Education Cess was introduced in the financial year 2004-2005 for the purpose of funding primary education. At present, the Health and Education Cess (Cess) is 4% of the gross tax liability (including surcharge). Taxpayers took the position of claiming the cess as a deduction from their taxable income, resulting in a dispute with the tax department. Consequently, the matter was discussed before the Bombay High Court, which allowed the deduction to the taxpayer. Relying on the Bombay High Court judgment, many other taxpayers started claiming deduction of cess, either in their tax returns or through application before the Tax Officer/Appellate Authority.
With an intention to contain the growing controversy, the Hon’ble Finance Minister through the Finance Act, 2022 brought an amendment to the Act with retrospective effect from the financial year 2004-2005 (i.e., the year in which the cess was first introduced). As per this amendment, no surcharge or cess shall be allowed as deduction to the taxpayer. It also provided that from previous years, the tax officer has the power to issue notices and pass correction orders. As there is a time limit for passing the rectification order, provided that the limitation period of 4 years will start from 1st April, 2021.
Considering that many taxpayers have already claimed deduction of cess and with a view to providing one-time relief to such taxpayers, a taxpayer may file an application in the prescribed form within the specified time for recalculation of his tax. In such cases, the taxpayer will be saved from levying penalty. Recently, the Central Board of Direct Taxes (CBDT) has notified the rules as well as the application form in which this request is to be made.
Rules and Forms Notified
On 28 September 2022, the CBDT issued a notification prescribing the procedure for filing application for recalculation of income, where taxpayers have claimed deduction of cess. It notifies the following forms:
| serial number. | form number | purpose | Time |
| 1 | Form 69 | Application for recalculation of income | 31 March 2023 |
| 2 | Form 70 | Intimation to tax officer for payment of tax | within 30 days of paying tax |
Once the taxpayer files an application in Form 69, the tax officer is required to recalculate the total income by amending the relevant order and issuing a notice. In the said notice, the time limit for making tax payment will also be mentioned. Once the tax is paid, the taxpayer has to inform the tax officer in Form 70 about the details of the taxes paid.
important issues
1. What if the application is not filed before 31st March 2023?
Where the taxpayer has claimed and has been allowed to deduct the cess, the Tax Officer is empowered to pass a rectification order duly disallowing the said claim and demanding the tax. It can also initiate penal proceedings for under-reporting of income leading to levy of penalty equal to 50% of the tax liability.
2. If as on date, the company is merged with any other company, then who needs to submit Form 69?
In such cases, the application is to be submitted by the resulting company. In Form 69, the resulting company should mention the name and permanent account number of the erstwhile company.
3. What if the tax is not paid within the time limit specified in the notice of demand issued by the Tax Officer?
The rule is silent on the effects arising out of non-payment of taxes within the specified time frame. However, in the view of the author, the taxpayer can argue that such delay pertains to payment of taxes and not to apply for rectification. Therefore, it should not be penalized for such delay and hence ideally should not be fined. Having said that, there may be an additional interest which can be levied on the taxpayer.
With Form 69 now notified and the deadline is March 31, 2023, taxpayers should file the application at the earliest and not wait till the end. It may be noted that this is a one-time relief given to a taxpayer. It is expected that tax authorities may start issuing notices soon after March 31, 2023 to taxpayers who have claimed deduction of cess but have not filed Form 69. Also, for such cases, the taxpayer will also face a penalty.
Author: Ronnie Antony, Partner & Leader – Corporate Tax, Tax & Regulatory Services, BDO India
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