The Income Tax Appellate Tribunal (ITAT), Chandigarh has held that the institution had not adequately justified its high fee structure, substantial recurring surpluses and accumulation of funds through supporting evidence of educational requirements and proposed expansion.

The Bench of Laliet Kumar (Judicial Member) and Vijay Varma (Accountant Member) clarified that educational institutions are permitted to charge fees, generate reasonable surpluses and build reserves, but their financial arrangements must support the charitable character claimed for registration. 

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The appellant/assessee had applied for registration under Section 12A(1)(ac)(ii) of the Income-tax Act, 1961, through Form No. 10AB on September 20, 2025. Following scrutiny of its activities, financial statements and other particulars, the Commissioner of Income Tax (Exemptions), Chandigarh, rejected the application on December 10, 2025.

The Commissioner observed that the institution generated substantial revenue from student fees and recorded surplus margins, before depreciation, of 66.96% in financial year 2023–24 and 69.10% in financial year 2024–25. The authority also questioned the accessibility of its fees and the accumulation of funds without corresponding reductions in fees.

According to the Commissioner, these circumstances indicated systematic profit-making rather than a surplus merely incidental to educational activities. The institution’s government origins and status as an Institute of National Importance were held insufficient to establish eligibility for charitable registration.

The assessee argued that it had ceased receiving government grants from 2021 and was required to operate as a self-sustaining institution. It maintained that its fees were comparable to those charged by other management institutes.

The institution submitted that its surplus was retained for infrastructure development, construction and institutional facilities, rather than distributed to members or diverted for private benefit. Its representatives also stated that accumulated funds were intended for developing another IIM at Gurugram.

The department opposed the appeal, contending that the magnitude and recurring nature of the surplus, together with the fee structure and accumulated resources, required closer examination.

The Tribunal recorded fee receipts of ₹141.50 crore against total expenditure of ₹66.86 crore, including depreciation. Fees alone exceeded the institution’s total expenditure by ₹74.64 crore.

The Bench further noted that interest income of ₹36.49 crore from accumulated funds covered approximately 55% of total expenditure and exceeded twice the staff cost of ₹17.47 crore.

The surplus margin after depreciation increased from 60.64% in financial year 2023–24 to 63.15% in financial year 2024–25. The corpus fund grew from ₹402.09 crore to ₹616.86 crore over two years.

The Tribunal considered these figures relevant collectively, particularly because the institution had not adequately explained its fee-fixation methodology, actual financial requirements or the scale of accumulation.

The Tribunal observed that comparison with other management institutes could be relevant, but could not independently establish the reasonableness of IIM Rohtak’s fees.

It noted that the programme fee was stated to be ₹17.90 lakh, apart from other charges. Assessing that fee required consideration of the institution’s expenditure, accumulated resources, development requirements and concessions available to students.

The Bench found insufficient particulars regarding need-based scholarships, fee waivers and freeships. However, it expressly clarified that the absence of scholarships or concessions, by itself, does not defeat a claim for charitable registration.

The Tribunal recognised that creating educational infrastructure and expanding educational opportunities may serve legitimate educational purposes. However, it found that the proposed Gurugram project was unsupported by a board resolution, approved project report, detailed cost estimate, government sanction or definite implementation schedule.

It was also unclear whether the proposed institution would form part of IIM Rohtak’s existing structure or operate as a separate entity.

Consequently, the stated intention to use accumulated funds for expansion did not adequately establish the necessity or reasonableness of the existing fee structure.

Referring to the decisions in Baba Banda Singh Bahadur and New Noble Educational Society, the Tribunal examined whether the surplus reflected incidental resource generation or systematic profit-making.

It nevertheless clarified that no fixed percentage of surplus constitutes an automatic statutory ceiling for registration. Its conclusion was confined to the evidence and circumstances of this case.

The Bench also declined to treat alleged irregularities mentioned by the Revenue with reference to a subsequent CAG audit report as independently established facts. Audit observations required examination of the report, the institution’s explanation and their factual connection with the relevant period.

The Tribunal upheld the rejection of registration, finding that IIM Rohtak had not sufficiently substantiated its explanation for the substantial recurring surplus generated through its existing fee structure.

It left open the possibility of a fresh application, if legally permissible, based on materially changed circumstances and supporting evidence. Such evidence could include a documented fee policy, particulars of need-based concessions and an approved plan for applying accumulated funds towards identified educational objectives.

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