Income Tax, Issue Update

Inclusion/Exclusion of ‘education cess’: Scope of the term ‘any rates or taxes’ as per section 40(a)(ii)

Case: Voltas Ltd vs. Addl. CIT, Mumbai ITAT

Outcome: Partial

Facts

  • The ground of appeal raised by the Assessee was that whether on the facts and in the circumstances of the case and position on law, the education cess and the secondary and higher education cess was a disallowable expenditure under section 40(a)(ii) of the Income-tax Act, 1961.

Key points

  • The Tribunal placed reliance on judgment laid down by the Hon’ble High Court of Bombay in the case of Sesa Goa Limited Vs. Joint Commissioner of Income tax, wherein it was concluded that when the legislature had not provided for any prohibition on the deduction of any amount paid towards ‘cess’ in clause (ii) of Section 40(a) then the same could not be disallowed under the provision of Section 40(a)(ii).
  • It was observed that if the legislature intended to prohibit the deduction of amounts paid by an 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 Income Tax Act.
  • Therefore, following the same in the present facts of the case the education cess and the secondary and higher education cess could not be disallowed under section 40(a)(ii) of the Act.

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