Case: Sesa Goa Ltd.

The issue before the Bombay High Court was:

‘Whether Education Cess and Higher and Secondary Education Cess is allowable as a deduction in the year of payment?’

The Applicant-Sesa Goa Ltd. had contended that t the expression does not include “cess” and therefore, the amounts paid towards “cess” were liable to be deducted in computing the income chargeable under the head “profits and gains of business or profession” (PGBP).

However, Assessing Officer (AO) contradicted that “cess” is also included in the scope and import of the expression “any rate or tax levied” under section 40(a)(ii).

Thus, the amounts paid towards the “cess” were not liable for deduction.

The Bombay High Court held in favour of assessee as under:There is no reference of any ‘Cess’ in the text of the provisions of section 40(a)(ii).

It has been provided that “any rate or tax levied” on “profits and gains of business or profession” shall not be deducted.

 Thus, it couldn’t be accepted that “cess” being in the nature of a “Tax” is equally not deductible.

If legislature intended to prohibit deduction of amounts paid by towards say, “education cess” or any other “cess”, then, legislature could have easily included reference to “cess” in Section 40(a)(ii).

Since it has not done, it means that the legislature did not intend to prevent the deduction of amounts paid towards the “cess”.

Futher, the legislative history bears out that the Income-tax Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which provided that ‘any sum paid on account of any cess, rate or tax levied on the profits business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains’.

However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word “cess” from the aforesaid clause from the Income-tax Bill, 1961.

Since the deletion of expression “cess” from the Income-tax Bill, 1961, was deliberate, there is no question of reintroducing the expression that the word “any rate or tax levied” include ‘cess’ also.