Income Tax leviable on Tuition Fee in the Year of Rendering of Services: ITAT [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the income tax is leviable on the amount of tuition fee in the year when the corresponding services are made. A division bench of the ITAT comprising f K. Narasimha Chary (Judicial Member) and Rama Kanta Panda (Accountant Member), observed that though the tuition fee was received by the assessee in the last quarter of a financial year, the corresponding service was rendered by the assessee in the next quarter which fell in the next financial year. The ITAT ruled that income accrues only when the services are rendered and not when the promise for rendering the services is made.

The assessee, M/s.Hyderabad Educational Institutions Pvt. Ltd collects tuition fee from the students every quarter for the entire academic year and recognizes revenue only in respect of the tuition fee collected for the period relevant to the financial year as per the mercantile system of accounting followed by them. The tuition fee collected by the assessee for the period relating to the academic year that falls in the succeeding financial year is regarded as an advance received and shown as a liability in the financial statements.

During the assessment proceedings, the Assessing Officer proposed to tax the on whole amount.

The assessee contended that since the corresponding expenditure is met during the first quarter of the succeeding year, recognizing the revenue during that period alone gives proper picture of income for the purpose of taxation.

Accepting the contentions of the assessee, the Tribunal observed that “It is, therefore, clear that income accrues only when the right accrued by rendering of services and not by promise for services. Where the right to receive is anterior to the rendering of services, the income would accrue only on the rendering of services. As on the date of receipt of tuition fee, and for that matter in the quarter in which it was received, no service was rendered. Service was rendered in the following quarter which falls in a different financial year. It leaves no doubt in our mind that in this situation, the right to receive i.e., accrual happens only in the quarter in which the services were rendered, namely, in the following quarter.”

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