Donations Collected from Parents for New Admissions Without Any Compulsion Couldn’t be Termed as Capitation Fees | ITAT

Case Details: Deputy Commissioner of Income-tax, v. Sindhi Educational Society - [2024] 158 taxmann.com 659 (Chennai-Trib.)

Judiciary and Counsel Details

• • V. Durga Rao, Judicial Member & G. Manjunatha, Accountant Member
  • P. Sajit Kumar for the Appellant.
  • S. Sridhar for the Respondent.

Facts of the Case

The assessee was registered under section 12AA and had existed for 48 years, operating two schools and one college in Chennai. The society’s primary objective was education, and no violations under sections 11, 12, or 13 were found by the Assessing Officer (AO).

During a survey under section 133A, the AO noted that the society collected ‘corpus donations’ from parents for new admissions. These donations were collected for both schools. The AO denied exemption to the assessee, contending that the assessee was collecting compulsory donations in place of new admissions and claiming them as ‘corpus donations’ and voluntary.

On appeal, the CIT(A) allowed the assessee the benefit of exemption under section 11. Aggrieved by the order, the AO filed an appeal to the Chennai Tribunal.

ITAT Held

The Tribunal held that it was noticed that the donations were collected from parents of students who got admitted to schools run by the assessee, ranging from Rs. 1,500 to Rs. 50,000. The donations collected from the parents of the students were voluntary in nature and formed part of the corpus of the Trust, which was evident from the declaration given by the donor. The assessee had also accounted for said donations in the books of accounts and applied for charitable purposes.

In the light of ‘corpus donations’ received by the assessee society for new admissions to schools, it was held that except for a mere allegation that said donations were compulsory in nature, there was no evidence with the AO to substantiate its allegation that said donations were not voluntary in nature.

Even during the survey, the member of the assessee society, Shri J.C.Prakash, very categorically admitted that ‘corpus donations’ collected from the parents of students admitted to the school were based on a general appeal made to the parents at the time of admissions, but not compulsory. The parents of the students voluntarily contributed to the corpus of the Trust by considering the appeal of the assessee society. No parent was forced to pay donations; even in some cases, admission was given without collecting donations.

The allegation of the AO that the society issued pre-printed forms was devoid of merits. Although the donations were issued in pre-printed forms, each donor was given a separate declaration stating that said donations were voluntary and formed part of the corpus of the Trust.

Accordingly, AO erred in denying the benefit of exemption under section 11 to the assessee on the ground that it was collecting ‘Capitation Fees’ in lieu of admissions.

List of Cases Reviewed

• • Ahmadabad Urban Development Authority v. CIT [2022] 115 CCH 253 (SC)
  • CIT v. MAC Public Charitable Trust in TCA No. 323/2021 dated 31.10.2022 (para 19)
  • Queens Education Society v. CIT [2015] 231 Taxman 286 (para 28) – followed.