Madras HC – Capitation Fee is Illegal & Punishable, Should Be Taxable

New Delhi, November 1, 2022, Madras HC Verdict: The Madras High Court has held that any donations or amount collected by private educational institutions in exchange for admissions shall be termed as “capitation fees” and such collection of capitation fees is illegal and punishable. The bench was hearing the batch of cases related to Income Tax proceedings filed by the Commissioner of Income Tax, Chennai.

The Income Tax department challenged previous orders passed by the Income Tax Appellate Authority and the Income Tax Tribunal in favour of three educational institutes from the State and some charitable trusts affiliated with the institutes.

As per media reports, the Madras High Court said in its verdict: “The Assessing Officer shall also proceed to reopen the previous assessments, if permissible by law, based on tangible materials relating to collection of capitation fee, since it is illegal and is punishable”.

Madras HC Verdict – More Details

  • The High Court highlighted that providing education should not be treated as a commercial activity or business.
  • The bench condemned the practice of educational institutes violating the “Capitation Fee Act” and their attempt to secure more benefits by seeking tax exemption for such capitation fees.
  • A division bench of Justices R. Mahadevan and Mohammed Shaffiq said that educational institutions cannot collect capitation fees.
  • The fees is taken from students seeking admission and termed as “corpus donation” to evade the payment of income tax.
  • The present appeals raise the twin issues of the blatant violation of the Capitation Fee Act and then drawing a premium on their own illegal act by seeking exemption under Sections 11, 12AA and 80G of the Act.

Madras HC Verdict – IT Department Claims

  • The case of the IT department was that a capitation fee was forcibly collected from parents, in the name of donations made through their friends and relatives.
  • These donations were received for admission to Venkateshwara Engineering College in Sriperumbudur.

Madras HC Verdict – Institutes’ Claim

  • The institutes were claiming that the donations were voluntarily made by the parents of the students to their trusts.
  • Hence, they contended that the donation corpus was in the nature of charity and cannot be treated as their income.

Madras HC Verdict – Court Calls Donations Illegal

  • The High Court held that such practice of receiving the donation and/or capitation fee as a condition for admitting a student violates the provisions of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992.
  • The court stated that the appellate authority and the tribunal had failed to consider the provisions of the Capitation Fee Act.
  • The court said they had given “perverse findings” and directed the revenue authorities to cancel the registration of the Trusts as they cannot be treated as charitable institutes.
  • Judges called the reasoning of the appellate authority “‘naïve” and said it “is completely unacceptable.”
  • Details of the verdict can be found on the official website of the Madras High Court.

Madras HC Verdict – Cancel Registration of Educational Trusts

  • The court directed the assessing authority to proceed to cancel the registration certificate issued to these assessees/ trusts under Section 12A of the I-T Act.
  • The court asked the authority not to treat the respondents as charitable institutions any longer.

Madras HC Verdict – Responses of Trusts

  • The appeals were filed against the orders of the IT tribunal and appellate authority which ruled in favour of trusts.
  • These trusts include MAC Public Charitable Trust and Sri Venkateshwara Education and Health Trust.
  • The trusts claimed that they were eligible for tax exemption for donations, though they were capitation fees, as none of the donor parents had raised complaints.

Madras HC Verdict – FAQs

1.What is a donation or capitation fee?

Donation or Capitation Fee is a payment done by a student who could not qualify or who did not get the required marks in the exam conducted by the respective private college or university. Usually, donation means paying to the authority to get a management quota seat.

2. How to deal with the problem of donation and capitation fee?

The problem of capitation fee has been there in India for a long time now. The illegality of collecting capitation fee cannot be ignored as it has clearly become an established pattern of collection by numerous educational trusts.

3. Is giving donations to universities legally allowed in India?

Donations to educational institutions are legal. However, the payment of donations/capitation fee for securing an admission may not always be legal. Any donations paid to an educational institution for securing an admission, is not legal as per the Right to Education act. Similarly, donations to government owned universities are also not legal.

Buddy4Study - IDFC FIRST

follow us for social updates


  1. Source of Information: Buddy4Study app compiles details on scholarships/fellowships from government websites and private scholarship sources. Links to the official sources accompany each listing detail pages.
  2. Non-affiliation: The Buddy4Study app is not associated with any government entity in India or elsewhere. When featuring government scholarships, we rely on publicly accessible information from central and state government websites in India.