ITAT: Education Cess is additional surcharge under Finance Acts, not deductible u/s 40(a)(ii)
Fact and Issue of the case
1] That on the fact and circumstances of the case, the Ld. CIT(A)-4, Kolkata erred in deleting the disallowance computed under Rule 8D(2)(ii). That with regard to disallowance determined under Rule 8D(2)(iii), the Ld.CIT(A)-4 was not correct in restricting the disallowance to such exempt income.
2] That on the facts and circumstances of the case, the Ld. CIT(A)-4, Kolkata erred in holding that Rs.6,15,27,170/-, being payment of premium on redemption of FCCB and claimed by the appellant is allowable expenses subject to disallowance u/s 43A of the Act, whereas FCCB issue proceeds were utilized towards funding of capital expenditure and related issue expenses and it was also observed that no such provision had been made in the Profit and Loss Accounts.
3] That on the facts and circumstances of the case, the Ld.CIT(A)-4, Kolkata erred in holding that the sum of Rs. 9,91,093/- from Renukoot unit claimed as bad debts written off may be taken into consideration in calculation of net worth of Renukoot unit when the unit was already transferred through slump sale.
4] That the appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing.
The assessee has taken the following additional ground of appeal:-Additional Ground.
I. On the facts and circumstances of the case and in law, the Assessing Officer/ CIT(A) ought to have allowed deduction of Education Cess amounting to Rs. 3,19,95,9981- in terms of law laid down by the Hon’ble Rajasthan High Court in Chambal Fertilizers and Chemicals Ltd. [ITA o. 52/Raj/2018 ruling dt. 31.7.2018] and further Hon’ble Kolkata Tribunal in case of ITC Ltd.
Observation of the Tribunal
With due respect to the decisions of the Hon’ble Bombay High Court and Hon’ble Rajasthan High Court and of co-ordinate Benches of this Tribunal, we find that the issue is squarely covered by the decision of the Hon’ble Apex Court of the country in the case of “CIT Vs. K. Srinivasan” (1972) 83 ITR 346, wherein the following questions came for adjudication before the Hon’ble Apex Court:-
“Whether the words “Income tax” in the Finance Act of 1964 in sub-s (2) and sub-s.(2)(b) of s. 2 would include surcharge and additional surcharge.”
The Hon’ble Supreme Court answered the question in favour of revenue observing as under:-
“In our judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income tax. The meaning of the word “surcharge” as given in the Webster’s New International Dictionary includes among others “to charge (one) too much or in addition ” also “additional tax”. Thus the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Surcharge; (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”.
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.”
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 purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the “Education Cess on income-tax”, calculated at the rate of two per cent. of such income-tax and surcharge, so as to fulfil the commitment of the Government to provide and finance universalised quality basic education.
A perusal of the aforesaid provisions of the Finance Act 2004 and Finance Act 2011 would show that it has been specifically provided that ‘education cess’ is an additional surcharge levied on the income-tax. Therefore, in the light of the decision of the Hon’ble Supreme Court in the case of “CIT Vs. K. Srinivasan” (supra) the additional surcharge is part of the income-tax. The aforesaid decision of the Hon’ble Apex Court and the provisions of Finance Act, 2004 and the relevant provisions of section 2(11) & (12) of the subsequent Finance Acts have not been brought into the knowledge of the Hon’ble High Courts in the cases of ” Sesa Goa Ltd” & “Chambal Fertilisers” (supra). Since the decision of the Hon’ble Supreme Court prevails over that of the Hon’ble High Courts, therefore, respectfully following the decision of the Hon’ble Supreme Court in the case of “CIT Vs. K. Srinivasan” (supra), this issue is decided against the assessee. The additional ground of assessee’s appeal is accordingly dismissed.
The tribunal partly allowed the appeal of the department for the A.Y 2012-13 and dismissed the appeal made by the assessee for the A.Y 2012-13.