The Hyderabad bench of Income Tax Appellate Tribunal (ITAT) held that Collection of donation by Educational Institution/Society is not ‘Capitation Fee’.
The bench also observed that, the registration of the Charitable society cannot be withdrawn.
The Assessing Officer denied exemption to the assessee-society on ground that the assessee had received capitation fee, which was later confirmed by the first appellate authority. Consequently, the DIT (E) withdrawn the registration granted to the assessee by finding that they are not running as a charitable institution and also not carrying out activities as per the charitable objects of the society.
On appeal, it was contended on behalf of the Department that the assessee-society was involved in collecting capitation fee and making profits. According to them, the donations are collected from the parents or relations for admission in Management Quota and it is in clear violation of statutory directions.
The assessee, on the other hand, contended that the amount received were voluntary donations and it cannot be treated as capital fee. Assessee also produced statements of parents of the students stating that the contributions are stated to be linked to the admission of students.
After analysing the concepts, constitutional and statutory provisions in the light of land mark judgments, the Tribunal observed that collecting donations voluntarily or compulsorily may have an effect in computation of income but not to the nature of the activities of the Trust-society.
Relying on the Apex Court ruling in TMA Pai case, the bench observed that the private unaided professional colleges are entitled to fix their own fee structure subject to the limitation that there cannot be profiteering and collection of capitation fee. Only the payments, other than fee notified by the educational institution, are called as capitation fee. In the case before us, the assessee is alleged to have collected ‘donations’ in addition to the prescribed fee only from the students admitted under the management quota.
The Tribunal bench also observed that the assessee have produced all the necessary evidence to prove that the contributions are stated to be linked to the admission of students.
“Institution has received the fund through D.Ds/ cheques and has issued receipts for the same and has also accounted for the same. Therefore, there is transparency in accounting the receipts”, the bench said.
“The Hon’ble Apex Court has further held that the private unaided institutions are entitled to collect funds for the maintenance and improvement of the institution. However, the objective of the collection of funds must be the imparting of standard education to the public at large. In the case before us, there is no allegation that the funds collected by the assessee society are for any other purpose or that the profits have been distributed to any person or persons. Therefore the collection of the donations by the assessee institution cannot be regarded as capitation fee”, the bench also added.
Read the full text of the Order below.
