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TMI Blog2021 (1) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the Ld. CIT(A) in confirming the disallowance in respect of education 'cess' amounting to Rs. 31,76,126/- while computing total income under normal provisions of the Act. 4. Brief facts as noted by the AO are that the assessee in its return of income had claimed deduction of an amount of Rs. 31,76,126/- on account of educational cess on income tax and dividend distribution tax for computing total income. The AO asked the assessee as to why the claim of education cess should not be disallowed as per provision of section 40(a)(ii) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). Pursuant to the same, the assessee replied that as per provision of section 40(a)(ii) of the Act only the rate of tax levied on the profits or gains of any business or profession is covered by the said section and since education cess is not levied on profits and gains of any business or profession, it is not covered by section 40(a)(ii) of the Act. And also the assessee relied on CBDT Circular No. 91/58/66-ITJ (19) dated 18.05.1967 for claiming so. The AO did not accept the claim of the assessee. According to him, income tax includes surcharge and additional sur-charge an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as 'disputed issues'). Further, 'tax effect' shall be tax including applicable surcharge and cess. However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against." The CBDT Circular is clear that the tax would include applicable surcharge and cess. This Circular would override the CBDT Circular 91/58/66-ITJ dated 18.05.1967 which has been relied upon by the appellant. Therefore, it has to be held that cess and surcharge are integral to tax payable and not deduction on account of payment of cess and surcharge can be allowed u/s 37 of the I T Act, 1961. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se be brought to the notice of all the Income-tax Officers so that further litigation on this account may be avoided." (Emphasis added) On perusal of the aforesaid circular, it can be inferred that that the effect of the omission of the word 'cess' from sec. 40(a)(ii) is that only taxes paid are to be disallowed in the assessment for the year 1962-63 and onwards and not the Cess. Further, it is a well-accepted principle that a circular issued by CBDT is binding on the Income Tax Department as laid down by the Apex Court in the case of CCE -vs.- Dhiren Chemicals (2002) 254 ITR 554 (SC) wherein the Apex Court has observed as under: "We need to make it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue." 8. The relevant portion of Section 40(a)(ii) of the Act reads as under: Amounts not deductible. "40. Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act, has purposefully done so and so the word 'cess' cannot be read into section 40(a)(ii) of the Act. 12. The assessee relied on the decision in the case of Dewan Chand Builders & Contractors- vs- UOI (Civil Appeal No. 1830 to 1832 of 2008) (Dated 18-11-2011) wherein it has been stated that Statement of Objects and Reasons of the Cess Act, clearly spells out the essential purpose, the enactment seeks to achieve. The cess under BOCW Welfare Cess Act levied for ensuring sufficient funds to undertake social security schemes and welfare measures for building and other construction workers was considered as 'fee' and not 'tax'. The cess collected did not become a part of the consolidated fund and was not subject to an appropriation in that behalf. The said fund is set apart, appropriated specifically for the performance of specified purpose not merged in the public revenues for the benefit of the general public and as such the nexus between the Cess and the purpose for which it is levied gets established, satisfying the element of quid pro quo in the scheme. Thus, the impugned cess is a fee and not a tax. 13. We note that recently, the Hon'ble Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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