ITAT provides Deduction on Education cess to PC Jewellers; Cess does not belong under Capital Expenditure or Personal Expenditure because it is not a capital expense

The Income Tax Appellate Tribunal (ITAT) has allowed the Deduction on Expense of Education Cess because it does not fall under capital expense or personal expenditure, which is a big relief to PC Jwellers.

The assessee maintained that the education cess levied on income tax does not fall under the definition because it is levied on the amount of income tax, not on business earnings. The ld. AR relied on CBDT Circular No. 91/58/66-ITJ(19) dated 18.05.1967, which indicates that the impact of the absence of the words ‘cess’ from Section 40(a)(ii) is that only taxes paid are to be excluded in the assessment from 1962-63 onwards.

The department stated that now is not the ideal time to bring up the problem. A non-dispute cannot be adjudicated because there is no dispute between the assessee and the Assessing Authorities. He maintained that the education cess is a charge on the assessee and is included in the income tax. As a result, it cannot be considered a deductible expense.

The coram of Judicial Member Amit Shukla and Accountant Member Dr. B. R. R. Kumar held that Education Cess is not of the nature described in sections 30 to 36, that it is not a capital expenditure, that it is not a personal expense of the Assessee, that it is mandatory for it to pay Education Cess, and that the Income ‘Tax’ is used as the criteria for computing Education Cess. Thus, the Education Cess is a mandatory expense that must be paid, but it does not fall under capital expense or personal expenditure, so it may be deducted.

“We hereby hold that the assessee is eligible to claim the deduction of the ‘Education Cess’ as per the provisions of Section 37 of the Income Tax Act, keeping in mind the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, CBDT Circular No. 91/58/66- ITJ(19), orders of Co-ordinate Benches of ITAT and judicial pronouncements of the High Court of Bombay and Hon’ble High Court.

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