Donations collected by schools will be tax-free if it is used for advancement of education. "If the income earned by a trust is utilized for charitable purposes, it cannot be held that the trust is carrying out business," the Mumbai bench of the Income Tax Appellate Tribunal said while hearing an appeal filed by St Francis Educational Trust that runs a school in Borivli. 

The income tax department had argued that as the educational trust was taking donations for giving admissions in the school, it amounted to 'selling of education'. Thus the educational trust was not carrying on charitable activities and should be denied tax exemption, it said. The donations totalled Rs 30.50 lakh during the year under tax dispute. 

But the ITAT bench ruled that as there were no violations , the tax exemption could not be denied. 

ITAT bench comprising Vijay Pal Rao, judicial member and Rajendra, accountant member said, "Of Rs. 30.50 lakh, Rs. 1.98 lakh was received from students. The tax officer has not doubted the fact that the educational trust was imparting education and as per the settled law oftaxation, imparting education is covered by the word charitable activity." As there were no violations of the provisions of tax law governing charitable trusts and no evidence that the donations were not utilized for non-charitable (non-educational) purposes, the tax exemption to the trust was not denied. ITAT hears appeals against orders passed by the income tax department. 

Many schools and colleges in Mumbai and pan-India charge capitation fees, collect donations for various purposes such as improving facilities in the school. In the backdrop of this judgment, such educational institutions, or at least those falling within the jurisdiction of the Mumbai ITAT will have a strong ground for arguing that donation is tax exempt. 

"However, whether or not another educational institution will be granted tax exemption for donations received by it, will be fact based. It will depend on factors such as utilization of such donations solely for objects of the trust-educational purpose-and also perhaps the quantum of donations from students in relation to total donation income," cautions a chartered accountant, who is an adviser to several similar trusts. (Times of India)