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From fee hikes to ‘donations’, how courts are coming down hard on ‘profiteering’ in education

In judgments over last 2 months, Supreme Court has said education is not ‘business, trade, nor commerce’, while Madras HC has said capitation fees, or donations, are ‘illegal’.

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New Delhi: From exorbitant fee hikes to ‘donations’ for admission, three Supreme Court and high court judgments over the last couple of months have taken a stern line against  educational institutions that seem to be profiteering out of the “business of education”.

In the most recent instance, the Supreme Court on 7 November noted that tuition fees should always be “affordable” and that education is “not the business to earn profit”.

It made this observation while dismissing a 2021 petition filed by a private medical college against an Andhra Pradesh High Court judgment, which had set aside a state government order hiking the annual fees paid by MBBS students in the state to Rs 24 lakh per year.

Under its order passed in 2017, the Andhra Pradesh government had “unilaterally” instituted a seven-fold increase in MBBS fees at the insistence of private medical colleges, stated the judgment.

The apex court’s judgment is a reiteration of its landmark 2002 T.M.A. Pai judgment. In that judgment, the SC had upheld private institutions’ autonomy in management and administration issues, including deciding on fees, but it had also recognised that education cannot be a “business”.

“[The] maximum autonomy has to be with the management with regard to administration [of unaided private institution], including the right of appointment, disciplinary powers, admission of students and the fees to be charged”, the Supreme Court said in 2002, adding, “fees to be charged by unaided institutions cannot be regulated but no institution should charge capitation fee.”

Last month, the Supreme Court in another significant judgment, had ruled against “profit-oriented” educational institutions that sought exemption from paying income tax by projecting themselves as “charitable institutions”.

The apex court had held that charitable educational institutions may seek such an exemption only if they are solely concerned with education or education-related activities and are not engaging in any commercial or profit-making activities.

The Madras High Court, meanwhile, has called the collection of capitation fees — essentially an amount collected in excess of the prescribed fee, like ‘donations’ — illegal and punishable.

In a 124-page judgment dated 31 October, the HC had lamented the commercialisation of education and said that parents’ willingness to spend beyond their means in order “to fulfill their dreams through their children” has led certain educational institutions to “metamorphise the service, once known and worshipped to be a noble occupation, into an opportunity to make money”.

The court also rued that such practices continued despite various directives, including from the SC.


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‘Neither business, trade, nor commerce’ 

In 2017, the Andhra government had increased tuition fees for private medical colleges to Rs 24 lakhs per annum, which was almost seven times what was notified for 2011-12 to 2013-14.

This month’s Supreme Court judgment, while upholding the Andhra HC’s setting aside of the fee hike, unequivocally stated that education is not a business to earn profit and that tuition fees should be affordable.

The SC stated that the state government enhanced the tuition fee for private medical colleges based on representations made by the latter, which was “wholly impermissible and most arbitrary”. It added that the decision was made only with a view to “favour or oblige” the colleges.

According to the judgment, the state government had issued the order without waiting for the recommendations of the Admission and Fee Regulatory Committee, as mandated under rule 4 of the Andhra Pradesh Admission and Fee Regulatory Committee (for Professional Courses offered in Private Unaided Professional Institutions) Rules, 2006.

Last month, another Supreme Court bench comprising former Chief Justice U.U. Lalit, and justices S. Ravindra Bhat and P.S. Narasimha had asserted that the Constitution equates education with charity.

“Our Constitution reflects a value which equates education with charity. That it is to be treated as neither business, trade, nor commerce, has been declared by the pronouncement of this very court.”

The apex court had been interpreting Section 10(23C) of the Income Tax Act, which exempts taxation of any income received by anybody on behalf of a university, or other educational institution, existing solely for educational purposes, and not for the purposes of profit. In its verdict it said that for-profit educational trusts cannot claim exemption from income tax.

‘Menace’ of capitation fees

The Madras High Court, in a judgment last month, addressed the issue of donation or capitation fees in exchange for getting admission to colleges, declaring it illegal and punishable.

“Any amount collected in excess of prescribed fee, either directly or indirectly is to be treated as capitation fee, irrespective of whether it is voluntary contribution or donation,” it noted.

The court noted that states had failed to comply with “the directions enshrined in the Constitution” to strive for education for all and provide equal opportunity to all sections of society.

The HC further observed that despite the “dictum” of various courts, including the SC, on the matter, “the menace of capitation fee could not be curtailed, forget eradication”.

The court hinted at the poor reputation of government schools as a reason for this, stating that “parents are reluctant to make their ward attend public schools unlike in other countries.” It added that 78.6 per cent of colleges are privately managed, referring to the Ministry of Education’s All India Survey on Higher Education report for the year 2019-20.

Linking the privatisation of education to “exploitation” and “commercialisation” by the private sector, it said the state could not remain a “mute spectator”.

“[It is]] beyond the pale of any doubt that education can never be a commercial activity or a trade or business and those in the field of education will have to constantly and consistently abide by this guiding principle,” stated the court.

The Madras HC order also cited the Supreme Court’s observation in the 2020 Christian Medical College case, where it had reinforced that the activity of education is neither trade nor profession, which means “commercialisation and profiteering cannot be permitted”.

Echoing this, the Madras HC said that education was a “welfare activity” aimed at bringing about “social transformation” and could not be treated as a purely economic enterprise. Therefore, added the court, it was “open to impose reasonable restrictions in the interest of the general public”.

(Edited by Poulomi Banerjee)


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