The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the education cess would not be allowable as expenditure under Section 37 of the Income Tax Act, 1961.
The assessee, Aarti Drugs Ltd is a company engaged in the business of manufacturing chemicals and bulk drugs. For the year under consideration, the assessee filed its return of income. The return of income filed by the assessee was selected for scrutiny. The Assessing Officer passed assessing the total income of the assessee after making various disallowances/addition.
In further appeal, the learned CIT(A) vide impugned order partially allowed the appeal filed by the assessee. The Revenue’s appeal is pertaining to the claim of education cess as an allowable expenditure.
Section 37 of the Income Tax Act 1961 deals with the allowability of revenue and non-personal expenditure laid out or expended wholly and exclusively for the purposes of business or profession.
S.S. Nagar appeared on behalf of the assessee and R.S. Srivastav appeared on behalf of the revenue.
The Division bench of S. Rifaur Rahman (Accountant Member) And Sandeep Singh Karhail (Judicial Member) allowed this ground observing that,
“We find that Finance Act, 2022 with retrospective effect from 01/04/2005 inserted Explanation 3 to section 40(a)(ii), whereby it has been provided that the term ‘tax’ shall include and shall be deemed to have always included any surcharge of cess, by whatever name called, on such tax.”
“We further find that the Hon’ble Supreme Court in JCIT Vs. Chambal Fertilisers & Chemicals Ltd. allowed the Revenue’s appeal against the Hon’ble Rajasthan High Court’s decision in Chambal Fertilisers & Chemicals Ltd. Vs. JCIT, and held that the education cess paid by the respondent-assessee would not be allowed as an expenditure under Section 37 read with 40(a)(ii) of the Act.”
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