VODITHALA EDUCATION SOCIETY vs. THE DIRECTOR OF INCOME TAX [EXEMPTIONS]

The learned ITAT initially heard the appeal ITA.No.ll38/H/2006 relating to the assessment vear 2OO3-O4, and after appreciation of the facts and material on record ln proper perspective, passed a detailed order on 3l.lO.2OO7 affirming the findings of the Assessing Authority and the CIT(A), and assailing the said order, the assessee filed ITTA.No.l52 of 2O0B before this Court

Subsequently, the learned ITAT dismissed I1'A.No.43O/H/08, by order, dt.30.09.2010, in line with the orders passed were 1n ITA.No. ll38 / H / 2006, dt.3 1. IO.2OO7, for rhe assessmenr year 2OO4-O5, u,hich is assailed before this Court in ITTA.No.337 of 20 1 I

Both the appeals admitted to consider the following substantial questions of law

Whether on the facts and i" tt. .i."rm"1ances of the case. the ITAT was correct in law in no.t appreciati"Slf,. fact that 6;.J"; has called for any expianation i.o- tt J Appellant neither the Assessing Officer nor the Commissioner with reference to impounded material?

Whether on the facts and in the circumstances of the case u/s f O(23C)(vi) of the Act which was neither cLaimea in the ITAT was justified in considering the issue of e*.-ptio, return of income nor _ c_onsidered by thc CIT(A) in his appellate order?

Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that there was no requirement for . cross-examining . the Deponlnt UV tf.,. Appellant, whose statement was the only source ol the implgned assessment?

Whether on the facts and in the circumJt..r"." of the case, the ITAT was correct in law in coming to conclusion that the appjf.ri had collected excess fee and u,as"uti.lis.a by tne persons interested t] the society, solely based on the s,,Join statement of Mr. R.Srinivasa Rao ald without vcrification of books of accounts?

Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding that the Appellant is not a charitable institution u/s 2(15) of ihe Act o,, rn".. surmises and presumptions? 10' In addition to the above, ITTA.No. rs2 of 2oog was admitted consider tl.e following substantial questions : "7 . Whether on the facts and in the circumstances of the case, the ITAT was correct in law in holding tfr" prori"il.r" -oi Section 1O(23.C) (iv) of thc Act are applicable despite the faci ^ that the Appellant was granrcd .*.*jtio., u/s I l^of the Aci?

Whether on the facts and in the ciriumstalces of the case, the ITAT was correct in larv in holding that the p.ovisions oi section 1 1 cannot override the provision of f OtZSCttr") oi tf,; Act?

Whether on the facts and in the circumstances of the case, the ITAT was correct in law in hotding that the nppeffani is not holding any property undcr trust so as to entitle itself for exemption u/s 11 of thc Act?" to 6 I 1. Heard Sri A.V.Raghu Ram, learned counsel representing Sri K.Vasalt Kumar, learned counsel for appellart and Sri Vryay K Punna, learned Senior Stalding Counsel for lncome Tax Department for respondent/ Revenue.

Learned counsel for the appellant/ assessee contended that the entire assessment orders are vitiated in law as it was totally based on the statement of Mr. R. Srinivas Rao, who is not at a]l connected q,ith the affairs of the assessee, rvithout affording the assessee an opportunity to cross-examine him, despite specihc request made before the assessing officer and also before the lower appellate authorities, and denial of such opportunitv amounted to violation of principles of natural justice. It was further contended that the seized material s,as misconstrued by the Assessing Authority as if the amounts reflected therein amounted to collection of capitation fee or excess fee from the students, but contended that it is the aggregate fees payable by students for the entire four-year course collected at a time. The learned counsel contended that no independent verification of the books of accounts was undertaken and the Assessing Authority' proceeded on surmises and presumptions and passed the impugned assessment orders, w,hich are untenable.

Per contra, learned Senior Standing Counsel for the respondent/Revenue, Mr.vijay K punna, contended that the lindings recorded by the Assessing Authority, the crr(A) and the learned ITAT were ,.ot merely based on the statement of Mr. R. Srinivas Rao but were based on the substa,tial incriminating materia-l seized during the survey operations, which clearly established collection of amounts over and above the fees prescribed by the Government from students admitted under the management quota. It was further contended that such amounts were neither accounted for in the regular books nor deposited in the bank accounts of the assessee, the same were utilized by persons interested in the management of the societJr, thereby attracting the mischief of Section l3(1)(cl of the Act.

