ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(2), BANGALORE vs. SRI V C CHARANTIMATH , BAGALKOT

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

ITA Nos.2775 to 2777/Bang/2017 & ITA Nos.64 to 66/Bang/2018 are cross appeals for the assessment years 2012-13 to 2014-15. ITA Nos.235 & 236/Bang/2018 by revenue are against the order of Ld. CIT(A), which is emanated from the protective assessment order.

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Ground No. 1 - Based on the facts and circumstances of the case, whether Ld. CIT(A) was correct in allowing exemption u/s 11 of the IT Act, 1961 especially when capitation fee was collected from the students over and above the fees prescribed.

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Page 4 of 68 4.1 The main object / purpose of the assessee are imparting of Education. The assessee is running Educational Institutions like Primary Schools, High Schools, B.Ed College, Degree Colleges, Polytechnic Colleges, Medical & Dental Colleges, Engineering Colleges, Other Vocational Courses etc. and Hospitals, other various allied activities are carried on by the assessee like:- • Rural Area Development activities • Research and development • • Free Health, Eye, Asthma, ENT, Dental and Blood Camps • Health Schemes and Facilities • Job Placements 4.2 The assessee was subject to search proceedings under section 132 of the Act on 19th September, 2013.

4.3 The assessee filed a Return of Income in response to notice Under Section 153A of the Act on 01St August 2014 declaring a total Income NIL (Deficit Rs.8,01,32,145/-). The assessee disclosed gross receipts of Rs. 1,28,55,45,826/-. The gross receipts includes the donation of Rs. 16,52,15,912/-and advance student fee of Rs. 4,54,79,314/-. The gross receipts also include Rs.7,00,00,000/- of gross receipts to be offered as per declaration dated 19th December, 2013. The breakup of the total donation of Rs. 16,52,15,912/- is as follows:

Particulars Amount in Rs.

Hundi Collection 1,18,28,607/- Donation in Cash 15,29,07,305/- 80G Donation in Cash 4,80,000/-

TOTAL 16,52,15,912/-

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Page 5 of 68 4.4 The assessee disclosed Rs. 1,18,28,607/- as anonymous donation Under section 115BBC of the Act and paid tax under section 115BBC of Act.

4.5 The Deputy Commissioner of Income Tax, Central Circle 2(2), Bangalore (Assessing Officer) issued a notice under section 142(1) and under section 143(2) of the Act on various dates. The assessing officer issued notices calling for information as per questionnaire attached to the notices. The details of the questionnaire and reply furnished by the assessee are as follows:

Questionnaire Regarding Reply Questionnaire A Taxing 78% of the Total Appellants filed reply dated Dated 09.11.2015 Donation as an unnamed 27.11.15 Personally appeared donation U/s 115BBC & discussed on 04.12.15 Questionnaire B " Taxing advance fees collected from Appellants filed reply dated Dated 26.10.2015 students Under section 115BBC 27.11.15 Personally appeared & discussed on 04.12.15 Questionnaire D Undisclosed capitation fees Appellants filed reply dated Dated 10.122015 29.12.2015 ..

4.6 The brief facts of the above additions are as follows: Unexplained Receipts Rs. 11,70,39,804/- 4.7 The Assessing Officer issued questionnaires (Questionnaires-A) stating that 78% of the total donation (Rs.16,52,15,912/-) to be treated as un-named donation and taxed under section 115BBC of the Act. The assessee furnished a detailed reply stating the following facts:

• The Proceedings Under section 132 of the Act was initiated on 19th September 2013. During the course of proceedings, the investigating officials observed that in the Books of

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Page 6 of 68 Accounts (Tally Package on 19th September 2013). The total donation for the Financial Year 2012-13 relevant to the Assessment Year 2013-2014 is as follows: Amount in Rs. Particulars Donation General (Named) 3,54,86,067/- 33,57,372/- Donation U/s 80G 12,91,80,648/- Donation unnamed 16,80,24,087/- TOTAL

4.8 The assessee submitted the correct classification of the above accounts on 11th November 2013. The details are as follows: Particulars Amount in Rs. Donation General (Named) 11,18,79,467/- Donation U/s 80G 33,57,372/- Donation unnamed 60,37,248/- 4,67,50,000/- Fees TOTAL 16,80,24,087/-

4.9 The assessee submitted a detailed reply regarding the errors in classifying the accounts and also explained that these figures were unaudited figure. The Assessing Officer without considering the submission and facts of the assessee and without any evidences nor any incriminating documents taxed a sum of Rs. 11,70,39,804/- as unexplained receipts. The Assessing Officer estimated 78% of the total donation as un-named donations not only for the Assessment Year 2013-14, but also for earlier Assessment Years 2008-2009 to 2012-2013 and also for Assessment Year 2014-2015.

Student Advance Fees:

4.10 The Assessing Officer issued a questionnaires dated 26th October 2015, seeking an explanation from the assessee that Rs.

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Page 7 of 68 31,81,48,490/- to be brought to tax under section 115BBC of the Act for the Assessment Years 2008-2009 to 2012-2013. The details are as follows:

Assessment Years Amount in Rs. 2008-2009 3,41,28,940/-

2009-2010 3,00,87,175/- 2010-2011 4,62,89,452/- 2011-2012 9,55,38,909/- 2012-2013 11,21,04,014/- TOTAL 31,81,48,490/-

4.11 The assessee submitted reply to the above questionnaire on 27th November 2015 and personally explained the same to Assessing Officer on 4th December 2015. The assessee has submitted that Rs. 17,43,90,9700/- is already declared as a receipt in the declaration filed before the Director of Income Tax (Investigation) on 27th December 2013 and the details are as follows:

Assessment Year Amount in Rs. Financial Year 2008-2009 2007-2008 3,14,32,536/- 2008-2009 2009-2010 2009-2010 2010-2011 76,90,987/- 2010-2011 2011-2012 4,04,76,490/- 2011-2012 2012-2013 4,54,79,314/- 2012-2013 2013-2014 4,93,11,643/-

17,43,90,970/- TOTAL

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Page 8 of 68 4.12 The assessee disclosed the above figures in gross receipts while filing the return of income in response to notice under section 153A of the Act. The Assessing Officer made addition of Rs. 11,21,04,014/- even though Rs. 4,54,79,314/- is included in the gross receipts.

Undisclosed capitation fees: 4.13 The Assessing Officer issued a questionnaire (Questionnaire D) stating that Rs. 6,83,38,000/- represents undisclosed, unaccounted income of the appellant for the Assessment Year 2012-2013. The appellant explained the detailed transaction date wise and also the confirmation letters from parties confirming the bank transactions belonging to them. The Assessing Officer ignoring the submissions and facts added Rs. 6,83,38,000/- as undisclosed capitation fees. 4.14 The assessee made a declaration under section 132(4) of the Act on 19th December, 2013 declaring Rs. 7,00,00,000/- as additional receipts "on account of non-confirmation, non- appearance of donors, mistakes, errors, omissions, wrong remittance, wrong classification and accounting of transactions chargeable under section 115BBC" and included in the gross receipts of Rs. 128,55,45,826/-. Depreciation:

4.15 The assessee appellant filed return of income and claimed depreciation of Rs. 9,23,51,525/- as revenue expenditure. The assessing officer has not allowed this depreciation and also has not given reasons for not allowing the depreciation.

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Page 9 of 68 Rectification Application:

4.16 The assessee filed application for rectification under section 154 of the Act for this Assessment Year pointing out the mistakes / errors in the Assessment Order and filed before the Assessing Officer on 27th January 2016 and before Joint Commissioner of Income Tax, Central circle, Range- 2 on 04th February 2016 the assessee pointed out that unexplained receipts and students advances fees already included in the Gross Receipts. The assessee also pointed that depreciation claimed by the assessee is not considered nor mentioned the reason in assessment order for not allowing it. The Assessing Officer has not disposed of the application so far. Aggrieved by the order Under Section 143(3) read with Section 153A of the Act, the assessee is moved this appeal before the learned Commissioner of Income Tax (Appeals) - XI, Bangalore seeking redressal of its grievances.

4.17 Aggrieved the assessee went in appeal before CIT(A). The Ld. CIT(A) given a certain relief. Against this revenue is in appeal before us.

D.R’s submissions:- 4.18 The Ld. D.R. submitted that the assessee has collected capitation fees which is evident from incriminating material unearthed during the course of search action and recorded by the AO in his assessment order. The Ld. CIT(A) overlooked entire seized material and collection of capitation fees for giving admission in the assessee’s college there was quid pro quo that was established by AO in his order. The Ld. CIT(A) brushed aside entire facts of the case and only decided the case on the basis of the arguments of the assessee’s counsel, which shall be annulled.

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A.R.’s submissions:- 5. The findings of the learned assessing officer are spread over in pages 2 to 52 of the assessment order, wherein the learned assessing officer discussed the seized materials pertaining to assessment years 2012-13, 2013-14 and 2014-15. Based on the above said seized materials, the learned A.O. came to a conclusion that the assessee had collected capitation fee from the students and there is a violation of law on this issue. 5.1 The registration granted u/s 12A of the Act is continued even after the search took place and the assessment orders u/s 153A of the Act were passed. He submitted that the exemption u/s 11 of the Act cannot be denied when the registration u/s 12Aof the Act is in force. The assessee relied on the decision of the Hon'ble Supreme Court in case of ACIT Vs Surat City Gymkhana in 300 ITR 314.

