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TMI Blog2021 (9) TMI 1464X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible to generate the requisite satisfaction with regards to the correctness of the aforesaid claim of the assessee. We are afraid that as there is a clear lapse on the part of the lower authorities in validly assuming jurisdiction for dislodging the assessee s claim that no disallowance u/s 14A was called for in his hands, therefore, the disallowance worked out by the A.O u/s 14A r.w. Rule 8D(2)(iii) which thereafter had been sustained by the CIT(A) cannot be upheld and is liable to be vacated. The Ground of appeal no.1 is allowed in terms of our aforesaid observations. Claim of education cess on the tax payable by him should have been allowed while computing his income for the year under consideration - HELD THAT:- 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) 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 [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] therein conclude that Education Cess and the Secondary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein disallowed in relation to earning of the said exempt income. On being queried that as to why the disallowance qua the aforesaid exempt income may not be worked out u/s 14A r.w. Rule 8D, the assessee vide his reply dated 19.12.2012 submitted that as he had maintained separate books of accounts for his proprietary concern, viz. M/s Kirtanlal and Company; and the investments in shares and mutual funds from which exempt dividend income was received by him pertained to his personal balance sheet in which no expenditure was claimed, therefore, no disallowance u/s 14A of the Act was warranted. However, the A.O was not inclined to accept the aforesaid explanation of the assessee and worked out the disallowance under Sec. 14A r.w Rule 8D of Rs.11,73,567/-, as under: Computation of 14A Disallowance as per Notification No.46/2008 dated 24.03.2008 A. Directly Attributed Expenses Direct Expenses Total Direct Expenses Amount B. Interest Expenses Interest which cannot be directly attributed Average Value of Investment related to tax Free income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dividend income and the expenditure claimed in respect of his regular business, therefore, the disallowance u/s 14A was not warranted and was liable to be struck down. Alternatively, it was submitted by the assessee that salary of one of his employee viz. Mr. Henry D souza who used to spent 20% of his working hours may be attributed to the earning of the exempt dividend income, and thus, disallowance at best of Rs.1,38,820/- be made. However, the CIT(A) was not inclined to accept the aforesaid contentions of the assessee. Observing, that the assessee had a sizeable activity of making investments in shares and mutual funds on which a substantial amount of exempt income had been earned by him, the CIT(A), thus, was of the view that the use of the services of staff, office and establishment expenses pertaining to the assessee s proprietary business for the purpose of earning of exempt income by him could not be ruled out. Backed by his aforesaid observation, the CIT(A) was of the view that the A.O had rightly observed that the claim of the asessee that no expenditure was incurred in relation to the earning of the exempt income could not be accepted merely on the ground that he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... home his aforesaid contention. Admittedly, it is a matter of fact borne from the record that though the assessee during the year in question was in receipt of exempt dividend income of Rs.1,12,54,736/-, however, he had not attributed and therein disallowed any part of the expenditure qua earning of the said exempt income. As is discernible from the records, it was the claim of the assessee that he had maintained separate books of accounts qua his regular business and the activity of making investments in shares and mutual funds. It was, thus, the claim of the assessee that as no expenditure was claimed by him with respect to the activity of making investments in shares and mutual funds, therefore, no disallowance was warranted u/s 14A of the Act. On the other hand, we find that the A.O after exhaustively discussing Sec. 14A of the Act a/w the mechanism for working out the disallowance as contemplated in Rule 8D of the Income Tax Act, Rules 1963, and the law pertaining to the said statutory provision as had developed over the time, therein, without recording his satisfaction as to why the assessee s claim that no expenditure could be attributed for earning of the exempt dividend inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. Also, a similar view have been taken by the Hon ble Supreme Court in the case of Maxopp Investment Ltd. Vs CIT (2018) 402 ITR 640 (SC). In the case before us, it is a matter of fact borne from the record that though the A.O had discussed at length the rationale behind introduction of Sec.14A and also Rule 8D that contemplates the mechanism for computing the disallowance under the aforementioned statutory provision, as well as had exhaustively dealt with the aspect as to how the law insofar the aforementioned statutory provision had developed over the time, but then, we are afraid that there is no whisper of any dissatisfaction on his part that having regard to the accounts of the assessee, as were placed before him, it was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al ground of the assessee, wherein he had claimed that the education cess on the tax payable by him should have been allowed while computing his income for the year under consideration. It was submitted by the ld. A.R that the aforesaid additional ground of appeal was being raised on the basis of the recent 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). The ld. A.R submitted that the Hon ble High Court in its said judgment, had observed, that if the legislature intended to prohibit the deduction of amounts paid by an assessee towards Education Cess or any other Cess and Higher and Secondary Education Cess, then, the legislature could have easily