Cess: Can a retrospective amendment be detrimental to assessee is good in law?

Rajat Jain – [2022] 135 taxmann.com 124 (Article)

The Hon’ble Finance Minister, in the Budget 2022-23 speech, clarified the legal position with respect to the treatment of cess and surcharge in computation of income chargeable to tax under the head “Profits and Gains of Business or Profession” and proposed to amend Section 40(a)(ii) of the Income Tax Act, 1961 (‘Act’) by way of insertion of an Explanation to the effect that the term ‘tax’ used therein shall also include ‘any surcharge or cess, by whatever name called, on such tax’.

The amendment seeks to nullify the impact of the judgements passed by the Hon’ble Bombay High Court in the case of Sesa Goa Ltd. v. Jt. CIT [2020] 117 taxmann.com 96 and the Hon’ble Rajasthan High Court in the case of Chambal Fertilizers & Chemicals Ltd v. Jt.CIT [2019] 107 taxmann.com 484, which have been followed by several Tribunals, wherein the Hon’ble Courts had opined that cess is not ‘tax’ and hence is not disallowable under section 40(a)(ii) of the Act.

It may be noted that such amendment is proposed to be brought in retrospectively from 01.04.2005 i.e., for AY 2005-06 and subsequent years.

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