied on the profits or gains of any business or profession nor assessed at a proportion of, or otherwise on the basis of, any such profits or gains. (2) That in CBDT Circular No. 91/58/66 ITJ (19), dated May 18, 1967 it has been clarified that the effect of the omission of the word cess from section 40(a)(ii) is that only taxes paid are to be disallowed in the assessment for the years 1962-63 onwards. Thus, as per the said circular, Education cess cannot be disallowed; there cannot be a contradiction as the circulars bind the tax authorities. (3) That educat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion cess cannot be said to be in the nature of income tax or additional income-tax for the purpose of the Act for the purpose of section 40(a)(ii). (7) That education cess is a levy under the Finance Acts for the specific purpose of providing better education. It may also be noted that in respect of surcharge there is no mention of the purpose for which the surcharge is to be used. In the case of education cess , it has been said that it has to be earmarked for education and nutritious cooked mid-day meals . (8) That it may be mentioned that where the legislature wanted certain taxes to be excluded for the purpose of computation of taxable income, it has specifically provided for this. The instances are amounts paid as securities transaction tax and fringe benefit tax in section 40 of the Income-tax Act. For example, if fringe benefit tax is also a tax within the meaning of section 40(a)(ii), then there was no necessity of specifically mentioning it for disallowance in section 40(a)(ic). Likewise security transaction tax was disallowable under the provision of section 40(a)(ib). Had there been any intention of disallowing education cess, such provision would have been speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deduction of Education cess of ₹ 2,41,59,485/- computed as under should be allowed as a deduction from Total Income:- Sl. No. Description Amount in Rs. 1. Total Income 2440351979 2 Income tax @ 30% 732105594 3. Surcharge @ 10% 73210559 4. Education Cess @ 2% 16106323 5. Secondary Higher Education cess @ 1% 8053162 6. Total Education cess (4+5) 24159485 7. Gross Tax liability including surcharge and cess 829475638 59. The ld. CIT(A) in 1 st appeal has dismissed the appeal on this ground by holding that the education cess on Income tax is part of Income tax and the same cannot be allowed as expenditure. In view of the specific provisions of section 40(a)(ii) of the Act. 60. Now the assessee is in appeal before us. The ld AR of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a cess does not fall within the prohibitory items of deduction under section 40(a)(ii) and also that a cess levied under the West Bengal Rural Employment Production Act, 1976 and the West Bengal Primary Education Act, 1973 is permissible as a deduction in computing the income from business. The Tribunal in the said decision has dealt with the issue in great details with reference to section 10(4) of the 1922 Act, the Circular being F. No. 91/58/66/- ITJ(19), dated 18-5-1967 of the Board as also various decisions and in paras 19 to 21 it is held as under, 19. A provision analogous to section 10(4) of the 1922 Act was proposed to be incorporated as section 40(ii) of the Income-tax Act, 1961 as under: 40(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains; When the matter came up before the Select Committee, it was decided to omit the word cess from the proposed clause. The effect of the omission of the word cess is that only the taxes paid are to be disallowed in assessment years 1962-63 and onwards. For the sake of refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 43B the payment of cess is also provided to be allowed as a deduction in the year of payment, by implication it becomes abundantly clear that cess is permissible as a deduction in computing the profits and gains of business of which deduction is regulated under section 43B. In Para 17 of the said decision it has been stated 17. The issue as to whether the tax is levied by the State Government in respect of the tea grown in the tea gardens is allowable as an expenditure for the purpose of computation of income under the provisions of the Income-tax Act, 1922 also came up for consideration of the Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd. (supra, i.e. 82 ITR 580 SC). In this case it was held that cess levied by the State Government in respect of the coal mines is allowable as a deduction. The words profits and gains of any business, profession or vocation in section 10(4) can, in the context, have reference only to profits or gains as determined under section 10 and cannot cover the net profits or gains arrived at or determined in a manner other than that provided by section 10. In other words, section 10(4) excludes only a tax or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in any other provision of this Act a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessee by way of tax, duty, cess or fee which makes it very clear that a cess is allowable as a deduction in computing the business income. However it is now allowable only on a payment basis. When the section was inserted by the Finance Act 1983, it only provided for an allowance on a cash basis of a payment by way of tax or duty and it was only by the Finance Act 1988 that clause (a) was substituted to include inter alia cess. 5. The language of section 115 JB also demonstrates that the education cess is not an income-tax for the purpose of section 40(a)(ii). Clause (a) of the Explanation below section 115JB (2) requires the amount of income-tax debited to the Profit and Loss Account to be added back for the purpose of determining the book profit. Explanation 2 specifically includes within the ambit of income-tax the education cess on income-tax, which discloses that in the absence of any such inclusion the education cess is not a tax for the purpose of section 40(a)(ii). 