Inclusion/Exclusion of ‘education cess’
The question that arises here is that 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?
This issue has seen 9 judgements in the past 6 months and the assessee involved in these judgements are mostly large companies. The common point in many of these judgements is that the tribunals and courts held that although education cess is collected as part of tax, it does not fall within the phrase rate or tax occurring in Section 40(a)(ii) of the Act. Similarly in this case too, the appeal for allowing education cess and secondary reduction cess was allowed but not without the strong challenge mounted by the Revenue counsel on the basis of CIT vs K Srinivasan and M/S Unicorn Industries vs Union of India.
So if you are tax professional who advises on tax free investments, it may be prudent to track this issue using the Telescope feature of Riverus.
- The Assessee had raised an additional ground of appeal for allowing education cess and secondary and higher education cess amounting to Rs.20.37 lakhs.
- The Tribunal placed reliance on the decision of Hon’ble Bombay High Court in the case of Sesa Goa Ltd., wherein it was held that education cess and higher and secondary education cess was to be eligible for deduction while computing income chargeable under the head of Profit and Gains from Business or Profession.
- Further, it was held that though cess may be collected as part of income tax but it could not be considered as rate or tax as per Section 40(a)(ii) of the Act.
- Therefore, following the same in the present facts of the case the ground of the Assessee was allowed.