5.2 The Ld. A.R. submitted that the finding of the assessing officer that it has collected capitation fee is contrary to the facts on record. There is no dispute that the name of students from whom the assessee is alleged to have received the capitation fee is stated in the assessment orders. Their names are Ms. Kaviyarasi and Mr. Shreyas Soragavi. These students are admitted under the management quota as is evident from their roll number being M 111245 and M 1112121 respectively. "M" stands for management quota. During the assessment proceedings, the assessee submitted a list of students admitted to the medical college during the academic year 2011-12. Ms. Kaviyarasi's name appears in page no. 293, Sl No. 45 and Mr. Shreyas Soragavi's name appears in page 295, Sl No. 121. 1

5.3 Ld. A.R. submitted that the Karnataka Private Medical, Dental and Engineering Colleges Association and the Government of

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Page 11 of 68 Karnataka entered into an agreement called Consensual agreement for the Academic year 2011-12 to fix the fees for various professional courses. He drew our attention to page 312 of the paper book, wherein in the seat matrix, 20% of seats is reserved for Management quota. In page 320 it is stated that the fees payable including development fees for the entire course shall be fixed by the private institutions and fees shall be collected accordingly. There is no maximum fees prescribed for the management quota students unlike CET and COMED-K students. Therefore, it is submitted that any amount collected from the students admitted under Management quota cannot be treated as capitation fees. It is also to be noted that this Consensual agreement is ratified by issue of gazette notification under the provisions of Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984 and the notification would give a statutory support. It is also to be noted that no materials or evidences were brought on record to show that the authorities under the relevant statute have taken any action against the assessee alleging that it has violated the provisions of Prohibition of Capitation Fee Act, 1984. The assessee relies on the decision of the Hon'ble Allahabad High Court in CIT v. Kesarwani Sheetalaya 418 ITR 369 for the proposition that if the authorities constituted under a particular statute did not take any action, there is no violation. The assessee also relied on the decision of the Hon'ble Karnataka High Court in CIT(LTU) & Another Vs IBM Global Services India Pvt Ltd 429 ITR 386. Since the authorities entrusted with the statutory responsibility to oversee the functioning of medical colleges have not taken any action in this regard, the assessing officer cannot allege violation of provisions of Karnataka Educational Institutions (Prohibition of Capitation fees) Act, 1984.

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5.4 Even assuming but without admitting that the assessee has collected capitation fees, as long as the capitation fees is applied towards the charitable purposes/objects of the trust, the exemption u/s 11 of the Act cannot be denied. The assessee relied on the decision of the Hon'ble Karnataka High Court in CIT Vs CMR Jnanadhara Trust ITA No. 73/2009. The assessee relied on the observations in paragraphs 8 & 9 (1070 to 1074). The assessee relied specifically on the observations in paragraph 9 at page 1074 of PB- 4, wherein the Hon'ble court noted that the assessee therein collected the fess prescribed by the government and in addition they have also collected development charges. All fee amounts have been accounted in the books and applied towards charitable objects. On these facts, the Hon'ble Court held that merely because the assessee has collected huge amounts by way of developmental charges, the trust does not cease to be a Charitable Trust. The Trust will be entitled to exemption u/s 11 of the Act. The facts of the present case are also identical. There is no dispute that the fees received from the students have been accounted and have been applied to the objects of the Trust. The assessee also relied on the decisions of the Hon'ble Karnataka High Court in DIT(Exemptions) and Others Vs Shri Belimatha Mahasamasthana Socio Cultural and Education Trust 366 ITR 604. The assessee relied on the observations in paragraph 9 of the order, wherein it was held that even if donations were anonymous donations, the exemption u/s 11 of the Act is allowable as long as the amount is spent towards charitable objects. He also relied on the decision of the Hon'ble Karnataka High Court in CIT & Another Vs MBA Nahata Charitable Trust in 364 ITR 693. Reliance is placed on observations in paragraph 11 at page 706 of PB - 3. In view of the binding decisions of the jurisdictional High Court, Ld. A.R. requested to hold that the assessee had not received

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Page 13 of 68 capitation fees in violation of the statute and it is entitled to exemption u/s 11 of the Act. Ld. A.R. requested that this ground of the revenue may be dismissed. Findings:- 6. We have heard the rival submissions and perused the materials available on record. The assessee is running educational institutions. The assessee is duly registered u/s 12A of the Act. In this assessment year under consideration, there was a search action u/s132 of the Act on 19.9.2013. During the course of search action, various incriminating material were unearthed. A note book marked A/BVES was seized on 19.9.2013. This note book contains details of cash accepted by assessee from 1.4.2013 to 13.9.2013 and deposited in Indian Overseas Bank, Bagalkot account in the name of the Chairman, BVV Sangha, statement of account was recorded u/s 132(4) of the Act on 17.10.2013 admitting that no receipts have been issued to the persons from whom the above-mentioned cash was received. Further, on one hand it has been accepted by the Trust that no receipts were issued to the people from whom the above mentioned cash was received and on the other hand evidence in the form of noting on loose sheets seized (pages 45 to 55 folder No.A/BVVS/155) showed that receipts were fabricated to match the amount of cash accepted mentioned in note book marked A/BVVS/146. The A.O. observed that fabricated donation receipts in the form of alleged donations given to its various institutions to match the amount of cash mentioned in note book marked A/BVVS/146. Further, the fact that Trust fabricated the donation receipts has also been confirmed after enquiry made by the investigation wing with the alleged donors mentioned in the donation receipts. The A.O. also brought on record that in page no.4 of the assessment order that signature appearing on the donation receipts bearing their names are not signatures and denied having signed

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Page 14 of 68 any donation receipts or donation letters and they denied having donated any amount to BVV Sangha. From that the A.O. came to the conclusion that Trust by fabrication was called donation receipts tried to conceal the real fact that it has accepted huge unexplained receipts. Further, the A.O. also brought on record that assessee has collected capitation fees for admission of students to third institutions. He recorded these findings in his assessment order page Nos.27 to 53 and he tabulated the same as below:-

Difference UNNAMED A.Y. TOTAL DONATIONS UNNAMED amount to be DONATION DONATIONS taxed as S AT 78% OF DECLARED unexplained THE TOTAL receipts DONATION 08-09 Rs. 8,03,52,204 Rs. 6,26,74,719 S Rs. 47,11,862 Rs. 5,79,62,857 09-10 Rs. 7,62,06,133 Rs. 5,94,40,784 Rs. 75,49,953 Rs. 5,18,90,831 10-11 Rs. 8,80,73,620 Rs. 6,86,97,424 Rs. 87,25,410 Rs. 5,99,72,014 11-12 Rs. 9,75,91,120 Rs. 7,61,21,074 Rs. 1,01,56,798 Rs. 6,59,64,276 12-13 Rs.16,52,15,912 Rs. 12,88,68,411 Rs. 1,18,28,607 Rs. 11,70,39,804 13-14 Rs. 11,80,24,087 (as per Rs. 13,10,58,788 Rs. 60,32,248 Rs.12,50,26,540 Tally accounts seized) 14-15 Rs. 17,03,53,960 (as per Rs. 13,28,76,088 Rs. 1,46,22,580 Rs. 11,82,53,508 return of income)

6.1 The Ld. CIT(A) overlooked the entire facts recorded by AO and observed that the assessee has not collected any capitation fee over and above the agreement entered by the assessee between the Government and Medical/dental and Engineering college which is called as consensual agreement and not management quota and also observed that there is no restriction for collection of capitation fee. Hence, the assessee is entitled for exemption u/s 11 of the Act. However, Ld. CIT(A) not dealt as the issue whether assessee is carrying out the activities in accordance with the provisions of section 2(15) of the Act or whether the activities carried on by the assessee is in the nature of charitable activities.

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Page 15 of 68 6.2 Let us first examine the provisions of section 11 of the Act which provide for exemption of income from the total income from the property held under Trust for Charitable or religious purpose. For the purpose of claiming exemption u/s 11 of the Act, the assessee has to make an application u/s 12A of the Act for registration for granting the registration u/s 12A of the Act, assessee should be religious or charitable institution or Trust. In the present case, the assessee was granted the registration u/s 12A of the Act on the reason that assessee is an education institution. It is to be noted that to claim exemption u/s 11 of the Act, the assessee not only have registration u/s 12A/A of the Act but also the institution shall carry on the activities in accordance with the provisions section 2(15) of the Act in the assessment year under consideration. The granting of exemption u/s 11 of the Act is not automatic and it depends upon the carrying out the activities in accordance with the object clause of the assessee once the institution is approved u/s 12A/A of the Act. Now, we have to see whether assessee is a charitable institution carrying out its activities as prescribed in section 2(15) of the Act, which reads as under:- “Section 2(15):- ‘charitable purpose’ includes relief of the poor, education (yoga,), medical relief, [preservation of environment (including water heads, forests and wildlife) and preservations of monuments or places of or objects of artistic or historical interest,] and the advancement of any other object of general public utility: [Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) The aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of

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Page 16 of 68 the trust or institution undertaking such activity or activities, of that previous year;]]

6.3 From the above, it is obvious that 'education' is included in the charitable purpose. Admittedly, the assessee society is running educational institutions. The next question that falls for our consideration is when the assessee collects money over and above the fees prescribed by the Government, whether it constitutes a charitable institution or not. We find that the apex Court in the case of Miss Mohini Jain vs. State of Karnataka (1992) 2 SCC 666 considered the issue of capitation fee collected by the private educational institutions. His Lordship Hon'ble Mr. Justice Kuldip Singh (as His Lordship then was), speaking for the Bench of the apex Court, observed as follows—

"The right to education, therefore, is concomitant to the fundamental rights enshrined under Part III of the Constitution. The State is under a constitutional+ mandate to provide educational institutions at all levels for the benefit of the citizens. The educational institutions must function to the best advantage of the citizens. Opportunity to acquire education cannot be confined to the richer section of the society. Increasing demand for medical education has led to the opening of large number of medical colleges by private persons, groups and trusts with the permission and recognition of State Governments. The Karnataka State has permitted the opening of several new medical colleges under various private bodies and organizations. These institutions are charging capitation fee as a consideration for admission. Capitation fee is nothing but a price for selling education. The concept of 'teaching shops' is contrary to the constitutional

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Page 17 of 68 scheme and is wholly abhorrent to the Indian culture and heritage."