6. Specific Purpose: The term cess is generally used when the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inapplicable and a deduction should be allowed, where a tax is imposed by a District Board on business with reference to estimated income or by a municipality with reference to gross income . Besides, unlike section 10(4) of the Income-tax Act, 1922, this sub-clause does not refer to cess and, therefore, even if a cess is levied upon or calculated on the basis of business profits may be allowed in computing such profits under this Act. (Though the education cess is not levied on business profits, so there is no question of its disallowance]. 10. Section 40(a)(ii) operates only where a tax or a cess is levied upon or calculated on the basis of business profits: From various decisions it is clear that section 40(a)(ii) operates only where a tax or a cess is levied upon or calculated on the basis of business profits. A fortiori, rates and taxes which are payable irrespective of any profits of being earned are admissible allowances under section 37 and the sub-clause does not apply to them. Thus, profession tax levied by the State Government is obviously not covered by this section. A compulsory toll or impost levied under Municipal Act on a company before being allowed to carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income but also on indirect taxes such as customs duty, excise duty and service tax. In the absence of specific provisions in the Income-tax Act, the education cess computed as a percentage of the income-tax is not disallowable as the education cess on Indirect Taxes is also allowed. 14. Separate payment details of education cess are to be mentioned in the challans: Separate rows and columns are provided in the challan to indicate the education cess amount separately. Separate payment details of education cess are not only to be mentioned in the challan of Income Tax and other indirect taxes as stated above. Further, credit of education cess on input/capital goods, can be set off only against output education cess. 15. Meeting of Central Direct Taxes Advisory Committee: It was pointed out in the 16th meeting of CDTAC held on 2-2-1972 that while education cess was allowed as a business expenditure in other States, the same was not being allowed as a deduction by the Income-tax Officers in Gujarat charge. The Committee was informed that in view of the Supreme Court s decision in the case of Jaipuria Samla Amalgamated Collieries Ltd. vs. CIT [1971] 82 ITR 580, educa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections (1) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the Education Cess on income tax , so as to fulfil the commitment of the Government to provide and finance universalised quality basic education, calculated at the rate of two per cent of such income-tax and surcharge. It may be noted that the surcharge on Income-tax finds place in the First Schedule [282 ITR (St.) 14 at page 67], but that is not the case so far as education cess is concerned. Therefore, the education cess on this reasoning also cannot be treated as tax. And in any event it cannot at all be treated as tax leviable on the basis of the profits of the business within the meaning of section 40(a) (ii). Circular No. 14 of 2006 containing the Explanatory Notes on the provisions of the Finance Act, 2006: It will be relevant to refer to the Explanatory Notes on provisions of the Finance Act, 2006 as contained in Circular No. 14 of 2006 dated 28-12-2006 reported in 288 ITR (St.) 9. In its para 3-1-2010 at 288 ITR (St.) 9 at page 11 it is stated 3.1-10 CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commitment of the Government to provide and finance universalized quality basic education. It is clear that the said cess is introduced as a SURCHARGE, which is admittedly not deductible. Copy of relevant portion of the Finance Bill is enclosed as Annexure-A. 2. The provisions of sec 40a(ii) are as under: any sum paid on account of any rate or tax levied on the profits or gains of any business profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains. The definition is wide enough to cover any sum paid on account of any rate or tax on the profits or assessed at a proportion of such profits. Education cess being calculated at a proportion (2% or 1%) to Income Tax, which in turn, is in proportion to profits of business, would certainly qualify as a sum assessed at a proportion to such profits. In short, if education cess is considered deductible, then by the same logic Income-Tax or any surcharge would also become deductible, which would be an absurd proportion. 3. Further, if Education cess were to be deductible, then it would not be possible to compute it, e.g. If profit is ₹ 100, Income Tax is ₹ 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant's plea for deduction of the amount of Education cess. 62. We have heard the rival contentions of both the parties and perused the material available on the record. In order to appreciate the alternate contentions raised by both the parties, we refer to the provisions of section 40(a)(ii) of the Act which is the subject matter of examination before us which reads as under: Section 40(a)(ii) Amounts not deductible. 