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TMI Blog2021 (7) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... n of payment of education Cess is held to be allowable by Hon ble Bombay High Court in the case of Sesagoa Ltd. [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] . The said decision has been followed by the coordinate bench in the case of Wipro Ltd.[ 2020 (10) TMI 605 - ITAT BANGALORE] - Thus we direct the A.O. to allow education Cess as deduction in both the years. X X X X Extracts X X X X X X X X Extracts X X X X ..... ing company and not in the books of the assessee. The A.O. also took the view that the loss arising is only notional and not cystalized one. In this regard, the A.O. has observed that if the shares had been offered at discounted price to a third party, the assessee would not have claimed the discount as loss. Simply because it was offered to the employees, the discount in issuing shares has been treated as loss. Since no money has gone out of the packet of the company issuing shares, loss is imaginary loss. The A.O. observed that the income tax Act does not allow the said notional or fictitious loss. Accordingly, he held that the claim of the assessee in both the years is not allowable as deduction. The ld. CIT(A) also confirmed the disallowance in both the years. 7. We heard the parties and perused the record. We notice that an identical issue has been considered by the coordinate bench in the assessee's own case relating to assessment year 2006-07 reported in 2014-15 (42 Taxmann.com 168). The coordinate bench has allowed the claim of the assessee with the following observations: "6. The Assessee framed Novo Nordisk India Private Limited Employee Stock Purchase Scheme, 2005. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Special Bench held that the sole object of issuing shares to employees at a discounted premium is to compensate them for the continuity of their services to the company. By no stretch of imagination, we can describe such discount as either a short capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted. 19. In the present case, there is no dispute that the liability has accrued to the assessee during the previous year. The only question to be decided is as to whether it is the expenditure of the assessee or that of the parent company. We are of the view that the observations of the CIT(A) in para 5.6 of his order that these expenses are the expenses of the foreign parent company is without any basis and lie in the realm of surmises. The foreign parent company has a policy of offering ESOP to its employees to attract the best talent as its work force. In pursuance of this policy of the foreign parent company, allowed its subsidiaries/affiliates across the world ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange. The price so arrived at and the price at which shares are issued to the employees of the Assessee is the benefit which the employees get under the ESOP. The Assessee or its parent company can never influence the stock market prices on a particular date. There is no evidence or even a suggestion made by the CIT(A) in his order. There is no basis to apply the provisions of Sec.40A(2)(b) of the Act. 22. With regard to the decision of the ITAT in the case of AccentureServices (P.) Ltd. (supra), we find that the facts of the case of Accenture Services (P.) Ltd. (supra)are identical. In the case of Accenture Services (P.) Ltd. (supra), the facts were that the assessee company incurred certain expenses on account of payments made by it for the shares allotted to its employees in connection with the ESPP. The AO had disallowed ₹ 9,06,788/- incurred by the assessee on the ground that this expenditure is not the expenditure of assessee company but that expenditure is of parent company and the benefit of such expenditure accrues to the parent company and not assessee. The CIT(A) deleted the addition made by the AO. The CIT(A) found that the common shares of Accenture Ltd. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soon J. David & Co. (P)Ltd. (supra) and the Hon'ble Karnataka High Court decision in the case of Mysore Kirloskar Ltd. (supra) clearly support the plea of the assessee in this regard. 24. We are of the view that in the facts and circumstances of the present case, the expenditure in question was wholly and exclusively for the purpose of the business of the assessee and had to be allowed as deduction as a revenue expenditure". 8. The Ld. A.R. submitted that the coordinate bench has followed the decision rendered by special bench of ITAT, Bengaluru in the case of Biocon Ltd. Vs. DCIT (2013) 35 Taxmann.com 335. He submitted that the decision rendered by special bench has since been upheld by Hon'ble High Court of Karnataka in the case of CIT Vs. Biocon Ltd. (2020) 121 Taxmann.com 351 with the following observations:- "6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification of liability, which takes place at a future date. The tribunal has therefore, rightly placed reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional Karnataka High Court has held that the liability accrued in respect of ESOP is not contingent liability but an ascertained liability. It also has held that the discount given on shares would be expenditure for the purpose of section 37(1) of the Act. In the case of Biocon Ltd, the assessee was issuing its own shares to its employees at discounted price and the discount so given has been held to be allowable. 10. In the instant case, we are of the view that the assessee stands in a better footing. The assessee has not issued its own shares at the discounted price. In fact, the employees have been given shares of the holding company at a discounted price and the assessee has borne the discount amount on behalf of its employees. Hence, in effect, it is a staff welfare programme of the assessee and hence the same is allowable as deduction u/s 37(1) of the Act. 11. In view of the foregoing discussions, we set aside the order passed by Ld. CIT(A) on this issue in both the years under consideration and direct the A.O. to delete the disallowance. 