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‘Cess Not Deduction, Cos Should Accept Gracefully’

Finance minister Nirmala Sitharaman clarified on Sunday that a proposed amendment the Budget related to the education cess had to be done retrospectively in order to be done as the judicial decision had been contrary to legislative intent, she added.

The budget has sought to amend the Income Tax Act retrospectively from 2005-06 to clarify would not be allowed as deductions in the form of expenditure.

“Some courts are coming up with a verdict which is contrary to the intend of the legislature. We needed to come out with an explanatory amendment. There are times when you have to be retrospective just so that we are being fair. It is not to go with any other intent,” Sitharaman said at a post-budget interaction organised by industry body Ficci.

She noted that not doing it retrospectively would have become an issue for execution and would have been unfair for two sets of taxpayers.

The explanatory memorandum provided with the finance Bill, has explained in detail the rationale behind the move. It has referred to a Supreme Court decision that pointed out that the provision of the Finance Act, 2004 and Finance Act,2011 specified that education cess was an additional surcharge levied on income tax. Official said that since the cess was effective from the 2004-05 assessment year, it had to be clarified retrospectively to clear any uncertainty.

Speaking at the session, revenue secretary Tarun Bajaj said that the industry should “accept it gracefully” and asked industry captains not to file cases in view of the court rulings. “Tomorrow, we might have a situation where income tax itself become an expenditure, “Bajaj said, adding that these things have a major impact on revenue collection. He also dismissed a request from the industry seeking to allow gifts and freebies to doctors as business expenditure.

The Budget had proposed that gifts and freebies shall not be treated as business expenditure under Section37 of the Income-Tax Act. S-ET

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