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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI M. BALAGANESH & SHRI PAVAN KUMAR GADALE
2 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
PER PAVAN KUMAR GADALE, JM
The cross appeal is filed by the assessee and Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-48, Mumbai [in short ‘the Ld. CIT(A)’] passed u/s 143(3) and 250 of the Income Tax Act, 1961 (in short ‘the Act’).
For the sake of convenience, we shall take up Revenue’s appeal in ITA No. 1799/Mum/2021 for A.Y 2013-14 as a lead case and facts narrated. The Revenue has raised following grounds of appeal:
1 a) Whether, on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in merely treaty the receipts in the form of export incentives, as capital receipts without appreciating that the assessee did not provide proof of the purposes for which the subsidy/incentives were received or how the same were utilized. 2 b) Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowed additional deprecation u/s 32 on the assets which were put to use for less than 180 days in the previous year.
At the time of hearing, the Ld.DR submitted that the Revenue has raised an additional ground of appeal as under:
(i) Whether, the Ld. CIT(A) was justified against the AO’s action of not considering the claim of Education
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Cess of Rs.73,08,520/- on income tax and Dividend Distribution Tax by ignoring judgments of the Hon’ble High Courts in which Education Cess was not allowed as deduction.
We have heard the submissions of the Ld.DR and Ld.AR on the additional grounds of appeal which is a legal issue accordingly, admit and heard along with original grounds of appeal.
The Brief facts of the case are that the assessee company is engaged in the business of manufacturing of 1200 TPA Isobutlyl Benezene (IBB), an intermediate used to manufacturer Ibuprofen at MIDC, Mahad Raigad District Maharashtra and the assessee has second plant of at Lote. The assessee has filed the return of income electronically for the assessment year 2013-14 on 23.09.2013 disclosing a total income of Rs.70,87,36,750/-. Subsequently, the case was selected for scrutiny and notice u/s 143(2)&142(1) of the Act along with questionnaire was issued. In compliance to notice, the Ld.AR appeared from time to time and on perusal of the facts, the Assessing Officer(A.O.) found that the assessee has earned dividend income of Rs.1,45,29,536/- and claimed as exempt in the computation of income and worked out disallowance u/s 14A of the Act at Rs.5,16,767/.-Whereas the Assessing Officer applied the provisions of Rule8D(2) and computed the disallowance u/s
4 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
14A r.w.r 8D(2)(ii)&8D(2)(iii) of Rs21,69,639/-. On the second disputed issue, the Assessing Officer on verification of the payments made to non-residents Rs.61,122/- paid to ICIC Pricing, UK and Rs.2,32,746/- to Platts, USA. The A.O. found that the assessee has not deducted TDS u/s 195 of the Act. Whereas, in response to query on the TDS, the assessee has filed letter dated 25.03.2016 mentioning that payment was in the nature of like subscribing to any magazines which is nothing more than getting information of the pricing as well as reports of the chemical business. The Assessing Officer was not satisfied with the explanations and treated the amount paid to the non-resident is in the nature of royalty payment and is subject to deduction of tax and the A.O. invoked the provisions of Sec40(a)(i) of the Act and disallowed Rs.2,93,868/-.
The assessee has filed the revised computation of income vide letter dated 23.03.20216 in respect of modification of claims (i)Claim of sales Tax subsidy availed during the year as capital receipt(ii) claim of pre-operative expenditure as revenue expenditure (iii) claim of additional depreciation/sec32(i)(iia) of the Act and (iv) claim of education cess debited in profit &loss account. Since the assessee has not claimed by way of revised return of income, the Assessing Oficer has rejected the revised computation of income and has assessed the total income of
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Rs.71,12,00,260/- and passed the order u/s 143(3) of the Act dated 18.03.2016.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The CIT(A) considered the grounds of appeal and submissions of the assessee, remand report on (i)the claim of sales tax exemption and exports incentives claimed as capital receipt (ii) claim of education cess debited in profit & loss account. The CIT(A) dealt on the facts, provisions and judicial decisions at Para 4.4 to 4.7 of the order and granted the relief.(ii)on the claim of additional depreciation u/sec32(i)(iia) of the Act the Ld. CIT(A) has dealt at Para 6.2 & 6.2.1 of the order and granted relief (iii) on claim of education cess debited in profit &loss account the CIT(A) dealt at para7.2 to 7.7 of the order and allowed the claim. Whereas in other grounds of appeal CIT(A) allowed partial relief and partly allowed the appeal of the assessee.
