TaxTMI 
TaxTMI 
2021 (9) TMI 1464
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....umstances of the case, the ld. Assessing Officer and ld. CIT(A) ought to have appreciated that education cess on tax payable by the appellant should have been allowed as deduction while computing income of the appellant." 2. Briefly stated, the assessee who is engaged in the business of providing services to large steel mills and leading steel trading houses located worldwide, had filed his return of income for A.Y. 2010-11 on 27.09.2010, declaring a total income of Rs.5,80,37,190/-. Return of income filed by the assessee was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. During the course of the assessment proceedings, it was, inter alia, observed by the A.O that though the assessee had received exempt dividend income of Rs.1,12,52,736/-, viz. (i) dividend on shares: Rs.2,10,715/-;(ii) dividend on UTI and ARS bonds: Rs.3,25,668/-; and (iii) dividend on mutual funds: Rs.1,07,16,353/-, however, no expenditure was attributed and therein disallowed in relation to earning of the said exempt income. On being queried that as to why the disallowance qua the aforesaid exempt inco....
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....he exempt dividend income was not to be accepted. It was the claim of the assessee that as he had maintained separate books for his personal and business purpose and no nexus was shown by the A.O between the earning of the dividend income and the expenditure claimed in respect of his regular business, therefore, the disallowance u/s 14A was not warranted and was liable to be struck down. Alternatively, it was submitted by the assessee that salary of one of his employee viz. Mr. Henry D'souza who used to spent 20% of his working hours may be attributed to the earning of the exempt dividend income, and thus, disallowance at best of Rs.1,38,820/- be made. However, the CIT(A) was not inclined to accept the aforesaid contentions of the assessee. Observing, that the assessee had a sizeable activity of making investments in shares and mutual funds on which a substantial amount of exempt income had been earned by him, the CIT(A), thus, was of the view that the use of the services of staff, office and establishment expenses pertaining to the assessee's proprietary business for the purpose of earning of exempt income by him could not be ruled out. Backed by his aforesaid observation, the CIT....
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....ives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his aforesaid contention. Admittedly, it is a matter of fact borne from the record that though the assessee during the year in question was in receipt of exempt dividend income of Rs.1,12,54,736/-, however, he had not attributed and therein disallowed any part of the expenditure qua earning of the said exempt income. As is discernible from the records, it was the claim of the assessee that he had maintained separate books of accounts qua his regular business and the activity of making investments in shares and mutual funds. It was, thus, the claim of the assessee that as no expenditure was claimed by him with respect to the activity of making investments in shares and mutual funds, therefore, no disallowance was warranted u/s 14A of the Act. On the other hand, we find that the A.O after exhaustively discussing Sec. 14A of the Act a/w the mechanism for working out the disallowance as contemplated in Rule 8D of the Income Tax Act, Rules 1963, and the law pertainin....
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....where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." Also, a similar view have been taken by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs CIT (2018) 402 ITR 640 (SC). In the case before us, it is a matter of fact borne from the record that though the A.O had discussed at length the rationale behind introduction of Sec.14A and also Rule 8D that contemplates the mechanism for computing the disallowance under the aforementioned statutory provision, as well as had exhaustively dealt with the aspect as to how the law insofar the aforementioned....
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....d and is liable to be vacated. The Ground of appeal no.1 is allowed in terms of our aforesaid observations. 8. The Ground of appeal no. 2 being general is dismissed as not pressed. 9. We shall now deal with additional ground of the assessee, wherein he had claimed that the 'education cess' on the tax payable by him should have been allowed while computing his income for the year under consideration. It was submitted by the ld. A.R that the aforesaid additional ground of appeal was being raised on the basis of the recent judgment of the Hon'ble High Court of Bombay in the case of Sesa Goa Limited vs. Joint Commissioner of Income-tax (2020) 107 CCH 375 (Bom). The ld. A.R submitted that the Hon'ble High Court in its said judgment, had observed, that if the legislature intended to prohibit the deduction of amounts paid by an assessee towards "Education Cess" or any other "Cess" and Higher and Secondary Education Cess, then, the legislature could have easily included reference to "cess" in clause (ii) of Sec. 40(a). It was further submitted by the ld. A.R that the High Court had observed, that as the legislature had not included "education cess" or any other "cess" in clause (ii) ....
