Centre, State must set up Web portal for receiving complaints of demand of capitation fee by pvt colleges: Madras HC

The Madras High Court has asked the Central Government and the State Government of Tamil Nadu to take appropriate steps to eradicate the collection of capitation fees by private colleges.

The division bench of Justices R. Mahadevan and Mohammed Shaffiq said that for this purpose, the governments, on the lines of the web portal under the aegis of the Supreme Court, must set up a web portal of a similar nature, wherein any information about the private colleges charging capitation fees can be furnished by the students or their parents or anyone having first-hand information in this regard.

"The web-portal has to be maintained and regulated by the National Informatics Centre (NIC) and the Information Technology and Digital Services Department, Government of Tamil Nadu; and the State Government is directed to publish the details about the web-portal in English as well as vernacular newspapers at the time of admission," the Court further ordered.

In addition, court directed that pamphlets should be compulsorily given to the students and their parents at the time of counselling informing them about the availability of the said web-portal.

Court said, "Privatization of education aids in collection of capitation fee. We hope that the Central and State government will thrive to ensure that all those who deserve, but are unable to get admission in educational institutions for want of funds, are accommodated to pursue education and take appropriate steps to eradicate the collection of capitation fees by creating policies and awareness".

The court was dealing with a batch of petitions related to Income Tax proceedings initiated against a group of trusts. The Commissioner of Income Tax, Chennai had challenged previous orders passed by the Income Tax Appellate Authority and the Income Tax Tribunal in favour of three educational institutes and some charitable trusts affiliated to the institutes.

The court allowed the appeals preferred by the Income Tax department and reversed a favourable verdict obtained by the trusts from a tribunal.

The argument put forth by the institutes was that the said donations had been made to their trusts voluntarily by the parents of students seeking admissions, therefore, the donations were in the nature of corpus donation and could not be considered as their income.

However, the division bench held that any amount collected by educational institutions in excess of the prescribed fee, either directly or indirectly, should be treated as a capitation fee even if it happened to be a voluntary contribution/donation and that collection of capitation fee is illegal and punishable.

Court said, "...it is clear as daylight that the modus operandi adopted by the Assessee Institutions and Trusts are with the twin objectives of circumventing/violating the provisions of the Capitation Fee Act as well as evading tax while seeking tax exemption under the corporate veil of being different and distinct entities receiving funds from each other for purely charitable purposes".

Court stressed that education can never be a commercial activity or trade or business and those in the field of education will have to constantly and consistently abide by this guiding principle.

Therefore, hoping that the Centre and the State government thrive to ensure stopping the practice of demanding capitation fee, Court directed the revenue authorities to cancel the registration of the Trusts and said that they must not be treated as charitable institutes.

Court also directed the state revenue authorities to proceed with their initial assessment that had held the respondent institutes as liable to pay tax.

Case Title: Commissioner of Income Tax Chennai v. M/s MAC Public Charitable Trust and others