Aggrieved by the CIT(A) order, the revenue has filed an appeal with the Honble Tribunal. At the time of hearing, the Ld.DR relied on the order of the A.O. Contra Ld.AR supported the order of the CIT(A) and Honble Tribunal decision in assessee own case.
We heard the rival submissions and perused the material on record. The Ld.DR submitted that the CIT(A) has erred in treating the export incentive as the capital receipt. We find
6 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
the Hon’ble Tribunal in assessee’s own case for the assessment years 2014-15 to 2016-17 in ITA Nos. 1667 to 1669/Mum/2021 dated 28.04.2022 has observed on similar issue at page 14 Para 7 to Para 8 of the order which is read as under :
“7. On appraisal of the above mentioned finding, we find that no doubt the assessee initially nowhere raised the claim of export incentive before the AO in its return of income nor the claim was raised at the time of filing the revised return of income. The claim was raised before the CIT(A) initially and the CIT(A) was having co-terminus power as of AO who dealt with the issue on the basis of the decision of Hon’ble Bombay High Court in the case Pruthvi Brokers Pvt. Ltd. 253 CTR 0515 and in view of the decision in the case of PCIT Vs. Karnataka State Co-op feberation Ltd. 148 Taxmann.com. The CIT(A) has also placed reliance upon the decision in the case of NTPC Vs. CIT 229 ITR 383 (SC) and Jute Corporation of India Vs. CIT 181 ITR 688 (SC). Apparently, CIT(A) has co-terminus power to consider the issue which may not be considered by the AO and can taken the decision in accordance with law. Taking into account of all the facts and circumstances and considering this fact that CIT(A) has appreciated the law mentioned above, we are of the view that the claim of the assessee has rightly been considered at appellate stage. So far as the export incentive claim is concerned, the assessee was entitled the incentive under status holder incentive claim (SHIS), Incremental Export Incentivisation Scheme (IEIS) and Market
7 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
Linked Focus Products Scheme (MLFPS). As regards SHIS, the incentive was given with the objective to promote investment in technology upgradation and was granted @ 1% of FOB value of Export. The investment in technology is clearly a capital expenditure. So far as the incremental incentive scheme is concerned, the incentive was linked with incremental export if a particular year, export sale was more than certain percentage of export in the preceding year, the assessee becomes entitled for this incentive. The said incentive was connected to expenses of investment in new plant and machinery, hence, the incentive is capital in nature. With regard to, Market Linked Focus Product Scheme (MLEPS) is concerned, the incentive was granted in order to export of products of high export intensity employment potential and is incentivized at 2% of FOB value of exports. This incentive was linked to employment generation by the company connected to the export of goods and mercantile. It is linked with capital in nature. The CIT(A) has placed reliance upon the decision of the Hon’ble Supreme Court in the case of CIT Vs. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 392 (SC), Eastman Exports Global Clothing Pvt. Ltd. in ITA. No.47/MDS/2016 dated 17.05.2016 and Sutlej Textiles & Industries Ltd. (ITA. No.5142/Del/2013) and M/s. Gloster Jute Mills Ltd. Vs. Addl. CIT in ITA.No.687/Kol/2010. These issues have duly been examined and discussed by CIT(A) in his order. The copy of scheme has also been filed by ld. Representative of the assessee for examination. It is necessary to advert the contents on record: -
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“3.14.1 Objective is to offset high freight cost and other externalities to select international markets with a view to enhance India’s export competitiveness in these countries.
