Education cess cannot be disallowed u/s 40(a)(ii)

Chambal Fertilisers And Chemicals Ltd Vs JCIT (Rajasthan High Court) 

The assessee is of the considered opinion that the education cess and secondary & higher education cess (collectively called as education cess) are not a “tax” and hence not disallowable u/s 40(a)(ii) of the Act on the basis of following submission:-

(1) That on a plain reading of the above provision of section 40(a) (ii), it is evident that a sum paid of any rate or tax is expressly disallowed by this sub-clause in two cases : (i) where the rate is  levied on the profit or gains of any business orprofession, and (ii) where the rate or tax is assessed at a proportion of or otherwise on the basis of any such profits or gains. It is evident that nowhere in the said section it has been mentioned that education cess is not allowable. Education cess is neither levied on the profits or gains of any business or profession nor assessed at a proportion of, or otherwise on the basis of, any such profits or gains.

(2) That in CBDT Circular No. 91/58/66 ITJ (19), dated May 18, 1967 it has been clarified that the  effect of the omission of the word “cess” from section 40(a)(ii) is that only taxes paid are to be disallowed in the assessment for the years 1962- 63 onwards. Thus, as per the said circular, Education cess cannot be disallowed; there cannot be a contradiction as the circulars bind the tax authorities.

(3) That education cess cannot be treated at par with any “rate” or “tax” within the meaning of section 40(a)(ii) especially when the same is only a “cess” as may also be seen from the speech of the hon’ble Finance Minister while placing before the Parliament the budget for the year 2004-05 ([2004] 268 ITR (ST.) 1,6).

Please become a Premium member. If you are already a Premium member, login here to access the full content.