40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- (a) in the case of any assessee- (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gate income at the rates specified in the said Paragraph A, as if such aggregate income were the total income; (ii) the net agricultural income shall be increased by a sum of fifty thousand rupees, and the amount of income-tax shall be determined in respect of the net agricultural income as so increased at the rates specified in the said paragraph A, as if the net agricultural income as so increased were the total income; (iii) the amount of income-tax determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax determined in accordance with sub-clause (ii) and the sum so arrived at shall be the income-tax in respect of the total income: Provided that the amount of income-tax so arrived at, as reduced by the amount of rebate of income-tax calculated under Chapter VIII-A, shall be increased by a surcharge for purposes of the Union calculated in each case in the manner provided in that Paragraph and the sum so arrived at shall be the income-tax in respect of the total income. In cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of such tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds eight hundred and fifty thousand rupees; (b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such tax; (c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such tax. (7) In cases in which tax has to be collected under the proviso to section 194B of the Income-tax Act, the collection shall be made at the rates specified in Part II of the First Schedule, and shall be increased, by a surcharge for purposes of the Union, calculated in the manner provided therein. (8) In cases in which tax has to be collected under section 206C of the Income-tax Act, the collection shall be made at the rates specified in that section and shall be increased by a surcharge for purposes of the Union, calculated,- (a) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be increased by a surcharge for purposes of the Union, calculated,- (a) in the case of every individual, Hindu undivided family, association of persons and body of individuals, whether incorporated or not, at the rate of ten per cent of advance tax where the total income exceeds eight hundred and fifty thousand rupees; (b) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such advance tax ; (c) in the case of every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, at the rate of ten per cent of such advance tax . (10) In cases to which, Paragraph A of Part III of the First Schedule applies, where the assessee has, in the previous year or, if by virtue of any provision of the Income-tax Act, income-tax is to be charged in respect of the income of a period other than the previous year, in such other period, any net agricultural income exceeding five thousand rupees, in addition to total income and the total income exceeds fifty thousand rupees, then, in charging income-tax under sub-section (2) of section 174 or section 174A or se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We now refer to the Notes to clauses of the Finance Bill 2004 which provides as under : It is also proposed that the amount of income-tax as specified in sub-clauses (4) to (10) of clause 2 of the Finance (No. 2) Bill, 2004 and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the Education Cess on Income-tax so as to fulfil the commitment of Government to provide and finance universalised quality basic education, calculated at the rate of two per cent, of such income-tax and surcharge. The Education Cess on Income-tax shall be payable during the previous year beginning on 1st April, 2004. We now refer to the Memorandum explaining the Finance Bill 2004: 2. Subject to certain exceptions, which have been indicated while dealing with the relevant provisions, the Bill follows the principle that changes in the provisions of the tax laws, should ordinarily be made operative prospectively in relation to the current incomes and not in relation to the incomes of past years. The substance of the main provisions in the Bill relating to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive society, firm, local authority and company, at the rate of two and one-half per cent, of such tax; and (iii) in the case of every artificial juridical person, at the rate of ten per cent, of such tax. An additional surcharge, to be called the Education Cess to finance the Government s commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge. III. Rates for deduction of income-tax at source from Salaries , computation of advance tax and charging of income-tax in special cases during the financial year 2004-2005 The rates for deduction of income-tax at source from Salaries during the financial year 2004-2005 and also for computation of advance tax payable during that year in the case of all categories of taxpayers have been specified in Part III of the First Schedule to the Bill. These rates are also applicable for charging income-tax during the financial year 2004-2005 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be. Education Cess on imported goods 84. (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), being goods imported into India, shall be a