3.14.2 Entitlement
Exporters of all products to notified countries (as in Appendix 37C of HBPv1) shall be entitled for Duty Credit Scrip equivalent to 3% of FOB value of exports (in free foreign exchange) for exports made from 27-8- 2009 onwards, unless a specific date of export/period is specified by public notice/notification.
3.14.3 Ineligible Exports Categories/Sectors for FMS The following categories of export products/sectors shall be ineligible for Duty Credit Scrip, under FMS scheme
(a) Supplies made to SEZ units;
(b) Service Exports;
(c) Diamonds and other precious, semi-precious stones;
(d) Gold, silver, platinum and other precious metals in any form, including plain and studded Jewellery;
(e) Ores and Concentrates, of all types and in all forms;
(f) Cereals, of all types;
(g) Sugar, of all types and in all forms;
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(h) Crude/Petroleum Oil & Crude/Petroleum based Products covered under ITC HS codes 2709 to 2715, of all types and in all forms; and
(i) Export of Milk and Milk Products covered under ITC HS Codes 0401 to 0406, 19011001, 19011010, 2105 & 3501.
3.15. Focus Product Scheme (FPS)
3.51.1 Objective
Objective is to incentivise export of such products which have high export intensity/employment potential, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products,
3.15.2 Entitlement ‘Exports of notified products (as in Appendix 37D of HBPv1) to all countries (including SEZ, units) shall be’ entitled for Duty Credit scrip equivalent to 2% of FOB value of exports (in free foreign exchange) for ex. porta made from 27-8-2009 anwards. unless a avecific date of export/period is specified by public notification.
However Special Focus Products, sector(s) covered under Table 2 and Table 5 of Appendix 37 D shall be granted Duty Credit Scrip Equivalent to 5% of FOB value of export (in free foreign exchange) for exports made from 27.08.2009 onwards, unless a specific date of export/period is specified by public notice/notification.
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Further, Focus Product(s)/sector(s) that are notified uder Table) of Ay pend 370 shall be granted & additional Duty Credit Sump equivalent to 2% of FOB value of export On free foreign exchange over above the existing rate for that product/sector from the admissible date of export/ period specified m public notice issued to notify the product /sector.
3.15.3 Market Linked Focus Products Scrip (MLEPS);
Expert of Products/Sectors of high export intensity /employment potential (which are not covered under present FPS List) would be incentivized at 2% of POB value of exports (in free foreign exchange) under FIN when exported to the Linked Markets (countries), which are not covered in the present FMS list, as notification in Appendix 371) of HBPv1, for exports made from 27 82009 onwards, unless a specific date of export/ period is specified by public notice/notification.
3.16 Status Holders Incentive Scrip (SHIS)
3.16.1 With an objective to promote investment in upgradation of technology of some specified sectors as dated in Para 3.16.4 below, Status Holders shall be entitled to incentive scrip @ 1% of FOB value of exports made during 2009-10, 2010-11 and during 2011-12, of these specified sectors, in the form of duty credit.
The Status Holders of the additional sectors listed in the Para 3.10.8 of HBPvi 2009-14 (RE-2010) shall be eligible for this Status Holders Incentive Scrip on exports made during 2010-11 and 2011-12.
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This shall be over and above any duty credit scrip claimed /availed under this chapter. 3.16.2 Status Holders availing Technology Upgradation Fund Scheme (TUFS) benefits (under Ministry of Textiles) during a particular year shall not be eligible for Status Holders Incentive Scrip for exports of that year.
3.16.3 The Status Holders Incentive Scrip shall be with Actual User Condition and shall be used for exports of capital goods (as defined in FTP) relating to the sectors specified in Para 3.16.4 below. 3.16.4 The Status Holders of the following Sectors shall be eligible for this Status Holders Incentive Scrip –
(1) Leather Sector (excluding finished leather);
(2) Textiles and Jute Sector;
(3) Handicrafts;
(4) Engineering Sector (excluding Iron & Steel, Non- ferrous Metals in primary or intermediate forms, Automobiles & two wheelers, nuclear reactors & parts and Ships, Boats and Floating Structures);
(5) Plastics; and
(6) Basic Chemicals (excluding Pharma Products).
