The development fund received from students, apart from tuition ...

Development fees for infrastructure creation by charitable education institutions are capital receipts, not revenue.

Case Laws     Income Tax

November 9, 2024

The development fund received from students, apart from tuition fees, is treated as a capital receipt or corpus donation, not a revenue receipt. The fund is utilized for creating capital assets like school buildings and infrastructure, fulfilling the society's objectives. The litmus test for a charitable institution is the application of funds, not the source of contributions. If the development fees are used for infrastructure creation, they are considered capital receipts. The advances given to staff, suppliers, and sister concerns were not treated as misappropriation of funds or investments violating Section 11(5) and 13(1)(d). The institutions receiving non-interest-bearing loans are also registered u/s 12AA and controlled by the same management, ruling out tax avoidance schemes. The rejection of accounts u/s 145(3) and the ad-hoc disallowance of 20% by the Assessing Officer, reduced to 10% by the CIT(A), is not concurred with. The expense ratio has declined compared to previous years, and the expenses claimed are reasonable, considering past accepted assessments. The ITAT finds no error in the CIT(A)'s order on this issue.

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