Income Tax--Current Issues

Practice Update

V.K. Subramani

EDUCATIONAL INSTITUTION COLLECTING CAPITATION FEE WHICH IS MORE THAN PRESCRIBED FEE AND TAX CONSEQUENCE

An educational institution being non-profit entity would be eligible for tax exemption. However, where the NPO collects capitation fee its true nature or intent could be interpreted as profit earning and not charitable. Thus it could be denied the benefit of exemption. In Travancore Education Society v CIT (2015) 124 DTR (Ker) 189 the applicant an educational institution filed application under section 12AA which was rejected for the reason that the assessee had collected capitation fee which was in addition to the regular fee. The High Court upheld the action. The assessee cited Fifth generation Education Society v. CIT (1990) 185 ITR 634 (All) and New Life In Christ Evangelistic Association v.CIT (2000) 246 ITR 532 (Mad) to contend that at the time of granting registration the approving authority must not examine application of income of the trust.

Recently, the apex court in Karnataka Chamber of Commerce & Industry v. CIT (2021) 199 DTR (SC) 305 the decision of Kerala High Court in Travancore Education Societys case (supra) was affirmed. Yet another fact was that the appellant sought withdrawal of appeal as the appellant decided to resolve the dispute under Vivad Se Vishwas Scheme, 2020.

If the assesse decides to pay tax on refusal of registration under section 12AA by opting to VsV scheme, what would be the tax consequence for other assessment years (preceding as well as succeeding) could be an interesting matter.With the introduction of section 115TD, the forfeiture of tax exemption would impact colossally such NPOs/NGOs. In case, if the nature of assessment is by way of disallowance of expenditures for want of proof etc. then recourse to VsV Scheme would not have carry over effect.