The Status Holders of the additional sectors listed in the Para 3.10.8 of HBPv1 2009-14 (RE 2010) shall be eligible for this Status Holders Incentive Scrip an exports made during 2010-11 and 2011-12.”
The scheme is self-explanatory. There is nothing on record to which it can be assumed that the same is not
12 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
in existence. No reason has been explained to which it can be assumed that the CIT(A) has granted the relief wrongly and illegally. The facts are not distinguishable at this stage. In view of the facts and circumstances and the law considered by the CIT(A), we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue.”
Whereas, the Ld. CIT(A) has dealt on this disputed issue at page 31 Para 4.17 to 4.18 of the Order as under :
“4.17 Therefore, in view of the principals laid down by the Hon'ble Apex Court in the case of CIT vs Ponni Sugars & chemicals Ltd (supra), decision of Hon'sble Punjab & Haryana High Court in the case of Sham Lal Bansal and various decisions as given above, the export incentive is to be held as capital in nature is held as and liable not to tax.
4.18 Therefore, this ground no. 1 and additional ground nuo. 1 of appeal is decided in favour of the assesse and is accordingly treated as Allowed.”
The second disputed issue is with respect to claim of additional depreciation, we find that the Ld. CIT(A) has dealt at page 36 Para 6.2 to 6.8 of the order which is read as under :
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“6.2 APPELLATE DECISION:- I have considered the facts of the case, submissions of the assessee and material on record. It is relevant to mention over here that, the AO at the assessment stage has not allowed the claim of additional depreciation us 32((iia) of Rs. 1,94,38,514/-. The appellant claimed that he is entitled for additional expenses / deductions otherwise aliowable to the appellant during the normal course, relying on the decisions of Hon'ble Karnataka High Court in the case of CIT vs. Rittal India Private Limited ITA No. 267/2014, wherein it was held that,
"... 7. Clause (ila) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effect from 01.04.2006. Prior to that, a proviso to the said Clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or produce during any year previous to the relevant assessment year.
The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, or that it should be claimed in one year, have been down away by substituting clause (iia) with effect from 01.04.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to Clause (il) of the said Section makes it clear that only
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50% of the 20% would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, if nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessment year.
The language used in Clause (ila) of the said Section clearly provides that "a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (it)". The word "shall" used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (ila) would be defeated because it provides for 20% deduction which shall be allowed.....
6.3 These are the provisions to give a fillip to new industries as also to existing industries, which seek to expand its sway, by investing in and making use of new plant and machinery. The plain language of Section 32(1)iia) read along with the relevant proviso come to the conclusion that, there is no limitation in the assessee claiming the balance 10% of additional depreciation in the succeeding assessment year.
6.4 The question of whether the assessee is entitled for balance 50% of additional depreciation in the
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subsequent assessment year has been decided by the Hon'ble Madras High Court in the case of Shri T.P. Textiles (P.) Ltd.,(supra). The Hon'ble High Court has held that the plain language of Section 32(1)(tia) read along with the relevant proviso will lead to conclusion that there is no limitation placed on the assessee claiming 10% of additional depreciation in the succeeding assessment year.
6.5 Further, in the case of Rashtriya Chemicals and Fertilizers Ltd. (supra) has taken similar view following the decision of the the Hon'ble Karnataka High Court in the case of CIT vs. Rittal India (P) Ltd. (380 ITR 423).
6.6 During the appellate proceedings the appellant filed Revised working of depreciation allowable to the appellant for the assessment year 2013-14 placed at page number 104-108 of Paper Book. Disregarding the submissions made by the appellant, the AO in the order u/s 143(3), held that the claim lodged in the course of assessment proceedings without filing a revised return cannot be entertained and rejected the aforesaid claim of additional depreciation. However, I do not find the Act restricts anywhere that the balance 10% would not be allowed to be claimed by the assessee in the subsequent year.