Learned Scnior Standing Counsel further contended that the assessee has not derived any income from propert5r held under Trust and that its entire income is derived from running educational institutions, thus the exemplion under Section 11 is impermissible. It was further contended that the assessee had initialllr sought exemption under Section I 0(23C)(vi) , u,hich was rejected, and thereafter attempted to invoke Section 1I as an afterthought. According to the learned counsel, the concurrer-r[ findings are recorded by thc CIT(A) and the learned ITAT, s'ho are the fact-finding authorities, as such there is no substantial question of lau' falling for consideration by this Court.

We have given earnest consideration to the submissions rnade by the learned counsel appearing on either side and perused the material on record.

Thc mzrin grievance of the appellant/ assessee is that the findings recorded bv the authonties are vitiated as they are founded primarily on the statement o[ Mr. R. Srinivas Rao, who has no nexus with the affairs ol the :rsscssec, and the assessing authority u,ithout affording the assessec a fair and effective opportunity to cross-examine the said R . Srinivas Rao. ar-rd that the amounts reflected in the seized m aterial were erroneoLlslv treated as excess or unaccounted collections

The Assessing Authority categorically found that the assessee had violated the provisions of Section r 3(1)(c) of the Act, by utilizing the lunds of the society for the benefit of persons interested in the manegement and there is no income of the assessee from its properties as such exemption under Section l l of the Act is impermissible.

The CIT(A) zrnd the learned ITAT further observed that substantial incriminating matcri:rl serzed during the survey operations raised serious doubt as to ra'hether tht: institution was being run with a charitable object or u ith a profit motive. Further, it was observed that the amounts collected lrom the students in excess of the fees prescribed by the Government u,ould amount to collection of capitation fee. Further, a ieeble atternpt is madc to prove that the said amount is the aggregate of the total I'ee for four vears course collected at once from the students admittcd r-rndcr management quota, but however, neither the books of accounts nor tht' bank account contained the said amount, thus, evidentl-r, cxcess fec collccted, which is not accounted for as per the procedure. is capitation fee. Further, it can safely be inferred that the running ol thc cducational institutions by the assessee is nothing but 1i with profrt motive a,d the assessee has thereby deviated from its stated charitable objectives a,d the assessing authority rightly denied exemption under both Sections 1O(23C) arrd 1l of the Act. 23' It is therefore a crear case of colection of amounts over and above the prescribed fees amounting to capitation fee. Thus, both the findings of the learned ITAT and the .IT(A) that the assessee-society did not exist solely for educationar purposes but existed only for the prorrt/benefit of the management, appears to be va_lid and germane.

In the above circumstances, the submissions made by the appellant/assessee that the amounts reflected in the incriminating materia-l represented the total fees payable by candidates for four years collected at once, was not supported by any evidence. Further, had the said claim was true, the assessee wourd have maintained separate books of account for each candidate and deposited such arnounts in its bank accounts. No such e,,.idence was produced. There was also nothing on record to show that the amounts allegedly collected in excess of the prescribed fees had been properly credited to the bank accounts oi the assessee- However, a perusal of the statement of Mr. R. Srinivas Rao, revealed that notwithsta,ding his designation as a project officer, the manner in which he spoke about the a-ftairs of the management clearly

In the abscnce of anv cogent or satisfactory explanation placed by the appelian t/ asscssee to disbelieve the version of the Income-tax authorities, and irr light ol the concurrent findings recorded by the CIT(A) and the learned ITAT, u,e lind no grounCs to discredit the conclusions drawn by the au[horities. Further, in our considered view, the CIT(A) and the learned I'lA1', bcing the fact-finding authorities, have appreciated the facts and evirlcnce on rccord in proper prospective. Though a feeble attempt u as marle b,r the appellar-rt / assessee to assail the said findings, no material u as placed on record to \r,arrant interference with the said concurrent lindings

In vieu' of the above findings, we are of the considered view that, the instant appeals are der,oid of merit and liable to be dismissed. The substantial qucstions of law are thus, answered against the appellan t I assessee arnd in fa.,,our of the respondent/Revenue.

Accordingly, both the appeals are dismissed alfirming the orders passed by the learned ITAT as well as the CIT(A) and the Assessing Authority. There shall be no order as to costs. As a sequel, miscellaneous petitions pending, if any, shall stand closed. SO/. N.SRIHARI DEPUW REGISTRAR //// SECTION OFFICER To,

Two CD Copies DUPSL fk ' I i I I J I i I i I I