included reference to cess in clause (ii) of Sec. 40(a). It was further submitted by the ld. A.R that the High Court had observed, that as the legislature had not included education cess or any other cess in clause (ii) of Sec. 40(a), therefore, it would mean that there was no prohibition in claiming deduction of the said amounts while computing the income of the assessee under the head Profits and gains of business or profession . As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to any cess . Also, the High Court held observed that there was no scope to accept that cess being in the nature of a tax was equally not deductible in computing the income chargeable under the head profits and gains of business or profession . It was further observed that if the legislature would had intended to prohibit the deduction of amounts paid by an assessee towards say, education cess or any other cess , then, it could have easily included a reference to cess in clause (ii) of Section 40(a). On the basis of its aforesaid observations, the Honble High Court had concluded that now when the legislature had not provided for any prohibition on the deduction of any amount paid towards cess in clause (ii) of Sec. 40(a), therefore, holding to the contrary would amount 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 , observing as under : 16. The aforesaid questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such a case the task of interpretation can hardly be said to arise : Absoluta sententia expositore non indiget. The language used by the Legislature best declares its intention and must be accepted as decisive of it. 19. Besides, when it comes to interpretation of the IT Act, it is well established that no tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden on him. The subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit of the law cannot be availed of by the department. [See CIT vs Motors General Stores 66 ITR 692 (SC)]. 20. In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, into the provisions which has not been provided by the legislature [See CIT Vs Radhe Developers 341 ITR 403 ]. One can only look fairly at the language used. No tax can be imposed by inference or analogy. It is also not permissible to construe a taxing statute by making assumptions and presumptions [See Goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied on the profits or gains of any business or profession are to be deducted in computing the income chargeable under the head profits and gains of business or profession . Since the deletion of expression cess from the Income Tax Bill, 1961, was deliberate, there is no question of reintroducing this expression in Section 40(a)(ii) of IT Act and that too, under the guise of interpretation of taxing statute. 26. In fact, in the aforesaid precise regard, reference can usefully be made to the Circular No. F. No.91/58/66-ITJ(19), dated 18th May, 1967 issued by the CBDT which reads as follows :- Interpretation of provision of Section 40(a)(ii) of IT Act, 1961 Clarification regarding. Recently a case has come to the notice of the Board where the Income Tax Officer has disallowed the ‗cess' paid by the assessee on the ground that there has been no material change in the provisions of section 10(4) of the Old Act and Section 40(a)(ii) of the new Act. 2. The view of the Income Tax Officer is not correct. Clause 40(a)(ii) of the Income Tax Bill, 1961 as introduced in the Parliament stood as under:- (ii) any sum paid on account of any cess, rate or tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section could not be disallowed under this sub-clause. Similarly, this sub-clause is 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 1922 Act, this sub-clause does not refer to 'cess' and therefore, a 'cess' even if levied upon or calculated on the basis of business profits may be allowed in computing such profits under this Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection, is really not determinative in such matters. 34. Ms. Linhares, has relied upon M/s Unicorn Industries Vs Union of India and others, 2019 SCC Online SC 1567 in support of her contention that cess is nothing but tax and therefore, there is no question of deduction of amounts paid towards cess when it comes to computation of income chargeable under the head profits or gains of any business or profession. 35. The issue involved in Unicorn Industries ( supra ) was not in the context of provisions in Section 40(a)(ii) of the IT Act. Rather, the issue involved was whether the 'education cess, higher education cess and National Calamity Contingent Duty (NCCD)' on it could be construed as duty of excise which was exempted in terms of Notification dated 9th September, 2003 in respect of goods specified in the Notification and cleared from a unit located in the Industrial Growth Centre or other specified areas with the State of Sikkim. The High Court had held that the levy of education cess, higher education cess and NCCD could not be included in the expression duty of excise and consequently, the amounts paid towards such cess or NCCD did not qualify for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze (supra ) and urged that the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze (supra) had no power, proceeded to hold that the Appellate Authority under the IT Act had sufficient powers to permit such a deduction. In taking this view, the Division Bench relied upon the Full Bench decision of this Court in Ahmedabad Electricity Co. Ltd Vs CIT (199 ITR 351) to hold that the Appellate Authorities under the IT Act have very wide powers while considering an appeal which may be filed by the Assessee. The Appellate Authorities may confirm, reduce, enhance or annul the assessment or remand the case to the Assessing Officer. This is because, unlike an ordinary appeal, the basic purpose of a tax appeal is to ascertain the correct tax liability of the Assessee in accordance with law. 40. The decision in Goetze (supra) upon which reliance is placed by the ITAT als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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