6.7 In view of the above discussion made and respectfully following the decisions given by Hon'ble Karnataka High Court in the case of CIT vs. Rittal India (P) Ltd., the claim of additional depreciation of Rs. 1,94,38,514/- is allowed to the appellant.
16 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
6.8 In the result, this ground of appeal of the assessee is allowed.”
We find the CIT(A) has considered the factual aspects, applicability of provisions and the judicial decisions and granted relief on sales tax export incentive and claim of additional depreciation. The Ld.DR could not controvert the findings of the CIT(A) with any new cogent material evidence or information to take a different view. Accordingly we do not find any infirmity in the order of the CIT(A) on these two disputed issues, who has considered the facts, provisions of law and passed a reasoned and speaking order and uphold the same and dismiss these two grounds of appeal of the Revenue.
The revenue has raised the additional ground appeal challenging the relief granted by the CIT(A) on the claim of education cess. We find the Hon’ble Tribunal in assessee’s own case for assessment year 2014-15 to 2016-17 has dealt at page 19 Para 9 &10 and allowed the ground of appeal of the revenue as under:
“9. Under this issue the revenue has challenged the allowance of claim of the Education Cess. The CIT(A) has allowed the claim of Education Cess on the basis of the decision of Hon’ble Bombay High Court in the case of ‘Sesa Goa Limited Vs. JCIT (2020) 117 taxmann.com 96. The Ld. Representative of the revenue has argued that now the situation has been
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become different and the Hon’ble ITAT has passed the order dated 26.10.2021 in the case of M/s. Kanoria Chemicals & Industries Ltd. in which it is held that the Education Cess is the part and parcel of the tax. It is also argued that the Finance Bill 2022 has also cleared the situation in which Education Cess has been treated as a part of the tax. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Taking into account of all the facts and circumstances, we observed that the Hon’ble ITAT in the case of M/s. Kanoria Chemicals & Industries Ltd. Vs. ACIT dated 26.10.2021 has passed the order by relying upon the decision of the Hon’ble Supreme Court in the case of CIT Vs. K. Srinivasan (1972) 83 ITR 346. The relevant finding in the case of M/s. Kanoria Chemicals & Industries Ltd is hereby as under: -
“15. The assessee has taken the following additional ground of appeal:-
Additional Ground.
I. On the facts and circumstances of the case and in law, the Assessing Officer/ CIT(A) ought to have allowed deduction of Education Cess amounting to Rs. 3,19,95,9981- in terms of law laid down by the Hon'ble Rajasthan High Court in Chambal Fertilizers and Chemicals Ltd. [ITA o. 52/Raj/2018 ruling dt. 31.7.2018] and further Hon'ble Kolkata Tribunal in case of ITC Ltd. [ ITA No. 685/Koll20 14 ruling dt. 27.11.20 18 ]
18 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
As per the provisions of section 40(a)(ii) of the Income-tax Act, 1961 ( in short, the ‘Act’) ‘any rate or tax levied’ on profits and gains of business or profession’ shall not be deducted in computing the income chargeable under the head ‘profits and gains, business or profession.
The Ld. Counsel for the assessee has submitted that ‘Cess’ has not been specifically mentioned in the aforesaid provisions of section 40(a)(ii) and, therefore, Cess is an allowable expenditure. He in this respect has relied upon the “CBDT Circular No. 91/58/66- ITJ(19) dated 18-05-1967”, wherein it has been interpreted that the ‘Cess’ shall not be disallowable. The said Circular for the sake of ready reference is reproduced as under:-
"Interpretation of provision of Section 40(a)(ii) of IT Act, 1961 - Clarification regarding.-
"Recently a case has come to the notice of the Board where the Income Tax Officer has disallowed the 'cess' paid by the assessee on the ground that there has been no material change in the provisions of section 10(4) of the Old Act and Section 40(a)(ii) of the new Act.
