The Gujarat High Court has ruled that admission fees paid to a charitable educational trust can be considered a corpus donation and are thus eligible for exemption under Section 11(1)(d) of the Income Tax Act, 1961, if there is no evidence to suggest it was a capitation fee.
N H Kapadia Education Trust, which runs an educational institution from pre-primary to higher secondary levels. The trust received a donation of over Rs. 5 crore collected from students, claiming an exemption under Section 11(1)(d) of the Income Tax Act on the grounds that it was a corpus donation.
The Income Tax Assessing Officer (AO) disputed this classification, arguing that the donations were essentially one-time admission fees and did not qualify as voluntary contributions for the corpus.
Consequently, the AO added these amounts back to the trust’s income and disallowed the claim for depreciation, further reducing the declared loss.
The Commissioner of Income Tax (Appeal) deleted the addition made by the assessing officer, referencing earlier Tribunal decisions that had classified similar contributions as corpus funds eligible for exemption under Section 12 of the Income Tax law. The Revenue Department challenged this decision before the Tribunal.
The Tribunal reversed the CIT(A)’s decision, ruling that the admission fees could not be considered corpus donations due to the lack of voluntary intent and specific directions for their use as corpus funds. This decision prompted the trust to appeal to the Gujarat High Court.
M.R. Bhatt, representing the trust, argued that the Tribunal overlooked the consistent accounting practices of the trust and failed to provide sufficient reasoning for disagreeing with the Income Tax Commissioner of Appeals. He emphasised that similar contributions had been treated as corpus donations in previous years without issue.
Maithili Mehta, representing the Revenue, defended the Tribunal’s decision, highlighting the absence of evidence supporting the donations as intended corpus funds and the necessity for a thorough inquiry by the Income Tax AO.
After examining the case, the bench of Justices Bhargav D. Karia and Niral R. Mehta found that the Tribunal’s decision lacked a detailed analysis of the facts and the trust’s previous practices.
The court pointed out that the Tribunal erred in not distinguishing the current assessment year from prior years, where similar contributions were accepted as corpus donations.
The High Court ruled in favor of the N H Kapadia Education Trust, allowing the appeal and reinstating the CIT(A)’s decision.
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