“Education Cess” cannot be Allowed as Expenditure: SC [Read Judgement]

The Supreme Court recently held that the education cess cannot be allowed as expenditure.

An education cess is an additional levy that is applied on the basic tax liability by the Government to generate additional revenue to fund primary, secondary and higher education. Apart from individuals, even corporations are required to pay this cess every year at rates determined during the annual budgets.

The education cess rate is calculated as the culmination of two variants of cess that is charged on the taxable income. The rate for education cess amounts to 2 percent of the total taxable amount whereas the secondary and higher education cess is 1 percent of the total taxable amount making the comprehensive rate of education cess to be 3 percent of the amount of tax.

Educational cess is used to fund expenses such as midday meals, opening of new Government schools & colleges, educational loans for deserving candidates from low-income background, salaries for staff and faculties working in Government-funded educational institutions, for funding specialized schemes etc.

The counsel for the respondent stated that in view of the subsequent amendments in the Income Tax Act, 1961, “Education Cess” cannot be allowed as an expenditure.

A Two-Judge Bench of Justices Sanjiv Khanna and Dipankar Datta observed that “In view of the statement made, the impugned judgment is set aside and the appeal is allowed, holding that the “Education Cess” cannot be allowed as an expenditure. However, the assessing officer while implementing and giving effect to this order, will examine the question of the quantum/amount of “Education Cess”, if any, claimed by the respondent – SESA Goa Ltd., as an expenditure in the returns or in the proceedings.”

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