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TMI Blog2017 (5) TMI 1650X X X X Extracts X X X X X X X X Extracts X X X X ..... said misc. petition filed by the Revenue and by its order dated 28.03.2017 recalled the earlier order passed by the Coordinate Bench dated 29.01.2016 to decide on the issue of maintainability of the appeal in view of CBDT Circular No. 21 of 2015 dated 10.12.2015. Hence, the present appeal before us. 3. The issue under consideration is whether the tax effect has to be computed taking into account the surcharge and education cess or not. In the instant case, where tax effect is calculated including surcharge and education cess, the tax effect comes to Rs. 10,06,362/- which exceeds the threshold of Rs. 10 lacs as stated in the CBDT Circular No. 21 of 2015 dated 10.12.2015 and the appeal of the Revenue will thus become maintainable. In the alternate, whether tax effect is calculated excluding the surcharge and education cess, it comes to Rs. 8,96,935/- which is below the prescribed limit of 10 lacs and the appeal of the Revenue will not be maintainable. 4. The ld. AR in this regard relied on decisions passed by the Coordinate Bench in the case of DCIT vs. Dome Bell Electronics India Ltd. In ITA No. 2480/Mum/2012 vide order dated 22.07.2016 and DCIT vs. Shri Yuvraj Singh in ITA No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958 the language used showed that income tax which was to be charged was to be increased by a surcharge for the purpose of the Union. The word "surcharge" has thus been used to either increase the rates of income tax and super tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term " income tax" as used in s. 2 includes surcharge. According to Article 271 notwithstanding anything in Arts. 269 and 270, Parliament may at any time increase any of the taxes or taxes referred to in those articles by a surcharge for the purpose of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated fund of India. Article 270 provides for taxes levied and collected by the Union and distributed between the Union and the States. Clause (1) says that tax on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2). Article 269 deals with taxes levied and collected by the Union but ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part 1 of the First Schedule); (ii) Surcharge; (iii) special surcharge and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax. It is possible to argue and that argument has been commended on behalf of the Revenue that the word "surcharge'' has been used in Art. 271 for the purpose of separating it from the basic charge of a tax duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union. It would appear that since the Finance Act 1943 upto the Finance Act 1967 a provision was made for taxing the income under the head "salaries'' according to the provisions of the Finance Act of the preceding year rather than of the current year if the assessee had any income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of this Act." 6.3 We now refer to the Finance Act 2005 which reads as under: FINANCE ACT, 2005 CHAPTER II RATES OF INCOME-TAX Income-tax. 2. (1)Subject to the provisions of sub-sections (2) and (3), for the assessment year commencing on the 1st day of April, 2005, income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income-tax Act) shall be increased by a surcharge for purposes of the Union calculated in each case in the manner provided therein. (2)In the cases to which Paragraph A of Part I of the First Schedule applies, where the assessee has, in the previous year, any net agricultural income exceeding five thousand rupees, in addition to total income, and the total income exceeds fifty thousand rupees, then,- (a) the net agricultural income shall be taken into account, in the manner provided in clause (b)[that is to say, as if the net agricultural income were comprised in the total income after the first fifty thousand rupees of the total income but without being liable to tax], on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of individuals, whether incorporated or not, at the rate of ten per cent of such income-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 income-tax; (c) in the case of every artificial juridical person referred to in subclause (vii)of clause (31)of section 2 of the Income-tax Act, at the rate of ten per cent of such income-tax. (4) In cases in which tax has to be charged and paid under section 115-O or sub-section (2)of section 115R of the Income-tax Act, the tax shall be charged and paid at the rate as specified in those sections and shall be increased by a surcharge for purposes of the Union, calculated at the rate of ten per cent of such tax. (5) In cases in which tax has to be deducted under sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the Income-tax Act, at the rates in force, the deductions 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 each case, in the manner provided therein. (6) In cases in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries" under section 192 of the said Act or in which the "advance tax" payable under Chapter