ITAT rules that development fees can be allowed as Capital receipt

ITAT rules that development fees can be allowed as Capital receipt

It was aimed at the requirement of equipment and acquisition of the assets and should be treated as a corpus fund

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that development fees directly taken to corpus account and invested in a fixed asset can be allowed as capital receipt.

The assessee has been running various educational institutes in various fields including medical, engineering, law, and management. The annual fees, charges and development funds are collected by these institutions from the Trust.

The Assessing Officer (AO) observed that the appellant had received a development fee in addition to the tuition fees from the students on a compulsory basis. However, it was already a part of the fee structure, which the students pad to the institutes.

He maintained that the appellant showed the tuition fee (a part of the income and expenditure statement) as income, whereas the development fee was taken directly to the balance sheet as a corpus fund. The AO opposed this and treated the amount received during the year on account of the development fee as a part of the income of the trust.

The appellant argued that when the students were made aware of the fact of payment of development fee through the prospectus, admission forms and fee slips, it could not be termed as being imposed on them compulsorily.

The appellant further justified that such fees were utilized only for the specific purpose of the capital expenditure, which was voluntary with the specific direction to treat the same as a part of the corpus and relied upon the provision of the Income Tax Act.

Meanwhile, the Commissioner of Income Tax (Appeals) affirmed the action of the AO. He held that the development fee was in nature of the revenue receipts having nexus with its main activities carried out in the regular course of running the institutes.

However, the tribunal observed that the tuition fee was meant to incur revenue expenditure. The development fee was aimed at the requirement of equipment and the acquisition of capital assets. Therefore, it was to be treated as a corpus fund and allowed to be taken as a capital receipt.

Allowing the appeal of the assessee, the Coram of A.D. Jain (Vice President) and Dr. B. R. R. Kumar (Accountant Member) ruled that the amount eligible under the IT Act should be determined after considering the income derived from the property held under the Trust. This should be done to the extent that the income accumulated was not more than 15 percent of the income from the property.