TaxTMI 
TaxTMI 
2021 (10) TMI 1420
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....red into a service agreement with CMG USA to provide Information Technology enabled customer care back-office support services with effect from April 1, 2001. 4. During the course of the TP proceedings, the TPO rejected the economic analysis undertaken by the assessee and proposed a TP adjustment of Rs.37,53,13,450/- on account of the provision of ITeS by the assessee. 5. Further, the TPO reclassified the outstanding receivables beyond the credit period of 30 days as deemed loans to the AE and treated them as separate international transaction. The TPO further imputed an interest on the same by applying a markup of 400 basis points on LIBOR, thereby making an addition amounting to Rs.4,71,09,902/-. Foreign Exchange Fluctuation: 6. During the year under consideration, the assessee recorded a foreign exchange ('forex') gain of INR 10,17,49,505. The ld. AR argued that the foreign exchange gain has arisen on account of revenue receivables and export of service provided by the assessee. The net foreign exchange recorded pertains to the service income received from AE, forming an inherent part of the consideration received for export of service and hence, it should be a part of the ....
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....O by applying a markup of 400 basis points on LIBOR on the receivables made an addition amounting to Rs.4,71,09,902/-. 14. Before us, it was argued that the assessee entered into numerous international transactions with its AEs resulting in receivables for the same. The said receivables are settled with its AEs on an ongoing basis, in the day-to-day business transactions, at an arm's length price having regard to the economic and commercial factors. As mentioned earlier, the working capital adjustment subsumes the adjustment on account of receivables. Therefore, the arm's length price determination for the said receivables is subsumed within the arm's length price determination of the principal international transaction itself. Furthermore, the said outstanding receivables are a result of the international transactions undertaken by the assessee with its AEs and are not a separate international transaction as per Section 92B of the Act. 15. It is settled principle that there is no need to benchmark the interest on receivables wherein the interest has not been charged from either of the parties i.e. payables and receivables. In the instant case, period of 90 days has been allowed ....
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....ssed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 6. In the case of Jute Corporation of India Ltd. v. C.I.T. . this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority ....
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.... up by the assessee are hereby admitted. 21. Reading the provisions of Section 40(a)(ii), the assessee argued that education cess paid on Income Tax doesn't come under the purview of the definition as it is levied on the amount of Income Tax but not on profits of business. The ld. AR relied on the Circular No. 91/58/66-ITJ(19) by CBDT dated 18.05.1967, which states the effect of the omission of the words 'cess' from Section 40(a)(ii) is that only taxes paid are to be disallowed in the assessment for the assessment years 1962-63 onwards. 22. The ld. AR also relied on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd. Vs JCIT in ITA No. 52/2018 dated 31.07.2018 wherein the same issue has been decided in favour of the assessee and particularly held that education cess is an allowable expenditure. 23. Further, he argued that in the case of ITC Vs ACIT in ITA No. 685/Kol/2014 dated 27.11.2018 wherein it was held that the education cess is an allowable expenditure. 24. The ld. AR has also relied in the case of Peerless General Finance & Investment Co. Ltd. Vs DCIT in ITA No.937 & 938/Kol/2018 dated 24.03.2019 wherein it was held that ed....
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....not be equated with the cess. 30. We have also gone through the provisions of Sec. 115 of the Income Tax act 1961 which are as under: "Explanation 2 to section 115JB (2) of the Act defines the term 'Income-tax' in an inclusive manner, which includes cess. Provision of the explanation 2 to section 115JB is as given below:- For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include- (i) any tax on distributed profits under section 115-O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. 31. Thus, wherever the legislature wanted to include this term specifically in the statue it has done so under the Act. The term 'tax' has been defined in section 2(43) of the Act to include only Income-tax, Super Tax and Fringe Benefit Tax (FBT). Provision of the section 2(43) is as given below: "tax" in relation to the ....
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....which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of Fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied." 35. We also find that the proceeds from collection of "Education Cess" are not credited to Consolidated Fund but to a non-lapsable Fund for elementary education-"Prarambhik Shiksha Kosh". Since the proceeds from collection of Education Cess are kept separate for a specified purpose, applying the principles in the aforesaid decision of Apex Court in the case of M/s Dewan Chand Builders (supra), it can be said that the same is not in the nature of tax. Hence, it is allowable as deduction. 36. Fur....