Admission Fee Charged From Students Forms Part Of Corpus Donation: Gujarat High Court

The Gujarat High Court has held that the admission fee charged by the students forms part of the corpus donation of the trust.

The bench of Justice Bhargav D. Karia and Justice Niral R. Mehta has observed that the donation is bound to have been given for material gain in securing admission; the same cannot be characterised as a donation towards a charitable purpose, and the appellant would not be entitled to have the benefit, but in the facts of the case, in the absence of any material on record, such a view cannot be taken in the circumstances. The Tribunal has committed an error by treating the admission fee charged from the students as not forming part of the corpus of the Trust.

The appellant/assessee is a charitable trust. The activity of the trust is mainly in educational institutions, i.e., schooling from pre-primary to higher secondary at different locations.

The assessee filed its Return of Income, declaring its income at a loss of Rs. 60,84,191. The assessee also filed a revised return of income, declaring its income at a loss. The trust received a donation aggregating to Rs. 5,00,60,184 collected from students as a corpus donation, of which the assessee also claimed benefit of exemption under Section 11(1)(d) of the Income Tax Act, amounting to Rs. 5,00,60,184 collected from the students as a "corpus donation.".

The assessing officer passed an order of assessment under Section 143(3) of the Act in which the income of the assessee was declared as 'Nil'.

The assessing officer observed that the assessee had received one-time admission fees from parents or guardians, which were treated as corpus funds and directly credited to its balance sheet as an earmarked fund. The Assessing Officer observed that in the copies of the receipts issued to students for the payment of the one-time admission fee, it was mentioned that the amount paid was for the one-time admission fees and held that the said receipt or fee was not a voluntary contribution given with a specific direction to treat it as a corpus donation, which can be claimed as exempt under Section 11(1)(d). Therefore, the assessing officer treated one-time admission fees as income for the assessee and added them back to the total income of the assessee.

The Assessing Officer also disallowed the claim of depreciation on the ground that the assessee had claimed the capital expenses as an application towards the object of the trust. Therefore, the claim of depreciation would amount to a double deduction since the benefit of 100% deduction of expenses has already been allowed to the assessee-trust.

The assessee preferred an appeal before the Commissioner of Income Tax (A). The CIT(A), by order dated February 12, 2019, deleted the addition made by the assessing officer. It was held that contributions towards different corpus funds were in the nature of the corpus fund and liable to be exempted under Section 12.

The department preferred an appeal before the tribunal. The tribunal held that the development fund amount cannot be treated as a corpus donation, and accordingly, the assessee is not eligible for the benefit of exemption under Section 11(1)(d) of the Income Tax Act. However, if the amount is treated as the income of the assessee-trust, then the assessee is eligible for deduction or allowance of expenses incurred against the aforesaid receipts towards the objects of the trust.

The assessee contended that the Tribunal has failed to appreciate that no detailed inquiry was carried out by the Assessing Officer to determine the nature of the contribution. Upon cursory satisfaction, the Tribunal has arrived at the conclusion that there is no element of voluntariness in the donation made or admission fees paid by the students or parents and has not even perused the stated documents, i.e., admission forms and the resolution, which categorically evidence the aspect of corpus donation.

The department contended that no error, not to speak of any error of law, could be said to have been committed by the Tribunal in passing the order.

The court, while ruling in favour of the assessee, held that the amount paid by the parents of the students admitted to the education institution run by the appellant is required to be held as a payment towards corpus donation, and the same was not collected by way of a capitation fee.

Counsel For Appellant: M.R.Bhatt

Counsel For Respondent: Maithili Mehta

Case Title: N H Kapadia Education Trust Versus The Assistant Commissioner Of Income Tax (Exemptions)

LL Citation: 2024 LiveLaw (Guj) 81

Case No.: R/Tax Appeal No. 89 of 2024

Click Here To Read The Order