XVII-C of the said Act has to be computed at the rate or rates in force, such income-tax or, as the case may be, "advance tax" shall be so charged, deducted or computed at the rate or rates specified in Part III of the First Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the said Act shall be increased by a surcharge for purposes of the Union, calculated in each case in the manner provided therein: Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or Chapter XII-H or section 115JB or sub-section (1A)of section 161 or section 164 or section 164A or section 167B of the Income-tax Act apply, "advance tax" shall be computed with reference to the rates imposed by this subsection or the rates as specified in that Chapter or section, as the case may be: Provided furtherthat the amount of "advance tax" computed in accordance with the provisions of section 111A or section 112 of the Income-tax Act shall be increased by a surcharge for purposes of the Union as provided in Paragraph A, B, C, D or E, as the case may be, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t agricultural income shall be increased by a sum of one lakh rupees, and the amount of income-tax or "advance 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 were the total income; (iii) the amount of income-tax or "advance tax" determined in accordance with sub-clause (i) shall be reduced by the amount of income-tax or, as the case may be, "advance tax" determined in accordance with subITA clause (ii) and the sum so arrived at shall be the income-tax or, as the case may be, "advance tax" in respect of the total income: Provided that in the case of every woman, resident in India and below the age of sixty-five years at any time during the previous year, referred to in item (II) of Paragraph A of Part III of the First Schedule, the provisions of this sub-section shall have effect as if for the words "one lakh rupees", the words "one lakh thirty-five thousand rupees" had been substituted: Provided further that in the case of every individual, being a resident in India, who is of the age of sixty-five years or more at any time during the previous year, refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in sub-clause (vii)of clause (31)of section 2 of the Income-tax Act, not being a case to which any other Paragraph of this Part applies,- Rates of income-tax (1)where the total income does not exceed Rs. 50,000 Nil; (2)where the total income exceeds Rs. 50,000 but does not exceed Rs. 60,000 10 per cent of the amount by which the total income exceeds Rs. 50,000; (3)where the total income exceeds Rs. 60,000 but does not exceed Rs. 1,50,000 Rs. 1,000 plus 20 per cent of the amount by which the total income exceeds Rs. 60,000; (4)where the total income exceeds Rs. 1,50,000 Rs. 19,000 plus 30 per cent of the amount by which the total income exceeds Rs. 1,50,000. Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this Paragraph, or in section 111A or section 112, shall,- (i) in the case of every individual or Hindu undivided family or association of persons or body of individuals having a total income exceeding eight hundred and fifty thousand rupees, be reduced by the amount of rebate of income-tax calculated under Chapter VIII-A, and the income-tax as so reduced, be increased by a surcharge for purposes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, calculated at the rate of two per cent of such income-tax and surcharge." (emphasis supplied) 6.6 A similar issue has come up for consideration before the Coordinate Bench (wherein one of us was a party) in case of Chambal Fertilizers & Chemicals Limited (ITA No. 459/JP/12, 558/JP/12) dated 28.10.2016 wherein the question for consideration was whether the education cess is part of tax and not allowable as per the provisions of section 40(a)(ii) of the Act and after discussing at length the legislative history of education cess as introduced through the Finance Bill, 2004 and subsequent finance Bills, and other relevant parameters, it was held that the nature of education cess is clearly additional surcharge for the purposes of the Union and being a surcharge, it partake the nature and character of tax. It would be appropriate to refer to the relevant findings in the said decision which are stated as under: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... education cess and imposition of interest and penalty in case of default in payment of unpaid cess. This also clearly indicates that cess is a part of tax and all recovery mechanisms & consequences pertaining to recovery of tax apply to recovery of cess also without explicit mention of the word "education cess". Infact, clause 83 (3) of the Finance Bill 2004 makes this position crystal clear when it states that "the provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education 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." Though 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" 6.7 In light of above discussions, it is clear that surcharge and additional surcharge referre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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