Tribunal allows deduction for education cess, confirms rental income classification as business income.

The tribunal confirmed the classification of the assessee's rental income as business income and allowed the deduction for education cess. The tribunal admitted the additional ground on the deduction of education cess based on legal principles and merits, citing the NTPC case. It concluded that education cess is not considered 'tax' under section 40(a)(ii) and allowed the deduction. The tribunal directed the Assessing Officer to adjust the computation accordingly, partially granting the assessee's appeal. The decision was rendered on 22nd January 2021.

---

---

Issues Involved:
1. Classification of income from letting out immovable properties as business income or income from house property.
2. Allowability of education cess as a deduction under section 37 r.w.s. 40(a)(ii) of the Income Tax Act.

Issue 1: Classification of Income:
The appeal concerned the classification of the assessee's rental income of Rs. 106,49,97,564 under either 'profits and gains of business or profession' or 'income from house property' as per section 28 of the Income Tax Act. The assessee had initially disputed the classification, but during the hearing, the representative acknowledged the consistent declaration of such income as 'business income' in subsequent assessment years. Referring to legal precedents, the tribunal declined the assessee's appeal, citing previous decisions and the assessee's own actions in subsequent years.

Issue 2: Allowability of Education Cess:
During the appeal, the assessee sought to raise an additional ground regarding the deduction of education cess paid amounting to Rs. 23,93,221 under section 37 r.w.s. 40(a)(ii) of the Act. The assessee argued for the admission of this ground based on the tribunal's wide jurisdiction under section 254 of the Act. The Revenue objected to the belated claim, emphasizing the absence of such a claim in previous filings and audit reports. The Revenue contended that admitting the new ground would provide an undue advantage to the assessee and quoted legal precedents to support their objection.

The tribunal, after considering both parties' arguments, admitted the additional ground based on legal principles and merits. It cited the NTPC case to support its decision, emphasizing the wide jurisdiction of the tribunal. Regarding the allowability of education cess, the tribunal referred to relevant case laws and circulars to conclude that education cess is not included in the definition of 'tax' under section 40(a)(ii). The tribunal found that the relevant facts were on record, as demonstrated by the assessee's actions, and allowed the claim for education cess as a deduction. Consequently, the tribunal directed the Assessing Officer to finalize the computation accordingly, allowing the assessee's instant additional substantive ground.

In conclusion, the tribunal partially allowed the assessee's appeal by confirming the classification of income as business income and allowing the deduction for education cess. The decision was pronounced on 22nd January 2021.

---