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Chennai, Capitation fees collected by educational institutions and trusts can neither be treated as donations nor voluntary contributions and they would certainly attract levy of income-tax, a division bench of the Madras High Court ruled on Monday. The bench of Justices R Mahadevan and Mohammed Shaffiq gave the ruling, while allowing a batch of Tax Case Appeals (TCAs) from the Commissioner of Income Tax challenging various orders of the Income Tax Appellate Tribunals, on Monday.

The Tribunals orders were in favour of an educational and health Trust and nine others. Aggrieved, the department preferred the present appeals.

The bench held 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.

They are neither voluntary contributions nor to be treated as applied for charitable purpose and hence, the impugned orders of the Tribunals are absolutely perverse in nature, the bench said and reversed the concurrent findings of the appellate authorities.

It confirmed the orders of assessment passed by the assessing officer that the amount of non-voluntary contribution i.e. capitation fees received are to be treated as income, not eligible for exemption under section 11 of the IT Act and liable to be taxed.

Consequently, the bench directed the assessing officers to proceed further on the basis of the orders of assessment, cancel the registration certificates issued to the assessees/trusts under Section 12A of the Act and re-open the previous assessments, if permissible by law, based on tangible materials relating to collection of capitation fee, since it is illegal and is punishable.

The bench noted that the States are unable to comply with the directions enshrined in the Constitution to thrive for education for all, which would encompass within it, the access to all sections of the society by providing equal opportunity.

There are State laws making it penal to collect capitation fee and various courts including the apex court have time and again held that the menace of capitation fee could not be curtailed. Privatisation of education aids in collection of capitation fee, the bench added and directed the Tamil Nadu government to set up a web portal, wherein any information about the private trusts/colleges charging capitation fees can be furnished by the students or their parents or any one having first hand information in this regard. PTI CORR SA SA