Income from ‘Capitation Fee’ cannot claim exemption u/s 11 & 12 of the Income Tax Act: ITAT Bangalore [Read Order]

The Income Tax Appellate Tribunal, in a recent ruling held that the amount received by a society as capitation fee cannot be considered as “voluntary” in nature and therefore, exemption under sections 11 and 12 of the Income Tax Act, 1961 cannot be allowed in such cases.Briefly facts of the case are as under.

The assessee is a society registered under the provisions of the Societies Registration Act of Karnataka. It is formed for the purpose of running several educational institutions in the Mysore City. It was duly registered under the provisions of sec.12A of the Income-tax Act, 1961. Return of income for the assessment year 2006-07 and 2007-08 were filed disclosing ‘nil’ income after claiming exemption u/s 11(1)(a) and 11(1)(d) of the Act.

Survey operations under the provisions of sec.133A of the Act were conducted on 17/05/2007. It was found by the Assessing Officer (AO) during the course of survey proceedings that certain books and documents relating to receipt of money alleged to be capitation fee/donation collected by the assessee society from the students who got admission into school and colleges. Such amount was disclosed in the return of income asthe AO had inferred that the assessee-society has been collecting capitation fee as quid pro quo for giving admissions to the students and the assessee-society was called upon as to why this amount cannot be brought to tax under the head ‘income from other sources’. The assessee-society stated that the donations are exempt u/s 11 & 12 of the Act. The said submission of the assessee-society was rejected by the AO holding that the fees received by the assessee-society are not voluntary contributions. Accordingly, the officer passed an assessment order against the assessee.

On appeal, the CIT(A) also confirmed the impugned order.The assessee preferred an appeal before the ITAT raising a question, i.e, whether the amount collected by the management of the society over and above the prescribed fees charged by the Government is in the nature of capitation fees or voluntary contribution.

The Tribunal bench comprising of Judicial Member Vijay Pal Rao and Accountant Member Inturi Rama Rao found that the amount collected by the assessee-society is in the nature of capitation fee and it is not a voluntary contribution. The Tribunal further pointed out that the assessee-society had not led any evidence on record in support of the proposition that contributions are voluntary and made forming part of corpus of the society. No piece of evidence was produced against the finding of the AO that no record of receipt of donations as to the names and address of the donors and no receipt were issued for donations collected. This finding of the AO remains uncontroverted. Therefore, the provisions of sec.12 are not applicable which lay down that any voluntary contributions received by trust wholly for charitable purpose shall, for the purpose of section 11 shall be deemed to be income derived from property held under trust which is exempt from tax under the provisions of sec.11(1)(a) of the Act.

On the basis of the above, it was held that amount received over and above the prescribed fee by the assessee is in the nature of capitation fee which is not voluntary in nature, the income so received is not exempt u/s 11(1)(a) or any of the provisions of the Act in the hands of the receiving trust.

Read the full text of the order below.