duty of customs (in this section referred to as the Education Cess on imported goods), at the rate of two per cent calculated on the aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under section 12 of the Customs Act, 1962 (52 of 1962) and any sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs, but not including- (a) the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act, 1975 (51 of 1975); (b) the countervailing duty referred to in section 9 of the Customs Tariff Act, 1975 (51 of 1975); (c) the anti-dumping duty referred to in section 9A of the Customs T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I believe there will be a new dawn for the poor children of India. On perusal of the Finance Bill and the relates notes to the clauses and the memorandum explaining the Finance Bill, it is clear 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 the purposes of the Union. Further, as per section 2(11), the amount of income-tax shall be further increased by an additional surcharge for the purposes of the Union to be called the Education Cess on income-tax . We have also gone through the Finance Act 2004 and found that the provisions therein regarding education cess are pari-materia to the provisions contained in the Finance Bill 2004. Even the subsequent Finance Acts contains identical provisions except the fact that another additional surcharge for the purposes of Union, to be called the Secondary and Higher Education Cess on income tax has been introduced which has the same character as that of education cess. The nature of education cess is therefore clearly additional surcharge for the purposes of the Union and being a surcharge, it partake the nature and character of tax. Similarl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the same has been stated in the context of Central Excise Act, in our view, the same equally applies in the context of the Income tax Act given that the nature and character of levy of education cess is identical across all tax legislations. We now refer to the judgement of the Hon ble Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [1971] 82 ITR 580 (SC). In this case, the assessee who carried on the business of raising coal from coal mines and selling it, paid road and public works cess under the Bengal Cess Act, 1880 and education cess under the Bengal (Rural) Primary Tax Act, 1930,in relation to the coal mines, which it had taken on lease. The cess was leviable under the respective statutes on the annual net profits to be calculated on the average annual net profits for the last three years, for which the accounts had been made up. The question was whether these cesses paid by the assessee under the aforesaid Bengal Acts fell within the mischief of section 10(4) of the Income-Tax Act, 1922 and it was held as under: Now it is quite clear that the aforesaid cesses would be allowable deductions either under clause (ix) or clause (xv) of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n according to the decided cases such cesses cannot fall within section 10(4). It is thus clear that Section 10(4) of the 1922 Act excludes only cess, rate or tax which is levied on the profits or gains of any business, profession or vocation, or is assessed at a proportion of or on the basis of such profits or gains, in accordance with the provisions of section 10 of the Act. The road and public works cess levied under the Bengal Cess Act, 1880 and education cess levied under the Bengal (Rural) Primary Tax Act, 1930 was thus held as not a cess levied as part of the tax under the Income-Tax Act and accordingly, it was allowed as a permissible deduction. If we were to read the provisions of section 10(4) being pari-materia with the provisions of section 40(a)(ii) and apply the ratio of the aforesaid Supreme Court judgement in the context of education cess, it will supports the view that the education cess presently levied under the Income-Tax Act, 1961 could not be allowed as a deduction under section 40(a)(ii) of the Act. The reason for the same is that as we have already held above that the basic character of education cess is nothing but levy of tax. Such levy of educa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is hereby confirmed. Thus, this ground stand dismissed. As regards the Circular No.91/58/66 ITJ (19), dt.18.5.1967, the effect of omission of the word cess from section 40(a)(ii) is that only taxes paid are to be disallowed in the assessments for the years 1962-63, onwards. In this regard, in the first place, it has to be seen that cess , as contemplated in the aforesaid Circular, relates to the cess which is leviable under some other Statutes and which is a charge on the profits of the assessee, as in the aforesaid case of Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [1971] 82 ITR 580 (SC). Secondly, the present education cess has been levied much after the date of the aforesaid Circular and more importantly, the education cess, as contemplated under the Finance Act, is nothing but a part of income tax, chargeable under the provisions of the Act. Therefore, the aforesaid Circular is not relevant in the present context. The case of Duncans Industries Ltd rendered in the context of cess levied under the West Bengal Rural Employment Production Act, 1976 and the West Bengal Primary Education Act, 1973 and not in the context of cess levied on the profits or gains of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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