Collection of Capitation Fee: Madras HC directs AO to Cancel Registration Certificate of Trust and Reopen Assessment [Read Order]

“Despite the fact that there are State laws making it penal to collect capitation fee and the repeated dictum of various Courts including the Apex Court, the menace of capitation fee could not be curtailed, forget eradication.”

– Madras High Court

The Madras High Court has recently directed the Assessing Officer (AO) to cancel the  income tax registration certificate of the trust, issued under Section 12A of the Income Tax Act, 1961 and reopen the previous assessments of the assessee, M/s. MAC Public Charitable Trust for collection of capitation fee.

The Division Bench comprising Justice R Mahadevan and Justice Mohammed Shaffiq observed that,  “the amounts collected by the assessees are capitation fee in quid pro quo for allotment of seat in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and the same are neither a voluntary contribution nor to be treated as applied for charitable purposes”.

The assessing officer had taken up the return of income filed by the assessee for scrutiny under Section 143 (1) of the Income Tax Act and issued notice.

In response, the representative of the Assessee appeared and submitted details called for from time to time.

On verification of return of income and other details during scrutiny, it unfolded that about Nine Crore Ninety Lakh Rupees was received by the Assessee as corpus donation from M/s. MAC Charities, M/s. MAC Public Charitable Trust and M/s. Spic Educational Foundation etc. This amount was received by the Assessee as donations from a number of persons.

During the enquiry, it revealed that the said amount was paid to M/s. United Educational Foundation, in lieu of procuring seats in Sri Venkateswara College of Engineering, Sriperumbudur; a unit of the assessee.

It was observed by the bench that, “In view of our above findings that the amounts collected by the assessees are capitation fee in quid pro quo for allotment of seat in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and the same are neither a voluntary contribution nor to be treated as applied for charitable purpose” and quashed the orders of the tribunal and appellate authority, directing the AO to reassess the previous assessments and cancel the registration certificate issued to the trust.

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