6.4 Therefore, capitation fee is nothing but a price for selling education. As held by the apex Court, the concept of 'teaching shop' is contrary to the constitutional scheme and is wholly abhorrent to Indian culture and heritage. Some of the State legislatures passed legislation prohibiting the collection of capitation fee and also made the same as a punishable offence.

6.5 The apex Court in the case of Islamic Academy of Education vs. State of Karnataka (2003) 6 SCC 697 directed all the State Governments to constitute a committee headed by an Hon'ble retired High Court Judge for prescribing fee structure for professional colleges. The apex Court further held that if any amount is charged other than the fee prescribed by the committee under any head or guise, the same would amount to capitation fee. Therefore, collection of money over and above the fee prescribed by the committee would amount to collection of capitation fee.

6.6 Collection of capitation fee is contrary to the Constitutional scheme and prohibited by State enactment. Moreover, education was used as an apparatus/mode to collect capitation fee. In other words, exorbitant money was collected illegally in the guise of running the educational institution. When the assessee used the charitable activity/educational institution as an apparatus for selling the education, in our opinion, the element of charity no longer remains in the activity of the assessee. In other words, when the assessee sells the seat of a professional course and collects capitation fee, the activity of assessee cannot remain a charitable activity, within the meaning of s. 2(15) of the IT Act.

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Page 18 of 68 Education would remain as a charity only in a case where the education was imparted systematically for a fee prescribed by the Government. In our opinion, it is not the intention of the Parliament to recognize any body/society or institution as a charitable institution where 'education' was a saleable commodity. In the case on hand, the material found during the course of survey operation clearly established the collection of money over and above the fee prescribed by Government for admission of a student. Therefore, it is a clear case of sale of education by the assessee-society. In our opinion as such, the assessee cannot be considered as a charitable institution under s. 2(15) of the IT Act. Therefore, the assessee is not eligible for exemption under s. 11 of the IT Act.

6.7 We would like to further add that collection of money over and above the fees prescribed by the committee appointed as per the directions of the Hon'ble apex Court is increasing day-by-day for admitting students under management quota. This collection of money over and above the fees prescribed by the committee, shall be construed as collection of 'capitation fees' as held by the apex Court. Collection of capitation fee is not an isolated problem of an individual student and the institution. This is a social problem and makes the availability of education beyond the reach of the vast majority of the population. More than 30 per cent of the population is living below poverty line and bulk of the remaining population is struggling for existence under poverty. In this economic situation, if we allow a few individuals who had an opportunity to establish an educational institution to collect money directly or indirectly for admission of students, it would be a threat to very existence of democracy and sovereignty of this country. Therefore, the judicial and quasi-judicial authorities,

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Page 19 of 68 cannot be expected to be a silent spectators of what is happening in the educational institutions. In view of the above in our opinion, the assessee cannot be considered to be a charitable institution and therefore, not eligible to claim exemption under s.2(15) of the Act.

6.8 Even assuming for the sake of argument that the assessee is a charitable institution under s. 2(15) of the IT Act, in our opinion, the assessee is not entitled for exemption under s. 11 of the IT Act. Sec. 11(1) of the IT Act reads as follows :

“11. (1) Subject to the provisions of ss. 60 to 63, the following Income shall not be included in the total income of the previous year of the person in receipt of the income— (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property;

(c) income derived from property held under trust—

(i) created on or after 1st April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and

(ii) for charitable or religious purposes, created before 1st April, 1952, to the extent to which such income is applied to such purposes outside India :

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Page 20 of 68 Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;

(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust to institution."

6.9 Therefore, any income derived from the property held under trust for charitable purpose, should not be included in the total income. In this case, admittedly, the assessee is not holding any property under trust for charitable purpose. It is also not the case of the assessee that any income was derived from the property held under trust for charitable purpose. Moreover, it is also not the case of the assessee that any income in the form of voluntary contributions was received with a specific direction to form part of the corpus of the society. The assessee society runs educational institution and derived income from such institution. The assessee has also collected money over and above the fees prescribed for admitting students under management quota. In other words, the educational institution was used as a tool/apparatus for collecting money over and above the fees prescribed. The assessee has no other source of income/receipt. The assessee, owns the educational institution. The legislatures have visualized two situations. One is religious and another is charitable. Sec. 11 provides for exemption in respect of income; derived from property held under trust for charitable and religious purpose. As we have already observed 'education' falls within the definition of charitable purpose. Therefore, any income derived from property held under trust for charitable purpose and applied for education, is eligible for

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Page 21 of 68 exemption under s. 11 of the IT Act, 1961. In this case, admittedly, the assessee has not derived any income from any property held under trust. The only source of receipt is, the education itself, i.e., fees from educational institution.

6.10 The next question that falls for our consideration is, whether the educational institution owned by the assessee society would be regarded as a property held under trust by the society. Sec. 11 speaks of the property held under trust. The legislature visualized two situations. One is income derived from the property held under trust and another is application of that income derived from the property held under trust for a charitable purpose. Therefore, there is a clear distinction between the property held under trust and the charitable activity. In the case before us, the assessee society is carrying on charitable activity by establishing educational institutions. Therefore, the charitable activity of the assessee is education. The income if any derived from the property held under the trust and applied for the educational activity, shall be construed as application of income for the purpose of charitable purpose. Therefore, the expenditure incurred in establishing the educational institution namely acquisition of land, construction of building etc., are all application of income for charitable activity. If any income was generated in the course of educational activity, the said income shall be construed as if it was generated in the course of carrying on the charitable activity. Therefore, such receipt/income received in the course of carrying on charitable activity is also eligible for exemption provided the same was applied or set apart for educational purposes. However, such receipt/income cannot be construed as derived from property/business held under trust. Since such receipt/income

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Page 22 of 68 is inevitable or consequential while carrying on the activity of education, such income also becomes eligible for exemption. The educational institution is an apparatus for carrying out the charitable activity. Therefore, in our opinion, the educational institution or charitable activity itself cannot be construed as the property held under trust. As we have already observed, establishing educational institution, is an activity of charity. Therefore, by any stretch of imagination, the charitable activity, cannot be held as the property held under trust, even though the income/receipt incidental to such activity is eligible for exemption. However, in our opinion, the money collected over and above the prescribed fee for admitting students cannot be construed as income derived from/incidental to the activity of carrying on charitable activity.

6.11 Sec. 11(4A) of the IT Act reads as follows :

"[(4A) Sub-s. (1) or sub-s. (2) or sub-s. (3) or sub-s. (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.]"

6.12 It is well-settled principle of law that a business held under a trust is also a property. Sec. 11(4) also makes it very clear that the property held under the trust includes a business undertaking. If the assessee society was running a business incidental to the attainment of the object of the society and separate books of account are maintained by the assessee, the income derived from such business, shall be treated as income derived from the property held under the trust. We find that the apex Court in the case of Asstt. CIT vs. Thanthi Trust (2001) 165

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Page 23 of 68 CTR (SC) 681 : (2001) 247 ITR 785 (SC) considered the provisions of s. 11(4A). His Lordship Hon'ble Mr. Justice S.P. Bharucha (as His Lordship then was) speaking for the Bench of the apex Court has observed as follows :

"The substituted sub-s. (4A) states that the income derived from a business held under trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution if 'the business is incidental to the attainment of the objective of the trust or, as the case may be, institution' and separate books of account are maintained in respect of such business. Clearly, the scope of sub-s. (4A) is more beneficial to a trust or institution than was the scope of sub-s. (4A) as originally enacted. In fact, it seems to us that the substituted sub-s. (4A) gives a trust or institution a greater benefit than was given by s. 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit than that given by s. 13(1)(bb), the language of s. 13(1)(bb) would have been employed in the substituted sub-s. (4A). As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust."

6.13 It is clear from the above observation of the apex Court that if the business income was derived from business held under the trust and the same was utilized by the institution for achieving the object of the institution, then, we may say that such income was applied for charitable purpose. As we already observed the assessee society has no property or business whatsoever under trust. Moreover, it is not the claim of the assessee that any income was derived from the property or business held under trust.

