2022 (1) TMI 1263 - AT - Income Tax

Tribunal grants appeal, disallows Section 14A, allows CSR expense under Section 37(1), deems Education Cess deductible.

The Tribunal allowed the assessee's appeal on all grounds. The disallowance under Section 14A was deemed unwarranted as no expenses were incurred for the ... Disallowance u/s 14A - assessee has received dividend from UTI Treasury Advantage Fund under Institutional Plan Scheme - HELD THAT:- Since, the funds have been utilized for investment without incurring any expenses and keeping in view the evidences submitted by the assessee that no expenditure has been incurred for investment, no disallowance u/s 14A is called for. The appeal of the assessee on this ground is allowed. Claim of CSR expenditure - allowable business expenditure or not? - HELD THAT:- As on going through the entire facts of the case since, the amendment to Section 37(1) of the Act was inserted in Finance Act 2015 and is not retrospective, this expenditure is hereby allowed to be claimed as business expenditure u/s 37(1). Education Cess allowability - whether education cess is not tax and is an allowable expenditure? - HELD THAT:- Education Cess is not of the nature described in sections 30 to 36, Education Cess is not in the nature of capital expenditure, Education Cess is not personal expense of the Assessee, it is mandatory for it to pay Education Cess and for the purpose of computation of Education Cess, the Income ‘Tax’ is taken as the criteria for computational purpose. Thus, the expense of Education Cess is mandatory expenses to be paid but does not fall under capital expense and personal expenditure and hence may be allowed as deduction. We have also gone through the various judgments of judicial authorities pan India wherein the fresh claim of the assessee is considered and the deduction u/s 37 of Education Cess has been allowed. The Hon’ble High Court of Bombay held [2020 (3) TMI 347 - BOMBAY HIGH COURT] that the appellate authorities may confirm, reduce, enhance or annul the assessment or remand the case to the AO, because the basic purpose of a tax appeal was to ascertain the correct tax liability in accordance with the law. Hence, keeping in view the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66ITJ(19) we hereby hold that the assessee is eligible to claim the deduction of the ‘Education Cess’ as per the provisions of Section 37 of the Income Tax Act. - Decided in favour of assessee. Issues Involved:1. Deduction under Section 14A2. Claim of Corporate Social Responsibility (CSR) expenditure3. Allowability of Education Cess as a deductionDetailed Analysis:1. Deduction under Section 14A:The assessee received a dividend amounting to Rs. 4,31,89,170/- from UTI Treasury Advantage Fund, which was claimed as exempt income under Section 10(34). The assessee argued that the investment was made from its own surplus without incurring any borrowing interest. The investment advisors, M/s SPA Merchant Banker Limited, managed the fund without charging any fees. The original assessment did not add any exempt income received. However, the Principal Commissioner of Income Tax (PCIT) directed the Assessing Officer (AO) to make a disallowance under Section 14A, resulting in an addition of Rs. 50,25,537/-. Upon review, it was found that no expenses were incurred for the investment, and thus, no disallowance under Section 14A was warranted. The appeal on this ground was allowed.2. Claim of Corporate Social Responsibility (CSR) expenditure:The assessee, a Central Government PSU, incurred CSR expenditure under a policy adopted from the Assessment Year 2010-11. The expenses were for maintaining staff colonies, providing medical aid, and other community services. The AO disallowed the claim, viewing the expenses as capital in nature. During the appellate proceedings, it was argued that the Explanation 2 to Section 37(1) inserted by the Finance Act 2015 was not retrospective. The expenditures were not incurred under any statutory compulsion but under a CSR policy. It was concluded that since the amendment to Section 37(1) was not retrospective, the CSR expenditure was allowed as a business expenditure under Section 37(1).3. Allowability of Education Cess as a deduction:The assessee raised an additional ground arguing that Education Cess paid on income tax should be an allowable deduction. The argument was based on the interpretation of Section 40(a)(ii) and supported by CBDT Circular No. 91/58/66-ITJ(19) and judgments from various courts, including the Rajasthan High Court and ITAT Kolkata. The Revenue argued that Education Cess is part of income tax and not deductible. However, the Tribunal noted that the term 'tax' under Section 2(43) does not include cess, and the proceeds from Education Cess are not credited to the Consolidated Fund but to a specific fund for elementary education. Thus, Education Cess was not considered a tax and was allowed as a deduction under Section 37. The appeal on this ground was also allowed.Conclusion:The Tribunal allowed the appeal of the assessee on all grounds. The disallowance under Section 14A was not warranted, CSR expenditure was allowed as a business expense, and Education Cess was allowed as a deductible expense under Section 37. The judgment emphasized the importance of the specific provisions and interpretations of the Income Tax Act, supported by judicial precedents and CBDT circulars.