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The view of the Income Tax Officer is not correct. Clause 40(a)(ii) of the Income Tax Bill, 1961 as introduced in the Parliament stood as under:-
"(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains".
When the matter came up before the Select Committee, it was decided to 'omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. –
The Board desire that the changed position may please be brought to the notice of all the Income Tax Officers so that further litigation on this account may be avoided. {Board's F. No.91/5B/66-ITJ(19), dated 18-5-1967.
The Learned Counsel for the assessee in this respect has further relied upon the decision of the Hon’ble Bombay High Court in the case of “Sesa Goa Limited Vs. JCIT“ (2020) 117 taxmann.com 96 and further on the decision of the Hon’ble Rajasthan High Court in the case of “Chambal Fertilizers & Chemicals
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Ltd Vs. JCIT”: D.B Income-tax Appeal No. 52/2018 decided on 31-07-2018, wherein, the Hon’ble High Court/s relied upon the aforesaid CBDT Circular Dt. 18-05-1967(supra) and in view of the interpretation made by the CBDT have held that ‘education cess’ can be claimed as an allowable deduction while computing the income chargeable under the heads of profits and gains of business or profession. The Learned Counsel has further relied upon the following decisions of the Co-ordinate Benches of this Tribunal, who have followed the aforesaid judgments of the Hon’ble High Courts:
a. Decision of Kolkata Bench of the Tribunal in the case of DCIT Vs. ITC Infotech India Ltd, ITA No. 67/Kol/2015 dt. 23-10-2019
b. Decision of Kolkata Bench of the Tribunal in the case of Tega Industries Ltd Vs. ACIT, ITA No. 404/Kol/2017 dt. 23-8-2019
c. Decision of Kolkata Bench of the Tribunal in the case of SREI Infrastructure Finance Ltd Vs.Addl. CIT, R-9, ITA No. 1318/Del/2012 dt. 31-12-2019.
However, with due respect to the decisions of the Hon’ble Bombay High Court and Hon’ble Rajasthan High Court and of co-ordinate Benches of this Tribunal, we find that the issue is squarely covered by the decision of the Hon’ble Apex Court of the country in the case of “CIT Vs. K. Srinivasan” (1972) 83 ITR 346, wherein the following questions came for adjudication before the Hon’ble Apex Court:-
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“Whether the words “Income tax” in the Finance Act of 1964 in subs (2) and sub-s.(2)(b) of s. 2 would include surcharge and additional surcharge.”
The Hon’ble Supreme Court answered the question in favour of revenue observing as under:-
“In our judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income tax. The meaning of the word "surcharge" as given in the Webster's New International Dictionary includes among others "to charge (one) too much or in addition " also "additional tax". Thus the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Sur- charge; (iii) special surcharge and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax”.
The Hon’ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income-tax. At this stage, it is pertinent to mention here that ‘education cess’ was brought in for the first time by the Finance Act, 2004, wherein it was mentioned as under:-
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“An additional surcharge, to be called the Education Cess to finance the Government’s commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge.”
The provisions of the Finance Act 2011 relevant to the Assessment Year under consideration i.e. 2012-13 are also relevant. For the sake of ready reference, the same is reproduced hereunder:-
2(11) The amount of income-tax as specified in sub- sections (1) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the "Education Cess on income-tax", calculated at the rate of two per cent. of such income-tax and surcharge, so as to fulfil the commitment of the Government to provide and finance universalised quality basic education.
A perusal of the aforesaid provisions of the Finance Act 2004 and Finance Act 2011 would show that it has been specifically provided that ‘education cess’ is an additional surcharge levied on the incometax. Therefore, in the light of the decision of the Hon’ble Supreme Court in the case of “CIT Vs. K. Srinivasan” (supra) the additional surcharge is part of the income-tax. The aforesaid decision of the Hon’ble Apex Court and the provisions of Finance Act, 2004 and the relevant provisions of section 2(11) & (12) of the subsequent Finance Acts have not been brought into the knowledge of the Hon’ble High Courts in the
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cases of ” Sesa Goa Ltd” & “Chambal Fertilisers” (supra). Since the decision of the Hon’ble Supreme Court prevails over that of the Hon’ble High Courts, therefore, respectfully following the decision of the Hon’ble Supreme Court in the case of “CIT Vs. K. Srinivasan” (supra), this issue is decided against the assessee. The additional ground of assessee’s appeal is accordingly dismissed.