6.14 We find that the Kerala High Court in the case of Brahmin Educational Society vs. Asstt. CIT (1997) 140 CTR (Ker) 262 : (1997) 227 ITR 317 (Ker) considered a similar question. In the case before the Kerala High Court, the assessee society was running educational institution. The assessee society received income from

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Page 24 of 68 Kuri Business. Kuri Business was being done to augment the income of the educational institution. The question which arose before the Kerala High Court was whether the income received by the assessee from Kuri Business, was exempted under s. 10(22) of the IT Act, 1961. The Kerala High Court examined the provisions of ss. 11, 11(4) and 10(22) of the IT Act and found that if the society exists solely for educational purpose and it runs an educational institution, its income will be income of the educational institution and therefore, exempted-under s. 10(22) of the IT Act, 1961. The Kerala High Court further observed that s. 11(4) of the IT Act cannot override s. 10(22). The language of s. 10(22) is analogous with provisions of ss. 10(23C)(iiiab), 10(23C)(iiiad) and 10 (23C)(vi). Therefore, the judgment of the apex Court and other High Courts in respect of s. 10(22) is equally applicable to the present section. When the legislature enacted a specific provision for grant of exemption of income in respect of educational institution under ss. 10(23C)(iiiab), 10(23C)(iiiad) and 10(23C)(vi), the general provision contained in s. 11 may not override the provisions of specific section. In other words, the income of the educational institution has to be examined under ss. 10(23C)(iiiab), 10(23C)(iiiad) and 10(23C)(vi) and not under s. 11 of the Act. This view of ours is further fortified by the judgment of the Karnataka High Court in the case of CIT vs. Saraswath Poor Students Fund (1985) 46 CTR (Kar) 107 : (1984) 150 ITR 142 (Kar). Even otherwise, the material available of record, which was found during search operation clearly shows the receipt of money over and above the fees prescribed by the committee constituted by the Government, for admitting the students under the management quota. The material found during the course of search operation, further establishes that the money collected over and above the prescribed fee for admitting students was paid to the chairman and other interested

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Page 25 of 68 persons of the society. The contention of the Ld. A.R. is that in management quota of seats, there is no restriction in collection of fees and it is left to the assessee. However, no material was placed in this regard. Therefore, there is a clear violation of the provisions of s. 13(1)(c) of the IT Act. Under s. 13(1)-(c) if any part of income of the institution, is used or applied directly/indirectly for the benefit of a person, i.e., the founder or any interested person, as referred to in s. 13(3) of the IT Act, then the assessee shall not be entitled to exemption under ss. 11 and 12 of the IT Act. Therefore, in our opinion, the assessee is not entitled for exemption under s. 11 of the IT Act.

6.15 We are of the view that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit could be regarded as 'other educational institution' coming within s. 10(22) of the Act [See CIT vs. Doon Foundation (1986) 53 CTR (Cal) 440 : (1985) 154 ITR 208 (Cal) and Agarwal Shiksha Samiti Trust vs. CIT (1987) 66 CTR (Raj) 95 : (1987) 168 ITR 751 (Raj)]. It will be rather unreal and hyper-technical to hold that the assessee-society is only a financing body and will not come within the scope of 'other educational institution' as specified in s. 10(22) of the Act. The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds, donations, gifts etc., colleges and schools are the media through which the assessee imparts education and effectuates its objects. In substance and reality, the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so, such an educational society should be

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Page 26 of 68 regarded as an 'educational institution' coming within s. 10(22) of the Act. We hold accordingly."

6.16 Therefore, it is obvious that the assessee society would fall within the term 'other educational institution.

6.17 The apex Court in the case of T.M.A. Pai Foundation vs. State of Karnataka (2002) 8 SCC 481 had an occasion to consider the right of the aided and unaided private educational institutions. The Constitutional Bench of the Supreme Court elaborately considered the right of establishing private educational institutions and found that collection of capitation fees being the worst part of mal- administration, can properly be subject-matter of regulatory control of a State. The apex Court further observed that receiving donations by educational institutions connected with admission of students has to be treated as collection of capitation fees. The apex Court observed that the right to admit students being an essential facet of the right to administer educational institutions of their choice, the State Government/University may not be entitled to interfere with their right so long as the admission to the unaided educational institution is on a transparent basis and merit is adequately taken care of. It was also observed that the unaided institutions cannot be regulated with regard to charging of fees, however, such institution shall not charge capitation fees. This judgment was considered by another Bench of the apex Court in the case of Islamic Academy of Education (supra). The majority Judges of the apex Court after considering the judgment in the case of TMA Pai Foundation (supra), observed that there can be no fixing of rigid fee structure by the Government. Each institute must have the freedom to fix its own fee structure, taking into consideration the need to generate funds to run the institution and

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Page 27 of 68 to provide facilities necessary for the benefit of the students. The educational institutions must also be able to generate surplus which must be used for the betterment and growth of that educational institution. It was further observed that the surplus funds cannot be diverted for any other use or purpose and cannot be used for personal gain or for any other business or enterprise. The apex Court further directed all the State Governments and concerned authorities to set up committee headed by a Hon'ble Retired High Court Judge who shall be nominated by the Hon'ble Chief Justice of the High Court. For the purpose of convenience, we reproduce the direction of the apex Court as reported in pp. 720-722 of Islamic Academy of Education's case (supra). "7. So far as the first question is concerned, in our view the majority judgment is very clear, there can be no fixing of a rigid fee structure by the Government. Each institute must have the freedom to fix its own fee structure taking into consideration the need to generate funds to run the institution and to provide facilities necessary for the benefit of the students. They must also be able to generate surplus which must be used for the betterment and growth of that educational institution. In para 56 of the judgment it has been categorically laid down that the decision on the fees to be charged must necessarily be left to the private educational institutions that do not seek and will be entitled to have its own fee structure. The fee structure for each institute must be fixed keeping in mind the infrastructure and facilities available, the investments made, salaries paid to the teachers and staff, future can be no profiteering and capitation fees cannot be charged. It thus needs to be emphasized that as per the majority judgment imparting of education is essentially charitable in nature. Thus the surplus/profit that can be generated must be only for the benefit/use of that educational institution. Profits/surplus cannot be diverted for any other use or purpose and cannot be used for personal gain or for any other business or enterprise. As, at present, there are statutes/regulations which govern the fixation of fees and as this Court has not yet considered the validity of those statutes/regulations, we direct that in order to give effect to the judgment in TMA Pai case the respective State Governments/concerned authority shall set up, in each State, a committee headed by a retired High Court Judge who shall be nominated by the Chief Justice of that State. The other member, who shall be nominated by the Judge, should be a chartered accountant of repute. A representative of the Medical Council of India (in short 'MCI') or the All India Council for Technical Education (in short 'AICTE'), depending on the type of institution, shall also be a member. The secretary of the State Government in charge of Medical Education or

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Page 28 of 68 Technical Education, as the case may be, shall be a member and secretary of the committee. The committee should be free to nominate/co-opt another independent person of repute, so that the total number of members of the committee shall not exceed five. Each educational institute must place before this committee, well in advance of the academic year, its proposed fee structure. Along with the proposed fee structure all relevant documents and books of account must also be produced before the committee for their scrutiny. The committee shall then decide whether the fees proposed by that institute are justified and are not profiteering or charging capitation fee. The committee will be at liberty to approve the fee structure or to propose some other fee which can be charged by the institute. The fee fixed by the committee shall be binding for a period of three years, at the end of which period the institute would be at liberty to apply for revision. Once fees are fixed by the committee, the institute cannot charge either directly or indirectly any other amount over and above the amount fixed as fees. If any other amount is charged, under any other head or guise e.g., donations, the same would amount to charging of capitation fee. The Governments/appropriate authorities should consider framing appropriate regulations, if not already framed, where under if it is found that an institution is charging capitation fees or profiteering that institution can be appropriately penalized and also face the prospect of losing its - recognition/affiliation. It must be mentioned that during arguments it was pointed out to us that some educational institutions are collecting, in advance, the fees for the entire course i.e., for all the years. It was submitted that this was done because the institute was not sure whether the student would leave the institute midstream. It was submitted that if the student left the course in midstream then for the remaining years the seat would lie vacant and the institute would suffer. In our view an educational institution can only charge prescribed fees for one semester/year. If an institution feels that any particular student may leave in midstream then, at the highest, it may require that student to give a bond/bank guarantee that the balance fees for the whole course would be received by the institute even if the student left in midstream. If any educational institution has collected fees in advance, only the fees of that semester/year can be used by the institution. The balance fees must be kept invested in fixed deposits in a nationalized bank. As and when fees fall due for a semester/year only the fees falling due for that semester/year can be withdrawn by the institution. The rest must continue to remain deposited till such time that they fall due. At the end of the course the interest earned on these deposits must be paid to the student from whom the fees were collected in advance."

6.18 From the above observation of the apex Court, it is obvious that each institute has to collect fees with regard to infrastructure and the benefit of the students of that educational institution. However, that fee has to be fixed by the committee headed by an Hon'ble retired High Court Judge. The committee also after

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Page 29 of 68 considering the information furnished by the respective educational institutions fixed the fees that may be collected by the professional educational institution per semester/year. Therefore, the assessee has to collect the fees that was prescribed by the committee headed by Hon'ble Retired Judge of the High Court. The money that was collected by the assessee either directly or indirectly over and above the amount fixed as fees by the committee has to be treated as collection and charging of capitation fees and the assessee has to face the further consequences in accordance with law including losing of its recognition/affiliation. Moreover, if the assessee feels that any particular student may leave the institution in midstream, then at the best, it may require that student to give a bond/bank guarantee that the balance fees for the whole course would be received by the institute even if the student left in midstream. In case, the assessee collected the fees for entire course in advance, only the fees of that semester/year can be used by the institution. The balance fees must be kept invested in fixed deposits in a nationalized bank. The interest earned on such deposit must be paid to the student from whom the fees was collected in advance. In fact, the entire money was utilized by the persons interested in the society. Therefore, there is a clear case of misuse of funds of the institution, besides, collecting money over and above the fees prescribed for the semester indirectly which amounts to collection of capitation fees as held by the Hon'ble apex Court. Therefore, in our opinion, assessee-society exists not solely for educational purpose, but exists only for profit.

6.19 The apex Court had another occasion to examine the case of an educational institution in P.A. Inamdar vs. State of Maharashtra (2005) 6 SCC 537. The apex Court after considering the judgment in

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Page 30 of 68 the case of TMA Pai Foundation (supra) and Islamic Academy of Education's case (supra), observed as follows, at para 6 page

"6. Education used to be charity or philanthropy in the good old times. Gradually it became an 'occupation'. Some of the judicial dicta go on to hold it as an 'industry'. Whether to receive education is a fundamental right or not has been debated for quite sometime. But it is settled that establishing and administering of an educational institution for imparting knowledge to students is an occupation, protected by art. 19(1)(g) and additionally by art. 26(a), if there is no element of profit generation. As of now, imparting education has come to be a means of livelihood for some professionals and a mission in life for some altruists."

