The Tax Publishers2022 TaxPub(DT) 8303 (SC) : (2023) 450 ITR 0164 : (2023) 291 TAXMAN 0438 INCOME TAX ACT, 1961
Section 261 Section 40(a)(ii) Section 37
Where the Department preferred SLP to appeal against the judgment of Rajasthan High Court in Chambal Fertilisers & Chemicals Ltd. v. Jt. CIT [ITA Nos. 52 & 68/2018, dt. 31-7-2018] : 2018 TaxPub(DT) 5619 (Raj-HC), whereby the High Court held that in CBDT Cicular No. 91/58/66 ITJ (19), dt. 18-5-1967, it has been clarified that the effect of omission of the word 'cess' from section 40(a)(ii) is that only taxes paid are to be disallowed in assessement for the years 1962-63 onwards. Thus, as per said circular, Education cess could not be disallowed and there could not be a contradiction as the circulars bind tax authorities, the Supreme Court held that in view of the amendment vide the Finance Act, 2022 with retrospective effect from 1-4-2005 to section 40(a)(ii) of the IT Act, 1961, Education cess on rate or tax levied is to be disallowed, and (ii) Education cess paid by the respondent-assessee would not be allowed as an expenditure under section 37 read with section 40(a)(ii) of the IT Act, 1961.
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Appeal (Supreme Court) - Special leave petition - Business disallowance under section 40(a)(ii) - Cess, rate or tax--Education cess--Retrospective amendment made by Finance Act, 2022 to section 40(a)(ii) w.r.e.f. 1-4-2005
Department preferred SLP to appeal against the judgment of Rajasthan High Court in Chambal Fertilisers & Chemicals Ltd. v. Jt. CIT [ITA Nos. 52 & 68/2018, dt. 31-7-2018] : 2018 TaxPub(DT) 5619 (Raj-HC), whereby the High Court held that in CBDT Circular No. 91/58/66 ITJ (19), dt. 18-5-1967, it has been clarified that the effect of omission of the word 'cess' from section 40(a)(ii) is that only taxes paid are to be disallowed in assessement for the years 1962-63 onwards. Thus, as per said circular, Education cess could not be disallowed and there could not be a contradiction as the circulars bind tax authorities. Held: The Supreme Court held that in view of the amendment vide the Finance Act, 2022 with retrospective effect from 1-4-2005 to section 40(a)(ii) of the IT Act, 1961, Education cess on rate or tax levied is to be disallowed, and (ii) Education cess paid by the respondent-assessee would not be allowed as an expenditure under section 37 read with section 40(a)(ii) of the IT Act, 1961.
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