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TMI Blog2022 (1) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... to reading something which is not to be found in the text of the provision of Sec. 40(a)(ii). Accordingly, the Hon ble High Court had concluded that there was no prohibition on the deduction of any amount paid towards cess in Sec. 40(a)(ii), while computing the income chargeable under the head profits and gains of business or profession . We therein conclude that as Education Cess and Secondary and Higher Education Cess is not disallowable as a deduction u/s 40(a)(ii) of the Act, therefore, the claim of the assessee seeking deduction of the same while computing its income for the year under consideration merits acceptance. The additional ground of appeal no. 3 raised by the assessee is allowed. - ITA No. 1403/Pun/2018 - - - Dated:- 5-1-2022 - SHRI INTURI RAMA RAO(ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) Assessee by : Shri. Nikhil Pathak, A.R Revenue by : Shri. M.G Jasnani, D.R ORDER PER RAVISH SOOD , JM The captioned appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-7, Pune, dated 19.06.2018, which in turn arises from the assessment order passed by the A.O u/s 143(3) of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no disallowance of interest expenditure was warranted u/s 14A r.w.r 8D(2)(ii). 3. The assessee submits that thegher education cess paid for the year under consideration educationcess and secondary and higher education cess paid during the year under consideration may kindly be allowed as a deduction while computing the total income of the assessee. It was submitted by the ld. A.R that as the aforesaid additional grounds of appeal involved purely questions of law that would require adjudication on the basis of facts borne from the record, therefore, the same does merit admission. Qua the additional ground of appeal as regards allowability of Education cess and Higher Education Cess while computing the income of the assessee company, it was submitted by the ld. A.R that the same was being raised on the basis of the judgment of the Hon ble High Court of Bombay in the case of Sesa Goa Limited vs. Joint Commissioner of Income-tax (2020) 107 CCH 375 (Bom). Per contra, the ld. D.R did not object to the admission of the aforesaid additional grounds of appeal raised by the assesse before us. In our considered view, as the assessee by raising the aforesaid additional grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance = 2(a)* 2(b)/2(c) ₹ 46,25,109/- 3. 0.5% of the average value of investments b*0.5% ₹ 26,99,512/- Total disallowance as per Sec. 14A (1+2+3) ₹ 73,24,621/- Disallowance made by the assessee 0 Net disallowance u/s 14A ₹ 73,24,621/- 4. On appeal, the CIT(A) finding that the facts and the issue qua the disallowance u/s 14A remained the same as were involved in the assessee s case for the immediately preceding year, i.e, A.Y 2014-15, therein on the same terms upheld the invocation of rule 8D for computing of the disallowance u/s 14A in the hands of the assessee. As regards the disallowance of the interest expenditure that was worked out by the A.O u/s 14A r.w Rule 8D(2)(ii), the CIT(A) in the backdrop of the claim of the assessee that it had sufficient self-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of the Ld. A.R that unlike rates and taxes the amount paid by an assessee towards Education Cess or any Other cess viz. the Secondary and Higher Education Cess is not a disallowable expenditure u/s 40(a)(ii) of the Income-tax Act, 1961, we find that the said issue is squarely covered by the recent order of the Hon ble High Court of Bombay in the case of Sesa Goa Limited vs. Joint Commissioner of Income-tax (2020) 107 CCH 375 (Bom).In the case before the Hon ble High Court the following substantial question of law was inter alia raised : iii. Whether on the facts and in the circumstances of the case and in law, the Education Cess and Higher and Secondary Education Cess is allowable as a deduction in the year of payment. After exhaustive deliberations, the Hon ble High Court had observed that the legislature in Sec. 40(a)(ii) had though provided that any rate or tax levied on profits and gains of business or profession shall not be deducted in computing the income chargeable under the head profits and gains of business or profession , but then there was no reference to any cess . Also, the High Court observed that there was no scope to accept that ces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Manufacturing Co. Ltd. VsRaval, 37 ITR 41 (Bom.), it is held that one safe and infallible principle, which is of guidance in these matters, is to read the words through and see if the rule is clearly stated. If the language employed gives the rule in words of sufficient clarity and precision, nothing more requires to be done. Indeed, in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tax 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 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 25. However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word cess from the aforesaid clause from the Income Tax Bill, 1961. The effect of the omission of the word cess is that only any rate or tax levied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relation to business, is allowable as deductable expenditure. 29. In Kanga and Palkhivala's The Law and Practice of Income Tax (Tenth Edition), several decisions have been analyzed in the context of provisions of Section 40(a)(ii) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT VsGurupadaDutta 14 ITR 100, where a union rate was imposed under a Village Self Government 15 TXA17 18-13 dt.28.02.2020 Act upon the assessee as the owner or occupier of business premises, and the quantum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kol/2019 decided on 5th December, 2019 by the ITAT, Calcutta; (ii) DCIT Vs Graphite India Ltd. (ITA No.472 and 474 Co. No.64 and 66/Kol/2018 decided on 22nd November, 2019 )by the ITAT, Calcutta; (iii) DCIT Vs Bajaj Allianz General Insurance (ITA No.1111 and 1112/PUN/2017 decided on 25th July, 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 judgment and order, has reasoned that since cess is collected as a part of the income tax and fringe benefit tax, therefore, such cess is to be construed as tax . According to us, there is no scope for such implications, when construing a taxing statute. Even, though, cess may be collected as a part of income tax, that does not render such cess , either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the IT Act. The mode of collection, is really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Goetze (India) Ltd. Vs Commissioner of Income Tax (2006) 284 ITR 323 (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 did the Appellant Assessee file any revised return of income, according to us, this was no bar to the Commissioner (Appeals) or the ITAT to consider and allow such deductions to the Appellant Assessee in the facts and circumstances of the present case. The record bears out that such deduction was clearly claimed by the Appellant Assessee, both before the Commissioner (Appeals) as well as the ITAT. 39. In CIT VsPruthvi Brokers Shareholders Pvt. Ltd. 349 ITR 336, one of the questions of law which came to be framed was whether on the facts and circumstances of the case, the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in Goetze (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. 43. Thus, we answer all the three substantial questions of law framed in Tax Appeal No.17 of 2013 in favour of the Appellant Assessee and against the Respondent -Revenue. Similarly, we answer the sole substantial question of law framed in Tax Appeal No.18 of 2013, in favour of the Appellant Assessee and against the Respondent Revenue. We, thus, in terms of our aforesaid observations respectfully follow the aforesaid judgment of the Hon ble High Court of Bombay in the case of Sesa Gold Limited (supra), and therein conclude that as Education Cess and Secondary and Higher Education Cess is not disallowable as a deduction u/s 40(a)(ii) of the Act, therefore, the claim of the assessee seeking deduction of the same while computing its incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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