12. The next issue urged by the assessee relates to the claim of deduction of education Cess expenditure. This claim has been raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;] 17. Therefore, the question which arises for determination is whether the expression "any rate or tax levied" as it appears in section 40(a)(ii) of the IT Act includes "cess". The Appellant - Assessee contends that the expression does not include "cess" and therefore, the amounts paid towards "cess" are liable to be deducted in computing the income chargeable under the head "profits and gains of business or profession". However, the Respondent - Revenue contends that "cess"is also included in the scope and import of the expression "any rate or tax levied" and consequently, the amounts paid towards the "cess" are not liable for deduction in computing the income chargeable under the head "profits and gains of business or profession". 18. In relation to taxing statute, certain principles of interpretation are quite well settled. In New Shorrock Spinning and Mfg. Co. Ltd. v. Raval, [1959] 37 ITR 41 (Bom.), it is held that one safe and infallible principle, which is of guidance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inhares's contention that "cess" being in the nature of a "Ta x" is equally not deductable in computing the income chargeable under the head "profits and gains of business or profession". Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in section 40(a)(ii) of the IT Act. 23. If the legislature intended to prohibit the deduction of amounts paid by a Assessee towards say, "education cess" or any other "cess", then, the legislature could have easily included reference to "cess" in clause (ii) of Section 40(a) of the IT Act. The fact that the legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by a Assessee towards the "cess", when it comes to computing income chargeable under the head "profits and gains of business or profession". 24. The legislative history bears out that the Income Ta x Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which read as follows : "(ii) any sum paid on account of any cess, rate or tax lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression "cess" ought not to be read or included in the expression "any rate or tax levied" as appearing in section 40(a)(ii) of the IT Act. 28. In the Income-tax Act, 1922, section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression "cess" is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression "cess" and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, "cess" and consequently, "cess" whenever paid in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact pointed out three decisions of ITAT, in which, the decision of the Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd.(supra) was followed and it was held that the amounts paid by the Assessee towards the 'education cess' were liable for deduction in computing the income chargeable under the head of "profits and gains of business or profession". They are as follows :- (i) Dy. CIT v. Peerless General Finance and Investment and Co. Ltd. [IT Appeal No. 1469 and 1470/Kol/2019 decided on 5-12-2019 by the ITAT, Calcutta; (ii) Dy. CIT v. Graphite India Ltd. [IT Appeal No. 472 and 474 Co. No. 64 and 66/Kol/2018 dated on 22-11-2019)by the ITAT, Calcutta; (iii) Dy. CIT v. Bajaj Allianz General Insurance [IT Appeal No. 1111 and 1112/PUN/2017 dated on 25-7-2019) by the ITAT, Pune. 32. Again, Ms. Linhares, learned Standing Counsel for the Revenue was unable to say whether the Revenue had instituted the appeals in the aforesaid matters. Mr. Ramani, learned Senior Advocate for the Appellant submitted that to the best of his research, no appeals were instituted by the Revenue against the aforesaid decisions of the ITAT. 33. The ITAT, in the impugned judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Industries (supra) was not at all the issue involved in the present matters and therefore, the decision in Unicorn Industries (supra) can be of no assistance to the Respondent - Revenue in the present matters. 37. Ms. Linhares, learned Standing Counsel for the Revenue however submitted that the Appellant - Assessee, in its original return, had never claimed deduction towards the amounts paid by it as "cess". She submits that neither was any such claim made by filing any revised return before the Assessing Officer. She therefore relied upon the decision of the Supreme Court in Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 taxman 1 (SC) to submit that the Assessing Officer, was not only quite right in denying such a deduction, but further the Assessing Officer had no power or jurisdiction to grant such a deduction to the Appellant - Assessee. She submits that this is what precisely held by the ITAT in its impugned judgments and orders and therefore, the same, warrants no interference. 38. Although, it is true that the Appellant - Assessee did not claim any deduction in respect of amounts paid by it towards "cess" in their original return of income nor di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the ITAT failed to note in the impugned order. 41. Besides, we note that in the present case, though the claim for deduction was not raised in the original return or by filing revised return, the Appellant - Assessee had indeed addressed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner (Appeals) or the ITAT, before whom such deduction was specifically claimed was duty bound to consider such claim. Accordingly, we are unable to agree with Ms. Linhare's contention based upon the decision in Goetze India Ltd. (supra). 42. For all the aforesaid reasons, we hold that the substantial question of law No. (iii) in Tax Appeal No. 17 of 2013 and the sole substantial question of law in Tax Appeal No. 18 of 2013 is also required to be answered in favour of the Appellant - Assessee and against the Respondent-Revenue. To that extent therefore, the impugned judgments and orders made by the ITAT warrant interference and modification." 14. Respectfully following the decision rendered by Hon'ble Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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