6.20 Therefore, establishing and administering an educational institution for imparting knowledge to students is an occupation, protected by art. 19(1)(g) and art. 26(a) provided there is no element of profit generation. In the case before us, the material found during the course of search operation clearly establishes the existence of element of profit generation.

6.21 At page 605 of 6 SCC, the apex Court further observed as follows :

"139. To set up a reasonable fee structure is also a component of 'the right to establish and administer an institution' within the meaning of art. 30(1) of the Constitution, as per the law declared in Pai Foundation. Every institution is free to devise its own fee structure subject to the limitation that there as can be no profiteering and no capitation fee can be charged directly or indirectly, or in any form (paras 56 to 58 and 161) [answer to Question 5(c) of Pai Foundation are relevant in this regard].

Capitation fee cannot be permitted to be charged and no seat can be permitted to be appropriated by payment of capitation fee. 'Profession' has to be distinguished from 'business' or a mere 'occupation'. While in business, and to a certain extent in occupation, there is a profit motive, profession is primarily a service to society wherein earning is secondary or incidental. A student who gets a professional degree by payment of capitation fee, once qualified as a professional, is likely to aim more at earning rather than serving and that becomes a bane to society. The charging of capitation fee by unaided minority and non-minority institutions, for professional courses is just not permissible. Similarly, profiteering is also not permissible. Despite the legal position, this

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Page 31 of 68 Court cannot shut its eyes to the hard realities of commercialization of education and evil practices being adopted by many institutions to earn large amounts for their private or selfish ends. If capitation fee and profiteering is to be checked, the method of admission has to be regulated so that the admissions are based on merit and transparency and the students are not exploited. It is permissible to regulate admission and fee structure for achieving the purpose just stated."

6.22 In view of the above observation of the apex Court, it is obvious that a private aided or unaided professional institution or any other institution has to collect the fees fixed by the committee, as directed by the apex Court. The committee in the State of Andhra Pradesh has already fixed the fees for the respective colleges. Therefore, any amount received by the assessee over and above fee fixed by the committees has to be classified as capitation fees and the institution shall face the legal consequences. In other words, the assessee exists for profit and not solely for educational purpose.

6.23 Further, in the case of Marimallapa’s Charities, in ITA No.1492 & 1493/Bang/2010 dated 24.6.2016 held as under: “8. We heard rival submissions and perused material on record. The only issue in the present appeal is whether the amount collected by the management of the society over and above the prescribed fees charged by the Government is in the nature of capitation fees or voluntary contribution. It is undisputed fact that the assessee has been collecting amounts over and above the fee prescribed by the Government. The contention of the assessee is that such amount is nothing but voluntary contribution by the donors whereas the AO had categorically given a finding that there was clear nexus between funds collected and admission of students under management quota. This finding could not be controverted by the assessee society either before the lower authorities or before us. In terms of the provisions of Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 any amount collected over and above the prescribed fee is in the nature of capitation fee. The Hon’ble Supreme Court had heavily deprecated the practice of collecting capitation fee from students in the case of Islamic Academy of Education (supra) as follows:

“Collection of capitation fee is contrary to the constitutional scheme and prohibited by State enactment. Moreover, education was used as an apparatus/mode to collect capitation fee. In other words,

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Page 32 of 68 exorbitant money was collected illegally in the guise of running the educational institution. When the assessee used the charitable activity/educational institution as an apparatus for selling the education, in our opinion, the element of charity no longer remains in the activity of the assessee. In other words, when the assessee sells the seat of the professional course and collects capitation fee, the activity of the assessee cannot remain a charitable activity, within the meaning of sec.2(15) of the Income tax Act. Education would remain as a charity only in a case where the education was imparted systematically in a fee prescribed by the Government. In our opinion, it is not intention of the Parliament to recognize any body/society or institution as a charitable institution where ‘education’ was a saleable commodity. In the case on hand, the material found during the course of survey operation clearly established the collection of money over and above the fee prescribed by Government for admission of a student. Therefore, it is a clear case of sale of education by the assessee-society. In our opinions such, the assessee cannot be considered as a charitable institution under section 2(15) of the Income-tax Act. Therefore, the assessee is not eligible for exemption under section 11 of the Income-tax Act.”

In terms of above law, amount collected by the assessee-society is in the nature of capitation fee and it is not a voluntary contribution. Even in terms of the judgment of the Hon’ble Supreme Court in the case of Safdarjung Enclave Educational Society vs. MCD, AIR 1992 (SC 1456) any donation made in order to gain advantage or benefit cannot be called a voluntary contribution. The Hon’ble Supreme Court held as follows:

“Where a person gives money to another without material returns, he donates that sum. An act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation. A gift or gratuitous payment is in simple English a donation. We do not require lexicographic learning or precedential erudition to understand the meaning of what many people do every day, viz., giving donation to some fund or other, or to some person or other.”

Furthermore, assessee-society had not led any evidence on record in support of the proposition that contributions are voluntary and made forming part of corpus of the society. No piece of evidence was produced against the finding of the AO that no record of receipt of donations as to the names and address of the donors and no receipt were issued for donations collected. This finding of the AO remains uncontroverted. Even

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Page 33 of 68 “Income from property held for charitable or religious purposes.

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart27 is not in excess of fifteen per cent of the income from such property; ....................................”

“Income of trusts or institutions from contributions.

Therefore, having held that amount received over and above the prescribed fee by the Government is in the nature of capitation fee which is not voluntary in nature, the income so received is not exempt u/s 11(1)(a) or any of the provisions of the Act in the hands of the receiving trust. In the case-laws relied on by the learned counsel for assessee, the issue before their Lordship was whether development fund collected and utilized for charitable purpose is exempt from tax or not u/s 11(1)(a) of the Act, whereas in the present case, the issue is whether capitation fee collected which is not a voluntary contribution as envisaged under the provisions of sub- section (1) of sec.12 is exempt u/s 11 of the Act. Therefore, the ratio laid down by the jurisdictional High Court in the cases of CMR Janadhara Trust (supra) Bharatiya Samskriti Vidyapith Trust (supra) and the decisions of the co-ordinate bench of Tribunal in the cases of ACIT vs. JSS Mahavidyapeetha in ITA No.735/Bang/2012 dated 19/04/2013. and Sree Adichunchanagiri Shikshana Trust vs. Add.CIT in ITA Nos.1258 & 1259/Bang/2008 dated 31/12/2008 is not applicable to facts of present case. The Hon’ble jurisdictional High Court in the case of Sri Bellimatha Mahasamsthana Socio Cultural and Educational Trust (supra) held that in absence of evidence that donations were received for consideration of allotment of seats in an educational institution, the donations are held to be voluntary contributions which ar exempt under sec.11(1)(a) of the Act whereas in the present case, as we have held that donations are not voluntary contributions, the ratio laid down in that case is also not applicable to the facts of the present case. The decision

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Page 34 of 68 of the Hon’ble jurisdictional High Court in the case of Director of Income-tax vs. Garden City Educational Trust (330 ITR 480) relied on by the CIT(A) for the assessment year 2010- 11 is not at all applicable to the facts of the present case as that case relates to grant of registration u/s 12A of the IT Act. Further, the ld.CIT(A) failed to recognize the distinction between voluntary contribution as envisaged in sec.12 and involuntary contribution like receipt of capitation fees. Thus, the CIT(A) clearly fell in error in allowing the appeal for the assessment year 2010-11 following the decision of the jurisdictional High Court in the cases of Sri Bellimatha Mahasamsthana Socio Cultural and Educational Trust (supra) and Garden City Educational Trust (supra). Further, the co-ordinate bench of Tribunal in ITA Nos.206 & 207/Bang/2014 dated 17/06/2016 in the case of Deputy Director of Income Tax (Exemptions), vs. M/s. Kammavari Sangham (to which one of us viz. Accountant Member is a party) held in identical facts as follows:

“18. From a careful perusal of the orders of the lower authorities and details of receipt of donation/voluntary contribution, we find that these donations/voluntary contributions were received over and above the tuition fees. There is no iota of evidence produced by the assessee to support that these donations were towards the corpus. Had it been a case of donation towards corpus, there should be a specific narration on the donation receipts that this contribution was made towards the corpus. Moreover in Karnataka receipt of donation/capitation fee is strictly prohibited by the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. Through this legislation, the Govt. of Karnataka has prohibited the receipt of capitation fees by defining that “capitation fee” means any amount by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed u/s.5, but does not include the deposit specified under the proviso to Sec.3. Undisputedly, the assessee has received these voluntary contributions/donations over and above the tuition fees. Now the onus is upon the assessee to demonstrate that the voluntary contributions/donations falls within the proviso to section 3 of the Act, but no evidence is placed on record that proviso to section 3 would apply in the case of assessee. Where the definition of “capitation fee” has been given in the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, no other definition of “capitation fee” can be adopted, as the word “capitation fee” has not been defined in the Income-tax Act. The Revenue has also established that donation/voluntary contribution was collected from the parents of the students admitted during the year and more so the parents were not financially sound to part with substantial amount of donation in Lakhs to the educational institution. Therefore, we are of the view that the receipts of the assessee from the parents of students is nothing but capitation fees and once capitation fee is charged for admission of the students by the educational institution, the educational institution can be held that it is not engaged in charitable activities,

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Page 35 of 68 but selling the education in the light of the judgment of the Hon’ble Supreme Court in the case of Ms. Mohini Jain v. State of Karnataka & Ors. (1992) 3 SCC 666 wherein the Hon’ble Supreme Court has held that capitation fees was nothing but price of selling education and such “teaching shops” were contrary to the Constitutional scheme and abhorrent to our Indian culture. We have also carefully examined the judgments referred to by the parties and in the case of P.S. Govindaswamy Naidu & Sons v. ACIT, 324 ITR 44 (Mad), the Hon’ble Madras High Court has held that where it was found that amount paid by parents of students admitted to assessee’s educational institution was not corpus donation amount, but it was collected only by way of capitation fees, such capitation fees was not exempt in the hands of assessee institution. ”

In the result, the appeals filed by the assessee for assessment years 2006-07 and 2007-08 are dismissed and the appeal by the revenue for assessment year 2010-11 is allowed.”

