Collect capitation fee, lose charitable entity status: Madras HC

CHENNAI: Educational institutions collecting capitation fee will lose their status as charitable trusts, the Madras high court has ruled, reiterating collection of capitation fees is illegal and punishable.
A division bench of Justice R Mahadevan and Justice Mohammed Shaffiq directed the income tax department to cancel registration certificates issued to trusts running educational institutions under Section 12A of the Income Tax Act and not to treat such erring trusts as charitable institutions any longer.
Section 12A provides income tax exemption to non-profit organisations like charitable trusts, welfare societies, NGOs and religious institutions. Education is a means to achieve equality. It not only installs confidence in the mind of the student, but also is a tool to eradicate exploitation, the court added.
The court has also directed the state government to establish a web portal where parents and students could share information about capitation fees collected by such institutions.
"The portal has to be maintained and regulated by the National Informatics Centre (NIC) and the state government is directed to publish the details about the portal in the English as well as vernacular newspapers at the time of admission," the judges said.
The court passed the order while allowing a batch of appeals moved by the income tax department challenging orders of the Income Tax Appellate Tribunal (ITAT) granting tax exemption to capitation fees collected by the educational institutions.
"Educational institutes cannot collect capitation fees from students wishing to secure admissions, and later term the money as corpus donations in order to evade payment of income tax," the court said.
The court then permitted the assessing authority to proceed further on the basis of the order of the assessment of tax which are subject matter of the appeals and proceed further to reopen the previous assessments, if permissible by law.