Recently the Delhi High Court came heavy on capitation fee collected for professional/educational courses.
In refusing to grant exemption to charitable trust that charged capitation fee from student for admission in its educational courses the Delhi Court in Maharaji Education Trust [2024] 166 taxmann.com 197 (Delhi)/[2024] 468 ITR 634 (Delhi) held that collection of any amount in excess of what has been prescribed as fee would render the object of “charity” a farce and the transaction will have to be treated as a commercial activity, depriving the assessees of the benefits of sections 11 and 12 of the Act. It held that the assessee has engaged itself in charging capitation fee which is dehors the objective of the charitable trust. Therefore, the claim of the assessee for exemption as per Section 11 and 12 of the Act does not hold any water and the ITAT has wrongly sustained the exemption claimed by the assessee.
The High Court also emphasized an important aspect on the usage of the phrase ‘wholly” in section 11 which relates to the purposes and not to the property of the trust. The word ‘wholly’ is strikingly different from the word ‘mainly’. Rather, the former should be understood to be closely akin to the phrase ‘solely’. Put otherwise, there is no scope for the purposes being partially public or religious in nature. It would not be sufficient if some of the objects are charitable or religious in nature.
The High Court reference to Supreme Court ruling in P.A. Inamdar case hint at a very important pointer that profiteering is almost also NOT PERMISSIBLE in professional education courses. Thus the method of admission has to be regulated so that the admissions are based on merit and transparency and the students are not exploited. By the decision of Supreme Court then it is therefore permissible to regulate admission and fee structure in impart of professional educational courses.