What is Swachh Bharat Cess ?
It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015,called Swachh Bharat Cess, as service tax on all the taxable services at the rate of 0.5% of the value of taxable service.
Analysis : B
Let us now analyse what constitutes expenditure u/s 37:
Condition for allowance under section 37
Analysis : C
What is Cenvat Credit ?
The CENVAT credit scheme allows a manufacturer as well as a service provider to avail credit of duty of excise paid on inputs or capital goods and. service tax paid on input services. Such credit could be utilised for payment. of duty of excise on final products or service tax on the taxable output.
In simple words, Cenvat Credit availability means that assessee can recover the payment made for any tax or duty at later stage.
Analysis : D
Let us now analyse the treatment of taxes (other than SBC) paid, under u/s 37 while calculating PGBP.
When Cenvat Credit is available
Since assessee can take advantage of cenvat credit in respect of these taxes, such payment of taxes cannot be considered as ‘expenditure’ for business purposes u/s 37 because if we take the literal meaning the expense has not been incurred and the payment has been recovered at future date.
Therefore those taxes or duties in respect of which benefit of cenvat credit is available, cannot be considered as allowable expenditure u/s 37 of Income Tax Act.
When Cenvat Credit is not available?
When cenvat credit is not available in respect of any tax or duty, it simply means that assessee is not in a position to recover the payment at later stage. Therefore, such payment can be considered as in the nature of expenditure. Hence, it shall be an allowable expenditure u/s 37.
Analysis : E
Whether Cenvat Credit in respect of Swachh Bharat Cess is available or not?
SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed.
Further, SBC cannot be paid by utilizing credit of any other duty or tax.
Conclusion: Cenvat Credit is not available in respect of Swachh Bharat Cess. Therefore, such payment of Swachh Bharat Cess shall be considered as expenditure and hence, shall be an allowable expenditure u/s 37 provided other factors are satisfied.
Sec 37 read with Sec 43B
Swachh Bharat Cess shall be allowed for deduction as expenditure while computing income under PGBP keeping in mind the provisions of Sec 43B which states that payment of tax or duty shall be an allowable expenditure only if the said expenditure has actually been made the the previous year.
(The above article is contributed by Anjali Goyal, Tax Manager at KGMA. For any queries or suggestions, contact at firstname.lastname@example.org)