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CBDT chairman JB Mohapatra says cess not an expenditure
Government has stated that cess and surcharge are part of tax and cannot be allowed as business expenditure
The budget has proposed to amend the Income Tax Act retrospectively from the assessment year 2005-06 to prevent the claim of cess and surcharge as business expenditure during tax computation. Many companies have been claiming payment of both levies as expenses.
"Cess is not an expenditure. Cess was introduced in AY 2005-2006, that's why it (the change) is going down to that (year)," Central Board of Direct Taxes chairman JB Mohapatra told, justifying the proposed retrospective amendment.
He said the department believes that cess and surcharge - "in letter and spirit, and in essence" - are taxes. "So, it (recording it as an expense) needs to be disallowed."
This change is being made from assessment year 2005-06 as Education Cess was first introduced by the Finance Act, 2004.
The CBDT chairman referred to a 1997 case involving Pranab Construction in the Mumbai Income Tax Appellate Tribunal, in which money paid to the underworld was allowed as expenses. This was the reason that the following year a clarification was inserted in Section 37 of the I-T Act, which said that payment for an offense shall not be allowed as expenditure, he said
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