6.24 In view of the above discussion, in the present case, assessee is carrying on educational institutions in commercial manner by collecting the capitation fees with a profit motive and as such the activities of the assessee cannot be considered as charitable in nature and assessee cannot be granted exemption u/s 11 of the Act in this assessment year. This ground of revenue in ITA No.64/Bang/2018 is allowed.

Ground No. 2 - Based on the facts and circumstances of the case, whether Ld. CIT(A) was correct in allowing unexplained receipts/unnamed donation when incriminating documents against the assessee were found and seized and confirmed by the third parties:

DR’s submissions:-

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Page 36 of 68 basis and without any connection to any material seized during the search, which is incorrect. According to the Ld. D.R., once there is collection of anonymous donation, it should be atleast treated as income while computing the income of the assessee, though section 68 of the Act is not applied.

Submissions of the Assessee: . 8. On the date of search, 19.09.2013, the authorized officer extracted the print out containing the ledger extracts of donation account for the period from 01.04.2012 to 31.03.2013. As per this printout, the details are as under;

1 Donation (Income) A/c 3,54,86,072 3,35,73,723 2 Donation received (80G) A/c. 12,91,80,648 3 Donation (Unnamed) A/c. Total 19,82,40,443

8.1 Sri Onkar in his statement recorded u/s. 132(4) of the Act on 19.09.2013, in answers to questions no.10 to 13 confirmed the figures for financial years 2007-08 to 2011-12. For the financial years 2012-13 and 2013-14, he stated that the figures need to be reconciled as the ledger includes fees received, advances received and donations. 8.2 Based on the above ledger extracts, the assessing officer came to a conclusion that for all the years 78% of the total donations received are unnamed donations. 8.3 The statement of Mr. Onkar, the accountant, clearly proves that the figures found in the ledger account needs to be reconciled as it consists of normal fees, advance fees, named donations and unnamed donations. The audit was pending and therefore, the reconciliation and the necessary rectification entries were not passed

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Page 37 of 68 on the date of search. It is submitted that the audited accounts show only a sum of Rs. 1,18,28,607/-. In the financial statements placed at page 227 of PB-2, the above sum of Rs. 1,18,28,607/- is reflected. Hence, the finding of the learned assessing officer that 78% of the donations is anonymous donations is clearly perverse as being contrary to the facts on record. The assessee relied on the following decisions for the proposition that no extrapolation cannot be made based on any defect noticed for a different period. In the case of Sri Devaraj Urs Trust for Backward Classes (Regd) Vs ACIT in ITA Nos. 500 to 506/Bang/2020, the co-ordinate bench of the Tribunal clearly held that no extrapolation can be made. The figures as per the seized materials alone can be considered. 8.4 The assessee relied on the decision of the Hon'ble Karnataka High Court in State of Karnataka Vs N.P. Bharmaiah and Sons 41 VST 498.

8.5 The assessee also relied on the decisions in : • CIT Vs Anand Kumar Deepak Kumar — (Observations at page 697 of PB-3) • Honey Furniture Vs. Commissioner 18 VST 70 (Page 757 of PB-3)

8.6 In respect of AY 2012-13, the learned assessing officer noted that the assessee has received donations from various persons mentioned in paragraph no.2.3 at page 4 of the assessment order for AY 2012-13. The total of such amount was Rs. 37 lakh. During the proceedings before the learned CIT(A) the assessee filed affidavit from the above persons confirming that they have given the donations. The learned CIT(A) directed the assessing officer to verify the affidavits and take a decision accordingly. While giving effect to the appellate order, the learned assessing officer directed the

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Page 38 of 68 assessee to produce the persons who have sworn to the affidavit. Due to the long time gap the assessee was not in a position to contact those persons and produce them before the assessing officer. To put a quietus to the matter and buy peace, the assessee agreed to treat the above sum of Rs. 37 lakh as anonymous donations and be taxed at 30%. He submitted that the consequential order placed at pages 809 to 811 of PB — 4 states that a sum of Rs. 72.5 lakh is treated as anonymous donation and taxed u/s 115BBC as per assessee's letter dated 19.02.2018. It is clear from the letter of the assessee that the sum of Rs. 72.5 lakh includes the above sum of Rs. 37 lakh. Similarly, the assessing officer noted that a sum of Rs. 7 lakh received as donation from Mr. Kandasami is not a donation given by Mr. Kandasami. He referred the observations in paragraph 2.8 at page 8 of the assessment order for AY 2012-13. As stated earlier, the assessee furnished an affidavit form Mr. Kandasami before Ld. CIT(A) confirming the donation and the learned CIT(A) gave the same directions as in the case of donation of Rs. 37 lakh. For similar reasons the sum of Rs. 7 lakh was also taxed u/s 115BBC of the Act in the consequential order. The learned assessing officer gave a finding that the sum of Rs. 21 lakh received as donation from Dr Saraswathi B Patil is not genuine. (He referred observations at paragraph 2.9 at pages 8 to 10 of the assessment order). In this case also finally, the sum of Rs. 21 lakh was treated as anonymous donation. The above sum of Rs. 21 lakh is included in Rs. 72.5 lakhs.

8.7 In paragraph 2.7 at page 8 of the assessment order for AY 2012-13, the learned assessing officer came to a conclusion that a sum of Rs. 7.5 lakh only was received from Jayaseelan and not Rs. 15 lakh as accounted by the assessee. This amount was also finally assessed as anonymous donation and tax was levied u/s 115BBC of

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Page 39 of 68 the Act. The details of Rs. 72.5 lakh is taxed u/s 115BBC of the Act in the consequential order which are as under:- i. Parties mentioned in paragraph 2.3 of Rs.37,00,000 the assessment order ii. Shri Kandasami Para 2.8 of the Rs.7,00,000 assessment order iii. Smt. Saraswathi Para 2.9 of the Rs.21,00,000 assessment order iv. Shri Jayaseelan Para 2.7 of the Rs.7,50,000 assessment order Total Rs.72,50,000

8.8 Therefore, apart from the above sum of 72.5 lakh there is no extra anonymous donation received by the assessee. Hence, the Ld. A.R. requested that this ground of the department may be dismissed.

8.9 The fact that the trust fabricates donation receipts has also been confirmed after enquires made by the investigation wing with the alleged donors mentioned in the donation receipts. For instance, summons were issued to various people mentioned as donors in Donation Receipt Book No. 97 (seized on 17.10.2013 vide no. A-1/BVVS/97 of 2011-12 ). Several donors mentioned therein like Vishal Shetty, Santosh Shetty, Sachin Shetty, Ashok Shetty, Mahesh Shetty, Kamlakar Shetty, Sharanappashetty, Basavaraj Shetty, Ramesh Shetty, Sidaramappa Shetty and Suresh Shetty stated that signatures appearing on the donation receipts bearing their names are not their signatures. They denied having signed any donation receipts/donation letters.

Donation Amount of receipt donation as per Date of number receipt Name of the donor donation Vishal Mallikarjun Shetty 19.07.2011 400000 9639,, 9643 ' Santosh R. Shetty 25.07.2011 300000 9644 SachinSidramappa Shetty 25.07.2011 300000

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Page 40 of 68 9645 Ashok Repvappa Shetty 25.07.2011 200000 9646 Mahesh Mallikarjun Shetty 25.07.2011 300000 9647 KamlakarRevappa Shetty 25.07.2011 300000 9648 SharanappaRatnakar Shetty 25.07.2011 400000 9649 BasavarjaRevappa Shetty 25.07.2011 300000 9650 . Ramesh Revappa Shetty 25.07.2011 300000 9651 25.07.2011 500000 SidramappaRevappa Shetty 9653 Suresh Revappa Shetty 400000 30.07.2011 8.10 Further, in response to enquiry letters, many persons whose names appear in the donation receipts like- Sh. Jetappa Pujari, S.B.Patil, Akshaya Kulkarni, Hajimalang Chapparaband, K.K.Nagaraju, T.Suryakanth, Ashok Naik, Mahesh Kore, B.Laxman and S. Kandasami categorically denied having donated any amount to BW Sangha.

Donation book and receipt Amount of Name of the person number donation Date of receipt Jeteppa Pujari 6387 (64 of F.Y-12-13) Undated 75,000 S.B. Patil 6217 (63 of F.Y-12-13) Undated 1,00,000 Akhsya M. Kulkarni 8204 (83 of F.Y-12-13) Undated 2,00,000 Hajirnalang D. 8260 (83 of F.Y-12-13) Undated 50,000 Chapparaband K.K. Nagaraju 8262 (83 of F.Y-12-13) Undated 2,50,000 T. Su ryakanth C/o 5905 (60 of F.Y-1314) 31.05.2013 30000 K.S.Kalal Ashok Naik 5906(60 of F.Y-13-14) 31.05.2013 20,000 5910(60 of F.Y-13-14) 31.05.2013 30,000 Mahesh S. Kore B. Laxman 8776(88 of F.Y-13-14) 11.06.2013 20,000 S. Kandasami 9925(100 of F.Y-11-12) 24.02.2012 7,00,000

8.11 The above denials clearly establishes the fact that most of the alleged donations that the trust claims to be " Named Donations" are actually not donations at all and further the source for the cash receipt is unexplained by the assessee. The trust by fabricating the so called donation receipts tries to conceal the fact that it has accepted huge unexplained receipts.

