'Collection of capitation fees by colleges illegal, should be taxable'

A division bench of Justice R Mahadevan and Justice Mohammed Shaffiq passed the direction on allowing the appeal preferred by the commissioner of Income Tax, Chennai.
Madras High Court
Madras High Court

CHENNAI: The Madras High Court held that the collection of capitation fees by colleges is illegal and the tax department shall collect tax for capitation fees by considering the same as the institution’s income.

A division bench of Justice R Mahadevan and Justice Mohammed Shaffiq passed the direction on allowing the appeal preferred by the commissioner of Income Tax, Chennai. The Commissioner prayed for a direction to set aside April 12, 2017, and November 11, 2019 awards of the Income Tax Appellate Tribunal in favor of private trusts associated with a city-based engineering

The IT commissioner submitted that Sri Venkateshwara engineering college in Sriperumbudur had used several trusts, including United Education Foundation, Sri Venkateswara Educational and Health Trust, MAC charities, and MAC Public Charitable Trust to collect capitation fees for getting donations to provide engineering seats in the college.

According to the appellant officer, it came to their knowledge that the institution received capitation fees worth Rs.9.90 crore from parents in 2011-2012 and about Rs.4.13 crores as taxable for that income, and an assessment order was passed in 2014. The assessing officer further passed orders in 2015, and 2016 for the years 2012-2013, 2013-2014, and 2014-15 financial years.

However, the institution approached the ITAT and the appellate authority quashed the assessment in favour of the college. Therefore, the petition was filed.

Recording the submissions, the judges held that the amounts collected by the assessees are capitation fees in quid pro quo for allotment of seats in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992.

“The same is neither a voluntary contribution nor to be treated as applied for a charitable purpose. The orders of the Appellate Authority as well as the Tribunal, which are impugned in these appeals, are absolutely perverse in nature and therefore, they are set aside,” the judges held.

“The Assessing Officer shall also proceed to reopen the previous assessments, if permissible by law, based on tangible materials relating to the collection of capitation fee, since it is illegal and is punishable,” the bench ruled.

The court further directed the Assessing Authority to cancel the registration certificate issued to the assesses/ trusts under Section 12A of the IT Act.

The judges also opined that despite the fact that there are State laws making it penal to collect capitation fees and the repeated dictum of various Courts including the Apex Court, the menace of capitation fees could not be curtailed, forget eradication.

The judges directed the government to design a web wherein any information about the private colleges charging capitation fees can be furnished by the students or their parents.

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