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TMI Blog2022 (7) TMI 1518X X X X Extracts X X X X X X X X Extracts X X X X ..... n by virtue of provisions of section 40(a)(ii) of the I.T.Act. Even prior to the insertion of Explanation 3 to section 40(a)(ii) of the I.T.Act, the Kolkata Bench of the Tribunal in the case of M/s.Kanoria Chemicals Industries Ltd. [ 2021 (10) TMI 1153 - ITAT KOLKATA] by following the judgment of K.Srinivasan [ 1971 (11) TMI 2 - SUPREME COURT] held that education cess is an additional surcharge levied on Income-tax and partakes the character of Income-tax. As regards the assessee s specific contention that the cess is not levied on the profits and gains of any business or profession, we find the same is not acceptable. Though cess is calculated as % of Income-tax, effectively, it is a levy on the profits and gains of the assessee. As significant to note that the word `tax is used, in section 40(a)(ii), in conjunction with the words `any rate or tax . The word `any goes both with the rate and tax. The expression is further qualified as a rate of 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. If the word `tax is to be given the meaning assigned to it by section 2(43), the word ` ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t satisfy the second limb of section 40(a)(ii) of the I.T.Act. It was stated that based on the plain reading of section 40(a)(ii) of the I.T.Act, cess is not levied on the profits. The learned AR had illustrated various situations, wherein the cess is levied not based on the profits and gains of the business or profession. 4. The learned Departmental Representative, on the other hand, submitted that insertion of explanation 3 to section 40(a)(ii) of the I.T.Act by Finance Act, 2022 with effect from 01.04.2005 makes it clear that cess is part of the tax and the same cannot be allowed as a deduction while computing the profits and gains of business of the assessee. Further, the learned DR relied on the order of the Bangalore Bench of the Tribunal in the case of M/s.Infinera India Pvt. Ltd. v. JCIT in IT(TP)A No.2589/Bang/2019 (order dated 23.02.2022). 5. We have heard rival submissions and perused the material on record. Explanation 3 to section 40(a)(ii) of the I.T.Act was inserted by Finance Act, 2022 with effect from 01.04.2005, wherein it is clearly stated that any surcharge or cess by whatever name called shall be included in the term tax . The Explanation reads as follows:- Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;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 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 . When the matter came up before the Select Committee, it was decided to 'omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the Income Tax Officers so that further litigation on this account may be avoided.{Board's F . No.91/5B/66-ITJ(19), dated 18-5-1967. 18. The Learned Counsel for the assessee in this respect has further relied upon the decision of the Hon ble Bombay High Court in the case of Sesa Goa Limited Vs. JCIT (202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Sur- charge; (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 . 21. The Hon ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income-tax. At this stage, it is pertinent to mention here that education cess was brought in for the first time by the Finance Act, 2004, wherein it was mentioned as under:- An additional surcharge, to be called the Education Cess to finance the Government s commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge. 22. The provisions of the Finance Act 2011 relevant to the Assessment Year under consideration i.e. 2012-13 are also relevant. For the sake of ready reference, the same is reproduced hereunder:- 2(11) The amount of income-tax as specified in sub-sections (1) to (10) and as increased by a surcharge for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the word `tax is used, in section 40(a)(ii), in conjunction with the words `any rate or tax . The word `any goes both with the rate and tax. The expression is further qualified as a rate of 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. If the word `tax is to be given the meaning assigned to it by section 2(43), the word `any used before it will be otiose and the further qualification as to the nature of levy will also become meaningless. Furthermore, the word `tax as defined in section 2(43) is subject to `unless the context otherwise requires . In that view of the matter, the words `any tax in section 40(a)(ii) includes cess. For the aforesaid reasons, the submission of the learned AR is rejected. Since the cess is not an allowable deduction u/s 40(a)(ii) of the I.T.Act, the deductibility u/s 37 of the I.T.Act is not permissible. It is ordered accordingly. Therefore, ground 2, 2.1 and 2.2 are dismissed. Ground 3 8. In the above ground, the assessee states that it was not granted credit of self-assessment tax paid u/s 140A of the I.T.Act amounting to Rs.5,14,63,960. After ..... X X X X Extracts X X X X X X X X Extracts X X X X
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