8.12 In one instance, summons was issued to the donor, Shri Chanabasayya R. Oni, Navanagar, Bagalkot, whose name appears on

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Page 41 of 68 undated receipt No.8206 for Rs.1,00,000/-. On the cover of this book the year '12-13'and 'CO.' are written ('CO. 'means Central Office). All the receipts in this book are undated and the donors' copies of the receipts are also available in the books. The total of this book is Rs.2,27,20,000/-. Shri Chanabasayya R. Oni has replied to the summons vide his letter dated 14.10.2013 confirming that he has made a donation of Rs.1,00,000/- and has enclosed a copy of the receipt which was issued to him. The receipt is dated 19.10.2012 and is a receipt eligible for deduction u/s.80G whereas aforesaid receipt on the basis of which summons was issued to him is a regular 'Named donation receipt not eligible for deduction u/s.80G. This means that though there are two different receipts of Rs.1,00,000/- each in the name of the same donor, the donor has informed that he has paid only Rs.1,00,000/- The only explanation for this discrepancy is that the amount of Rs.1,00,000/- is actually a receipt which stands unexplained by the assessee. BVVS has utilised the name and address of a person who has made a donation eligible for deduction u/s.80G to fabricate the undated receipt no.8206 and to not declare the same u/s 115 BBC. Scanned copies of both the receipts are reproduced as under:-

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Page 42 of 68

8.13 Summons was issued to Sh. R. Jeyaseelan, Salem, whose name appears on two receipts, no.9928 dated 27.02.2012 and 9964 in the same book but undated. Both the receipts are for Rs.7,50,000/-, i.e. total Rs.15,00,000/-. Shri Jeyaseelan replied by fax on 13.11.2013 informing that he has paid only Rs.7,50,000/-. Incidentally, both the receipts bear his signature. This proves that BVVS takes signatures on blank receipts and the same are used for introducing the cash receipts as 'Named' donations. 8.14 The reply from one S. Kandasami of Thanjavur, Tamil Nadu, exposes the entire modus operandi of the Trust His name appears on receipt no.9925 dated 24.02.2012 for Rs.7,00,000/-. Shri Kandasami has informed vide letter dated 13.11.2013 that he has not donated any amount to B'VVS. He has stated that he had accompanied his neighbours to BVVS when they had gone to Bagalkot for their daughter's admission to the Medical College and had given his name. However, the signature on the said donation

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Page 43 of 68 receipt appears to be his own. This proves that signatures are obtained by BVVS on blank receipts even from random persons who have any bare minimum interaction with BVVS. The aforesaid Shri S.,Kandasami had accompanied Ms. P. Kaviyarasi and her parents Shri K. Pandi and Mrs. P. Murugeswari for her admission to SNMedical College (a medical college run by the Trust ), Bagalkot. Undated letter from P. Murugeswari received by 0/o ADIT(Inv), Belgaum on 27.11.2013 further reinforces the stand of S. Kandasami. P. Murugeswari has stated 'Our neighbour S. Kandasamy was also received the summon from your office in this regard. He is just our neighbour only. He was accompanied with us during that time. Best of my knowledge, he never donate any amount to BWS. He is also already submit the fact to your office separately. He (S. Kandasami) no way connected to this donation."

8.15 Donation Receipt No.9923 dated 22.02.2012 for Rs.7,00,000/- has been made in the name of K. Pandi and Receipt No.9924 dated 24.02.2012 for Rs.7,00,000/- has been in the name of P. Murugeswary. Vide undated letter received on 27.11.2013, P. Murugeswary has informed that she had donated Rs.17 lakhs in cash on 28.09.2011. It may be noted that neither the amounts nor the date matches between what the donor has stated and what is found. The details of total amount 'negotiated with this student are noted on page 12 of seized notebook A/BVVS/152 wherein it is mentioned that the total amount to be paid is Rs.22.50 lakhs in yearly instalments of Rs.4.50 lakhs for 5 years. Details of money actually paid are mentioned on the opposite page where it is noted that on 28.09.2011 this student has paid Rs.17 lakhs in cash and Rs.4.50 lakhs is paid by DD. So far the payments as informed by the mother P. Murugeswary and what is noted in the notebook match.

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Page 44 of 68 8.16 Summons was issued to Dr. Saraswati B Patil, Bagalkot. Her name appears in the following donation receipts: Mode of payment Date Amount Receipt No. 8,00,000 Cash 09.07.2011 9634 09.07.2011 5,00,000 Cash 9635 5,00,000 Cash 16.07.2011 9636 06.07.2011 3,00,000 Cash 9637 Total 21,00,000

8.17 In response to the summons, Dr. Saraswati B Patil initially sent a letter dated 07.11.2013 by post informing that I would like to mention here that Sri Basaveshwar Vidyavardhak Sangh, Bagalkot, is imparting education and I am impressed with the work done by this institution. I have made donation from time to time in the past. I am not remembering the date of payment and also not able to locate the receipts issued by the above institution.'

8.18 Since the letter contained no information, Dr. S.B. Patil was personally summoned and her statement was recorded. The statement is worth reproducing: "Q2. Please give details of donations paid by you to BVVS Bagalkot in the FY 2011-12. A2. During FY 2011-12 I have paid donation of Rs.5 lakhs to BWS by cheque No.238538 dated 1711.2011 drawn from my SB account number 52008655839 SBH University Branch, Gulbarga. Q3. Please confirm whether this is the only instance of payment of donation to BWS by you during FY 2011-12. A3. I confirm this is the only instance of payment of donation to BWS by me during FY 2011-12. Other than this I have not paid any other donation to BVVS during FY 2011-12. Q4. Please furnish donation receipt for having paid Rs.5 lakhs. A4. I was issued the receipt but the same has been misplaced. Q5. In connection with payment of donation have you signed on any documents?

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Page 45 of 68 A5. I don't remember whether I had signed on any documents or receipts. Since 1 had paid the donation amount by cheque I did not pay attention to this. Q6. What was the intention behind donating Rsi5 lakhs to EMS? A6. Since it is our organisation and since they gave admission to my son to MDS with an intention to help the organisation develop I paid the donation of Rs.5 lakhs. Q7 I am showing you a donation receipt book No.97 belong to BWS. The said book was seized during the course of search and seizure action u/s.132 of the Income Tax Act 1961 on 17/10/2013 and marked as A-1/BWS/97 Please go through the receipt numbers 9634 dated 9.72011, 9635 dated 9.72011, 9636 dated 16.72011 and 9637 dated 6.72011 of the said donation receipt book As per these you have paid donations of Rs.8 lakhs, Rs.5 lakhs, Rs.5 lakhs and Rs.3 lakhs on the respect dates mentioned on the respective receipts. Please go through them and confirm the contents of the said receipts. A7. I have gone through the said receipts. They mention my name. I now remember that I had signed some receipts as told by Sri Onkar in Accounts Section of BWS Central Office. I do not remember that the amounts were written when I signed (emphasis supplied) Q8. Have you paid the amounts of donation mentioned in the receipts referred above? No. I have not paid (emphasis supplied)" A8. The statement is self-explanatory. It is sufficiently proved that BVVS has introduced cash receipts from unknown sources as alleged 'Named donations by obtaining signatures of unwitting persons on blank receipt books.

8.19 Figures pertaining to the number of cases in which summons were issued, summons returned unserved, replies received, replies in which dates, amounts, signatures, do not match, etc. are tabulated below:

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Page 46 of 68 S.No. Particulars Number Summons issued 1. 297 2. Persons not replied 81 3. Returned unserved 23 4. Returned unserved with remarks " No such address" 6 5. Returned unserved with remarks " Not known" 9 6. Returned unserved with remarks " Not Claimed" 1 7. Persons sought extension 14 8. No. of person denied having given donation 10 9. No. of persons agreed having given donation and date & 8 amount of donation match with seized material 74 10. No. of persons agreed having given donation but date & amount of donation do no match with seized material 11. 72 No. of persons agreed having given donation but donation receipts in the selvd material are undated 12. No. of the persons whose signatures do not match with the 68 signatures of donors on donation receipts

8.20 Thus, not only the signatures, amounts and names have been fabricated in the donation receipts, several other discrepancies with regard donation receipts came to light during post search investigation like :

a) Some 80G donations have been accounted both as 80 G donations and non-80G named donations. That is names of 80G donors have been used to fabricate non-80G named donation receipts. b) In some cases, the trust has taken signatures of regular donors on blank donation receipts and later used these receipts to put multiple amounts on these fabricated receipts. That is, using signed blank donation receipts, the trust has shown much higher amounts of donations received from persons than actually donated by those persons.

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Page 47 of 68 c) Enquiries in some cases revealed that though the persons had donated some amounts to the trust, the signatures and the amounts on the donation receipts were forged . This was confirmed by the persons concerned. d) In several cases, letters could not be served upon the donors as the addresses on the donation receipts were not genuine. e) Further, a reference was made by ADIT(Inv), Belgaum to the Govt. Examiner of Questioned documents (GEQD), Central Forensic Science Laboratory, Hyderabad. 53 seized donation receipt books were sent to GEQD, CFSL, Hyderabad for opinion as to whether the signatures of the donors were made by the same person. As per the report of GEQD, CFSL, Hyderabad, most of the receipt book pages have been signed by one person 'only, thereby confirming the charge that the trust has been preparing forged donation receipts and thus claiming the cash receipts from unknown sources as named donations.

