CESS ON INCOME TAX IS ALLOWABLE EXPENDITURE : BOMBAY HC

Cess on Income Tax is Allowable Expenditure : Bombay HC

Parties : Sesa Goa Ltd. vs. JCIT

Decision of : Hon’ble Bombay High Court at Goa

Date of Order : February 28, 2020

ITA No. 17 & 18/2013

Issue relating to : Disallowance of ‘Cess’ u/s. 40(a)(ii).

FACTS OF THE CASE :

Before the appellate authority Assessee claimed deduction of ‘Edu. Cess & Higher Edu. Cess’ paid on the income tax. Revenue relied on Section 40(a)(ii) and contended that any rate or tax levied on business income is not allowable as business expenditure. It was argued that the expression ‘tax levied’ in this section will also include ‘cess’ levied on such tax.

QUESTION BEFORE THE HON’BLE HIGH COURT :

Whether ‘cess’ on income tax is allowable expenditure and will not fall under the purview of Section 40(a)(ii)?

FINDINGS AND DECISION OF THE HON’BLE HIGH COURT :

Hon’ble High Court reiterated the following principles of interpretation :

a) Absoluta sentential expositore non indigent: Read the words through and see if the rule/provision is clearly stated. The language used by the legislature best declares its intention and must be accepted as decisive of it. [Ref: (1959) 37 ITR 41 (Bombay HC)].

b) No tax can be imposed without words in the Act clearly showing an intention to levy it. Argument that assessee falls within the spirit of the law cannot be availed of by the department. [Ref: (1967) 66 ITR 692 (SC)]

c) No tax can be imposed by inference or analogy. It is not permissible to construe a taxing statute by making assumptions and presumptions. [ref: (1989) 188 ITR 402 (SC)].

d) Interpretation cannot go to the extent of reading something that is not stated in the provision. [Ref: (1998) 233 ITR 207 (Madras)]

e) In the Income Tax Bill, 1961, ‘cess’ was specifically included in Section 40(a)(ii) along with the term ‘rate or tax’. However, at the time of enactment, it was decided to omit the word “cess”. This clearly spells the intention of the legislature to exclude ‘cess’ form the ambit of section 40(a)(ii).

f) CBDT Circular No. 91/58/66-ITJ(19) dt. 18/05/1967: Only taxes paid can be disallowed u/s. 40(a)(ii) and hence ‘cess’ cannot be disallowed.

Considering the above legal position, it was held that since section 40(a)(ii) does not specifically provides for disallowance of ‘cess’; it cannot be disallowed.

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