Education cess allowable expenses till proposed amendment by Finance Bill 2022 takes effect  

Education cess not a disallowable expenditure u/s 40(a)(ii) as the amendment proposed by Finance Bill 2022 is yet to take effect – ITAT

ABCAUS Case Law Citation
ABCAUS 3578 (2022) (02) ITAT

Important case law relied referred:
DCM  Shriram  Ltd.
Chambal Fertilisers and Chemicals Ltd.
Sesa Goa Limited
Sicpa India Private Ltd.
Philips India Limited
Reckitt Benckiser (India) Private Limited

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming additions. Before ITAT, the assessee inter alia raised additional ground and prayed the grant of the claim of Education Cess u/s 37 of the Income Tax Act, 1961 (the Act) paid/payable by the assessee under normal provisions of the Act.

The Tribunal noted that the assessee had relied upon the orders of the coordinate bench allowing the deduction of education cess u/s 37(1) of the Act by following the judgments of the Hon’ble Bombay and Rajasthan High Court.

The Tribunal noted that provisions of section 40(a)(ii) of the Act prohibits the allowance of any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at proportion of, or otherwise on the basis of, any such profits or gains.

The core issue, however, was that whether the education cess is part of tax or not.

The Tribunal noted that in the judgments referred to by the assessee, it had been held that ‘cess’ is not part of tax. Reference was also made to the CBDT Circular No. F. NO. 91/58/66-ITJ(19) dated May 18th, 1967 which clarifies that since the word ‘cess’ had been omitted from Sec. 40(a)(ii).

The Tribunal noted that the Finance Bill, 2022 has specifically proposed that surcharge and cess shall not be allowed as business expenditure. However, the proposed amendment by Finance Bill, 2022 is yet to take  effect.

Accordingly, the Tribunal held that education cess is not a disallowable expenditure u/s 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) of the Act by following the judgment of the Hon’ble High Courts. The appeal was allowed in favour of the assessee .

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