A division bench of Justices R Mahadevan and Mohammed Shaffiq in a significant verdict said that "educational institutions can not collect capitation fees from students seeking admission and terming the money as 'corpus donation' to evade from the payment of income tax."
Collection of capitation fees is illegal and punishable, should be taxable: Madras HC
The Madras High Court has held that any donation that has been collected by private educational institutions in exchange for admission will be considered as the capitation fees and the collection of capitation fees is illegal and punishable. A division bench of Justices R Mahadevan and Mohammed Shaffiq in a significant verdict said that "educational institutions can not collect capitation fees from students seeking admission and terming the money as 'corpus donation' to evade from the payment of income tax."
The bench was hearing the batch of cases related to Income Tax proceedings filed by the Commissioner of Income Tax, Chennai. The Income Tax department challenged previous orders passed by the Income Tax Appellate Authority and the Income Tax Tribunal in favour of three educational institutes from the State and some charitable trusts affiliated with the institutes.
As per the Bar and Bench report, the Madras High Court said: "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 High Court further highlighted that providing education should not be treated as a commercial activity or business. The bench condemns the practice of educational institutes violating the Capitation Fee Act and their attempt to secure more benefits by seeking tax exemption for such capitation fees.
"However, the undeniable reality staring at our faces is the collection of capitation fees as a condition precedent for admission into educational institutions. The present appeals raise the twin issues of the blatant violation of the Capitation Fee Act and then drawing a premium on their own illegal act by seeking exemption under Sections 11, 12AA and 80G of the Act," the Madras High Court added.
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