Income Tax, Issue Update

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

Case: Midland Credit Management India Pvt Ltd vs Addl. CIT,Delhi ITAT

The issue that arises here is that whether can education cess form part of ‘any rates or taxes’ as per the provisions of Section 40(a)(ii) of the Income Tax Act, 1961?

Delhi ITAT 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 could not be disallowed under section 40(a)(ii) of the Act. See Facts & Key Points.

Facts

  • The Assessee raised an additional ground stating that the claimed deduction of education cess was not covered under Section 40(a)(ii) of the Act. Though this claim was not made before the lower authorities, but being a statutory claim, the additional ground of the Assessee was allowed.

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 could not be disallowed under section 40(a)(ii) of the Act.

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