The deduction for education cess is not permitted: Income Tax
Fats and Issue of the Case
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 16.03.2020. The relevant assessment year is 2010-2011.
The grounds raised read as follows:-
- On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in holding that the reimbursement of expenses of Rs.1,20,013/- to appellant’s associated enterprises was a sum chargeable to tax and hence, inadmissible under section 40(a)(i) of the Act as tax has not been deducted.
- On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in charging write back of excess provisions for salary of Rs.10,00,000/- to tax in as such excess provision has already been charged to tax in assessment year 2009-2010 and hence, resulting into double taxation.
- On the facts and circumstances of the case and in law, it should be held that the education cess, including secondary and higher education cess (cess) is not inadmissible as per section 40(a)(ii) of the Act and hence, the amount of Rs.9,27,389/- or such other amount as may be determined for the assessment year under reference should be allowed as an admissible deduction in computing the total income.
- It is humbly prayed that the reliefs as prayed for hereinabove should be granted.
- The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
Observation and Conclusion of the court
Disallowance u/s 40(a)(i) of the I.T.Act amounting to Rs.1,20,013 (Ground 1)
The Assessing Officer had disallowed Rs.1,20,013 u/s 40(a)(i) of the I.T.Act. Aggrieved, the assessee raised this issue before the Tribunal. The learned AR submitted that the issue in question is squarely covered in favour of the assessee by the order of the Tribunal in assessee’s own case for assessment year 2011-2012 in ITA No.723/Bang/2020 (order dated 04.04.2022).
Court heard rival submissions and perused the material on record. The Tribunal in assessee’s own case for assessment year 2011-2012 (supra) on identical facts had held that license fees has been paid for the use of software. It was further held by the Tribunal that the assessee’s holding company procures software from third party and shared the cost with the assessee along with other group companies on a proportionate basis without any mark up. Therefore, it was concluded by the ITAT that the reimbursement of such expenses by the assessee cannot be held liable for TDS.
In view of the Co-ordinate Bench order of the ITAT in assessee’s own case for assessment year 2011-2012 (supra), which is identical to the facts of the instant case, we hold that the assessee is not liable for TDS in respect of payment to M/s.Brand Union Worldwide Limited, London. Therefore, the expenditure cannot be disallowed by invoking the provisions of section 40(a)(ia) of the I.T.Act.
The court allowed the ground 1.
Write back of excess provision towards additional salary of Rs.10,00,000 (Ground 2)
The assessee had provided an amount of Rs.10 lakh towards additional salary and as it was only a provision, the same was disallowed by the A.O. and added back to the income of the assessee for assessment year 2009-2010. For the current assessment year the assessee did not make any claim as regards non-taxability of write back of provision of Rs.10 lakh, during the course of assessment proceedings before the A.O. However, the claim was made as an additional ground before the CIT(A). The CIT(A) rejected the claim of the assessee.
Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR has relied on the remand report submitted by the A.O. (remand report dated 21.10.2019) (refer page 87 to 89 of the paper book submitted by the assessee).
Court heard rival submissions and perused the material on record. The Assessing Officer in the remand report has clearly stated that the claim of the assessee is correct. In view of the remand report, it is clear that for the current assessment the assessee had added back the provision on salary and offered the same as income. In the meanwhile the A.O. for assessment year 2008-2009 had disallowed the said expenses as provision and added back the same to income, which tantamount to double taxation of provision of additional salary. Since the A.O. in the remand report has clearly stated that the assessee’s claim is correct, we direct the A.O. to delete a sum of Rs.10 lakh from the taxable income for the relevant assessment year, since the same had suffered tax in previous assessment year, namely, A.Y. 2009-2010. It is ordered accordingly.
The court allowed the ground 2.
Allowability of education cess paid as a tax deductible expenditure (Ground 3)
The above ground relates to the claim of deduction of education cess including secondary and higher educational cess as deduction while computing the total income.
Court heard heard rival submissions and perused the material on record. The Kolkata Bench of the Tribunal in the case of Kanoria Chemicals & Industries Ltd Vs. Addl. CIT (ITA No.2184/Kol/2018 dated 26.10.2021) had held that the education cess is an additional surcharge levied on income tax and hence it partakes the character of income tax. Accordingly it held that the education cess is not allowable as deduction. The Tribunal also noted the judgment rendered by Hon’ble Bombay High Court in the case of Sesagoa Ltd. 117 Taxmann.com 96 and by Hon’ble Rajasthan High Court in the case of Chambal Fertilisers & Chemicals Ltd. Vs. JCIT (ITA No.52/2018 dated 31.7.2018), wherein it was held that the education cess is allowable as deduction. However, the Tribunal observed that the judgment rendered by Hon’ble Supreme Court in the case of CIT Vs. K. Srinivasan (1972) 83 ITR 346 was not brought to the notice of the Hon’ble High Courts. The Tribunal had expressed the view that the decision rendered by Hon’ble Supreme Court in the case of K. Srinivasan (supra) shall prevail on this issue and accordingly held that the education cess is not allowable as deduction.
Following the above said decision of Kolkata bench of Tribunal in the case of Kanoria Chemicals & Industries Ltd (supra), court held that payment of education cess including secondary and higher education cess is not allowable as deduction.
Therefore, court rejected ground 3 raised by the assessee.RayKeshavan-Design-Associates-Private-Limited-Vs-DCIT-ITAT-Bangalore