Subsequently, the Finance Bill, 2022 has been passed in which the preposition of Education Cess has been dealt with and accordingly the Education Cess is being treated as part and parcel of the tax and the claim of expenses in connection with the Education Cess is not liable to be allowed. Accordingly, we set aside the finding of the CIT(A) and decide this issue in favour of the revenue against the assessee.”
We respectfully fallow the judicial precedence and set aside decision of the CIT(A) on the disputed issue of allowing the assesses claim of education cess and allow this ground of appeal in favour of the revenue.
In the result, the appeal filed by the Revenue is partly allowed.
ITA.NO1859/Mum/2021 (Assessee Appeal)
The assessee has raised sole ground of appeal challenging the decision of the CIT(A) sustaining the action
24 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
of the A.O. on making disallowance U/sec40(a)(i) of the Act for subscription payments.
The Ld.AR submitted that the assessee company is engaged in manufacturing of chemicals and made the payments to non-residents (i) Rs.61,122/- to ICIC Pricing, UK and(ii) Rs.2,32,746/- Platts, USA. The Ld.AR emphasized that the expenditure is incurred for the business every year and is in the nature of subscription to journals/magazines for the reports of chemical business and pricing. Further the two non residents do not have any permanent establishment in India and prayed for allowing the appeal. Contra, the Ld.DR supported the order of the CIT(A) on this disputed issue.
We heard the rival submissions and perused the material on record. We find the sole the disputed issue envisaged by the Ld.AR that the CIT(A) has erred in sustaining the action of the A.O. on disallowance of subscription expenditure/payments made to non residents. The Ld.AR submitted that the expenditure is wholly and exclusively incurred for the business. These payments are in the nature of subscribing to magazines/journals and getting information of the pricing and reports of the chemical business but the A.O. has treated the payments as royalty and disallowed u/sec40(a)(i) of the Act for non deduction of TDS. We find
25 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
the observations of the A.O. treating as royalty U/sec 9(1)(vi) of the Act does not hold good. The assessee is incurring the expenditure for the reports of chemical business pricing and not imparting industrial information. Further as per the Article-7 of DTAA with UK/USA, the profits of an enterprise of a contracting state shall be taxable only in the state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein.
Since these two nonresident concerns do not have permanent establishment (P.E) and therefore the business income of the recipient is not subjected to TDS in India. But as per the findings of the CIT(A) at Para 9.4 of the order, in earlier year for A.Y.2011-12, the assessee has submitted that on appeal the Honble ITAT has not adjudicated this issue but deleted the disallowance made by the A.O. because the same was eligible for deduction u/sec 10B of the Act. The CIT(A) has confirmed the action of the A.O. on disallowance of expenses as no credible evidence / material information was filed. We considering the facts, circumstances and to meet the ends of justice shall provide one more opportunity to the assessee to substantiate the claim with the material evidence before the lower authorities. Accordingly, we set aside decision of the CIT(A) on this disputed issue and restore the disputed issue for limited purpose to the file of
26 M/s Vinati Organics Ltd. ITA Nos. 1859 & 1799/Mum/2021
the Assessing officer to substantiate with evidences/details by the assessee and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information expeditiously and allow the grounds of appeal for statistical purpose.
In the result, the appeal filed by the revenue is partly allowed and the assessee appeal is allowed for statistical purpose.
Order pronounced in the open Court on 06/06/2022.
Sd/- Sd/- (M. BALAGANESH)) (PAVAN KUMAR GADALE ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 06/06/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai