Tribunal held that education cess is not tax and hence allowable as deduction  Referred  the CBDT Circular No. 91/58/66 – ITJ(19) dated 18-05-1967, wherein it has been clarified that the effect of omission of the word ‘cess’ from Sec. 40(a)(ii) of the Act is that only taxes paid are to be disallowed and not cess. Relevant extract of circular is as under:-

“Recently a case has come to the notice of the Board where the ITO has disallowed the ‘cess’ paid by the assessee on the ground that there has been no material change in the provisions of s. 10(4) of the old Act and s. 40(a)(ii) of the new Act. The view of the ITO is not correct. Clause 40(a)(ii) of the IT 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 ITOs so that further litigation on this account may be avoided”

Chambal Fertilizers and Chemicals Ltd. vs. JCIT (ITA No. 52/2018 dt 31-7-2018 which after taking into account aforementioned CBDT circular held that Sec. 40(a)(ii) applies only to taxes and not to education cess. Relevant extract of the decision is reproduced for ease of reference:-

“13. On the third issue in appeal no. 52/2018, in view of the circular of CBDT where word “Cess” is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no. 3 is required to be reversed and the said issue is answered in favour of the assessee.”    

ITC Limited  v. ACIT (ITA No. 685/Kol/2014 dt28 -11-2018 (AY,2009-10),  Peerless General Finance & Investment Co. Ltd. v  DCIT (ITA No. 937/Kol/2018) dt 24-4 -2019 (AY.2010 -11)