Income Tax Appeal tax effect limit do not include cess. – ITAT

Income Tax Appeal tax effect limit do not include cess. Applicability of CBDT instruction for tax effect to be worked out without cess – ITAT

ABCAUS Casse Law Citation:
1011 2016 (09) ITAT
Assessment Year: 2010-11
Date/Month of Judgment/Order: September, 2016

Brief Facts of the Case:
This appeal in question was filed by the Revenue against the order of Commissioner of Income Tax (Appeals) for allowing the exemption u/s 54EC of the Income Tax Act 1961 even though the investment in bond was made by assessee beyond the prescribed period of six months.

At the outset, the assessee submitted that the tax effect in this appeal was less than Rs.10 lac, therefore, by virtue of Circular No.21 of 2015 dated 10.12.2015 the appeal should be dismissed.

On the other hand the Revenue contended that since the tax effect was more than Rs.10 lac the appeal should not be dismissed following the circular of the CBDT so referred.

However, the assessee submitted that the issue of whether the term ‘tax’ used for the Board’s Instruction is inclusive of cess or without including the cess has been considered by the Lucknow Bench Tribunal and accordingly the tax effect should be worked out without including cess. Therefore, according to him, if education cess was not included the tax effect in this appeal was less than Rs.10 lac and the Revenue’s appeal was liable to be dismissed in view of instruction of the CBDT.

Observations made by the Tribunal:
The Tribunal noted that as per the report submitted by the Assessing Officer the calculation of the tax effect in this case was as under:

It was ery evident that the tax effect calculated by the Assessing Officer including education cess was Rs.10,29,999/- . However tax effect was less than Rs.10 lacs if the education cess was excluded.

The ITAT further observed that the issue as to whether the term ‘tax’ used in the CBDT instruction was inclusive of cess or excluding cess had been considered by the ITAT Lucknow and it was held as under:  

“ 5. We have considered the rival submissions, perused the material available on record and the judgment cited by Learned A.R. of the assessee. We find that as per Board’s Instruction No.3 of 2011 dated February 9, 2011, it was prescribed that the Revenue should not file any appeal before the Tribunal if the tax effect does not exceed Rs. 3 lakhs. Admittedly, in the present case, tax effect without including cess is Rs. 3 lakhs only and the same is not exceeding Rs.3 lakhs. Now the only question to be decided is whether the term tax used in Board’s Instruction is inclusive of cess or without including cess. In this regard, we are of the considered opinion that the judgment of Hon’ble Delhi High Court cited by learned A.R. of the assessee is relevant because in this case also, the term tax and cess were looked into in respect of income tax proceedings only. It is noted by Hon’ble Delhi High Court that as per the provisions of section 43B, applicable during financial year 85-86, the disallowance was to be made u/s. 43B in respect of any sum payable by the assessee by way of tax or duty under any law and later on with effect from 01/04/89, such disallowance was required to be made in respect of any sum payable by the assessee by way of tax, duty or cess or fee by whatever name called. In that case, it was held by Hon’ble Delhi High Court that cess and cess surcharge do not fall within the characteristics of the tax. Following this judgment, we hold that in the present case also, for the purpose of deciding applicability of Board’s Instruction, tax effect should be worked out wit ho ut incl uding cess a n the pr esent ca se , the present appeal of the Revenue is hit by the Board’s Instruction and tax effect being not excess of Rs. 3 lakhs, this appeal of the Revenue is not maintainable. As a result, the appeal of the Revenue stands dismissed.”

Held:
The Revenue’s appeal was dismissed as the tax effect excluding cess was hit by CBDT Instruction.

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