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.... that "any rate or tax levied" on "profits and gains of business or profession" shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession", but then, there was no reference to any "cess". Also, the High Court held observed that there was no scope to accept that "cess" being in the nature of a "tax" was equally not deductible in computing the income chargeable under the head "profits and gains of business or profession". It was further observed that if the legislature would had intended to prohibit the deduction of amounts paid by an assessee towards say, "education cess" or any other "cess", then, it could have easily included a reference to "cess" in clause (ii) of Section 40(a). On the basis of its aforesaid observations, the Honble High Court had concluded that now when the legislature had not provided for any prohibition on the deduction of any amount paid towards "cess" in clause (ii) of Sec. 40(a), therefore, holding to the contrary would amount to reading something which is not to be found in the text of the provision of Sec. 40(a)(ii). Accordingly, the Hon'ble High Court had concluded that there was no prohibition o....
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.... safe and infallible principle, which is of guidance in these matters, is to read the words through and see if the rule is clearly stated. If the language employed gives the rule in words of sufficient clarity and precision, nothing more requires to be done. Indeed, in such a case the task of interpretation can hardly be said to arise : Absoluta sententia expositore non indiget. The language used by the Legislature best declares its intention and must be accepted as decisive of it. 19. Besides, when it comes to interpretation of the IT Act, it is well established that no tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden on him. The subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit of the law cannot be availed of by the department. [See CIT vs Motors & General Stores 66 ITR 692 (SC)]. 20. In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, into the provisions which has ....
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....basis of, any such profits or gains" 25. However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word "cess" from the aforesaid clause from the Income Tax Bill, 1961. The effect of the omission of the word "cess" is that only any rate or tax levied on the profits or gains of any business or profession are to be deducted in computing the income chargeable under the head " profits and gains of business or profession". Since the deletion of expression "cess" from the Income Tax Bill, 1961, was deliberate, there is no question of reintroducing this expression in Section 40(a)(ii) of IT Act and that too, under the guise of interpretation of taxing statute. 26. In fact, in the aforesaid precise regard, reference can usefully be made to the Circular No. F. No.91/58/66-ITJ(19), dated 18th May, 1967 issued by the CBDT which reads as follows :- "Interpretation of provision of Section 40(a)(ii) of IT Act, 1961-Clarification regarding. "Recently a case has come to the notice of the Board where the Income Tax Officer has disallowed the ‗cess' paid by the assessee on the ground that there has been no material....
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....e been analyzed in the context of provisions of Section 40(a)(ii) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT Vs Gurupada Dutta 14 ITR 100, where a union rate was imposed under a Village Self Government 15 TXA17&18-13 dt.28.02.2020 Act upon the assessee as the owner or occupier of business premises, and the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section could not be disallowed under this sub-clause. Similarly, this sub-clause is inapplicable, and a deduction should be allowed, where a tax is imposed by a district board on business with reference to ....
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.... such "cess" is to be construed as "tax". According to us, there is no scope for such implications, when construing a taxing statute. Even, though, "cess" may be collected as a part of income tax, that does not render such "cess", either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the IT Act. The mode of collection, is really not determinative in such matters. 34. Ms. Linhares, has relied upon M/s Unicorn Industries Vs Union of India and others, 2019 SCC Online SC 1567 in support of her contention that "cess" is nothing but "tax" and therefore, there is no question of deduction of amounts paid towards "cess" when it comes to computation of income chargeable under the head profits or gains of any business or profession. 35. The issue involved in Unicorn Industries ( supra ) was not in the context of provisions in Section 40(a)(ii) of the IT Act. Rather, the issue involved was whether the 'education cess, higher education cess and National Calamity Contingent Duty (NCCD)' on it could be construed as "duty of excise" which was exempted in terms of Notification dated 9th September, 2003 in respect of goods specified....
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....see in the facts and circumstances of the present case. The record bears out that such deduction was clearly claimed by the Appellant - Assessee, both before the Commissioner (Appeals) as well as the ITAT. 39. In CIT Vs Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336, one of the questions of law which came to be framed was whether on the facts and circumstances of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze (supra ) and urged that the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze (supra) had no power, proceeded to hold that the Appellate Authority under the IT Act had sufficient powers to permit such a deduction. In taking this view, the Division Bench relied upon the Full Bench decision of this Court in Ahmedabad Electricity Co. Ltd Vs CIT (199 ITR 351) to hold that the Appellate Authorities under the IT Act have very wide powers while considering an appeal which may be filed by the A....