8.21 Thus, on the basis of enquiries and analysis of the alleged donation receipts for the period 01.04.2011 till 19.09.2013 (date of the search), it is clear that the trust fabricates the so called '`donation receipts and thus a large amount of named donations received by the trust are actually cash receipts for which the assessee could not establish the identity, creditworthiness and genuineness of the receipts, hence becomes the unexplained receipts in the hands of the assessee. 8.22 Unnamed donations (fabricated donations) as per books of accounts :

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Page 48 of 68 During the search action u/s 132(4), from the books of accounts maintained at the office of the trust in Tally, the following amounts unnamed donations were detected :

% OF F.Y AN NAMED UNNAMED % OF 80G TOTAL TOTAL DONA- DONATIONS . TOTAL DONATIONS DONATIONS DONA- TIONS DONATION , TIO NS S 77% 12-13 13- Rs. 21% Rs. Rs. Rs. 14 3,54,86,067 33,57,372 16,80,24,087 12,91,80,648 13-14 14- Rs. 21% Rs. 79% Rs. 50,000 Rs. 15 2,03,45,781 9,83,04,844 7,79,09,063

8.23 relevant scanned copies of the Tally ledgers are reproduced as under:-

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Page 49 of 68 8.24 Thus, it is clear from the data found during search at the office of the trust that actually the percentage of the unnamed donations is between 77% to 79% out of the total donations i.e about 78% and it vindicates the findings discussed above that most of the anonymous donations (unnamed donations) are represented in the books as named donations by generating bogus donation receipts. For the A.Y- 08-09 to 12-13 as per returns filed, the trust by generating bogus receipts, shows unnamed donations as just 6% to 10% of the total donations received.

8.25 Further, as discussed above, the trust had fabricated receipts as mentioned in loose sheets-page no. 45 to 55 to match cash receipts mentioned in the note book A/BVVS/146. This can be summarized as:

Rs. 8,52,07,160 Total of donation receipt books of F.Y- 2013-14 Total of fabricated donation receipt books Rs. 7,02,60,700 as evidenced by loose papers 45 to 55 in folder A/BVVS/155 , Fabricated donation receipts as a percentage 82% of total donations

8.26 Thus, clearly the conclusion drawn on the basis of data found at the office of the trust that the unnamed donations were about 78% of the total donations is also supported by the above analysis. Hence, in the light of the fact that the so called alleged named donation receipts are fabricated ones by the assessee itself which are self-serving and not the material for proving the identity and genuineness of the actual donors as it cannot be accepted as an evidence by any stretch of imagination having proved by the GEQD, CFSL, Hyderabad as they all are fabricated. Hence based on the materials available on record it would be appropriate to treat 78% of the total donations for A.Y- 08-09,09-10, 10-11, 11-12, 12-13, 13-14 and 14-15 as

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Page 50 of 68 unexplained receipts as per the provisions of the Income Tax Act, 1961. Thus, the amounts for the respecti.ve assessment years to be treated as unexplained receipts and to be brought to tax as under:

A.Y TOTAL DONATIONS UNNAMED UNNAMED Difference DONATIONS DONATIONS amount to be AT 78% OF DECLARED taxed as THE TOTAL unexplained DONATIONS receipts 08-09 Rs. 8,03,52,204 Rs. 6,26,74,719 Rs. 47,11,862 Rs. 5,79,62,857 09-10 Rs. 7,62,06,133 Rs. 5,94,40,784 Rs. 75,49,953 Rs. 5,18,90,831 10-11 Rs. 8,80,73,620 Rs. 6,86,97,424 Rs. 87,25,410 Rs. 5,99,72,014 11-12 Rs. 9,75,91,120 Rs. 7,61,21,074 Rs. 1,01,56,798 Rs. 6,59,64,276 12-13 Rs. 16,52,15,912 Rs. 12,88,68,411 Rs. 1,18,28,607 Rs. 11,70,39,804 13-14 Rs. 13,10,58,788 Rs.60,32,248 Rs.12,50,26,540 Rs. 16,80,24,087 (as per Tally accounts seized) Rs. 17,03,53,960 Rs. 13,28,76,088 Rs. 11,82,53,508 14-15 Rs. 1,46,22,580 (as per return of income )

8.27 The assessee was confronted with the above findings vide letter dated- 26.10.2015, in response to which the assessee vide letter dated- 27.11.2015 stated as follows:

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Page 51 of 68 Particulars Amount Fees 4,67,50,000/- (Named - General) Donations 11,18,79,467/- u/s 80G Donations 33,57,372/- Donations (Unnamed) 60,37,248/- Total 16,80,24,087/-

...... Kindly note that earlier year accounts of the Assessment Year 2008 2009 to 2012 - 2013 were audited by Chartered Accountant and few years cases are subjected to the scrutiny by the Income Tax Authorities and they have not observed any discrepancies in the Named and Unnamed Donations as declared by the assessee. Therefore classifying the named donations as unnamed donations without any basis and evidences are uncalled for and unwarranted ....... 1. The Investigation Officer on the date of search i.e. 19/09/2013, (as per the unaudited Books of account) noted down the following figures: Finan- Assessment Donation — Donation Donation Total cial Year General u/s Unnamed (Rs.) Year (Named) 80G (Hundi (Rs.) Collection) (Rs.) (Rs.)

12,91,80,648 16,80,24,087 2012 -2013 2013 -2014 3,54,86,067 33,57,372

The assessee made the submissions vide letter dated 11/11/2013 before the Assistant Director of Income Tax (Inv.) explaining the facts that this unaudited figures are a mixture of fees, named donations, Hundi Collections and also submitted the details...,,,

8.28 The assessee's submissions are considered and the claim that the unnamed donations for F.Y-2012-13 is only Rs. 60,37,248/- is rejected. As already discussed, that the assessee fabricates donation receipts. The claim of assessee with regard to unnamed donations is not at all reliable. On the date of the search, on 19.09.2013, accounts of the trust in Tally maintained at its office was seized. As per the Tally accounts only, the unnamed donation for F.Y- 2012-13 was found to be Rs. 12,91,80,648/- out of the total donations ofRs.16,80,24,087/-. The assessee's claim that total

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Page 52 of 68 donations- Rs.16,80,24,087/- includes fees, named donations is an afterthought only. The Tally accounts were seized on 19.09.2013 i.e. six months after the end of F.Y- 2012-13 and therefore it is beyond doubt that the figures are genuine. Most importantly, receipt books for the period 01.04.2011 to 31.03.2013 which were seized by the investigation wing were subjected to verification by the ADIT (Inv.) and also with GEQD, CFSL, Hyderabad during post search investigation and as per the findings of the department and also as per the report from GEQD, the alleged donation receipt books were found to be fabricated to a large extent. When the same was confronted with the assessee no explanation could be furnished for disproving the same. Similarly, the amount of unnamed donation of Rs. 7,79,09,063 for the F.Y- 2013-14 was also taken from the Tally accounts maintained at the office of the Trust and is therefore genuine. The figures of unnamed donations or receipts in the hands of the Trust for which the source is not proved is liable to be taxed. The figures of unnamed donations amounting to Rs.12,91,80,648/- and Rs. 7,79,09,063/- for F.Y- 2012-13 and 2013-14 are vindicated on the basis of post search investigations which have been discussed above which prove that a large amount of donation receipts were fabricated by the assessee.

8.29 Reliance is further placed on the judgement of Hon'ble ITAT Agra in the case of Shri Girraj Educational and Welfare Society. An identical issue came up before the ITAT Agra in the case of Shri Girraj Educational and Welfare Society [27taxmann89(2012)]. In this case the assessee Society, which was running school/institution for imparting education, had shown voluntary contributions received from 2,700 donors amounting to Rs.68.99 lakhs. It was claimed before the Assessing Officer that the said donation was received as Corpus Fund for the purpose of construction of the

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Page 53 of 68 Society building, but no confirmation of such corpus donation had been filed. A sample survey was done by issuing letters to some donors. Some of the donors had stated that they had not given any donations and-in some cases the donors could not be traced. Based on the result of the sample survey and in the absence of an alternative, the result of the sample survey was extrapolated to the whole amount of donation received and a percentage of the donations claimed by the Society was brought.to tax u/s.115BBC. The 1TAT Agra has confirmed the addition and has stated as follows:-

“Merely filing list of donors containing names and addresses/incomplete addresses does not satisfy the conditions laid down in Sec.115BBC(3) of the Act. The sub-section (3) of section 115BBC has explained the meaning of anonymous donation clearly that such institution is required to maintain records of identity indicating the names and addresses of the persons making the donations or contributions. On a perusal of records, we do not find that the assessee has maintained such records of identity indicating names and addresses of the donors. After sample examination carried out by the Revenue Authorities, it was found that in some cases the assessee has proved identity indicating the names and addresses of the donors. Therefore, to that extent, it can be said that there was no anonymous donation. The burden is on the assessee to explain that the assessee has maintained records of identity indicting names and addresses of the persons of such contribution or donation. Since the assessee has failed to maintain such records, under the circumstances, it is clearly a case covered by anonymous donation. On account of failure of the assessee and in the absence of other alternative calculation or determination of amount of anonymous donation, we agree with the CIT(A) estimating such anonymous donation on the basis of sample examination. Such exercise is not unjust because inspite of the fact that the assessee did not maintain the records as required under clause (3) of section 115BBC, the benefit has been allowed by the CIT(A) on the basis of sample examination of the total donation."

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Page 54 of 68 8.30 Though the above cited case law is with regard to section 115BBC, the facts are identical with the instant case. Huge amounts received (mostly in cash) and accounted as named donations are hereby treated as unexplained receipts (instead of anonymous donation u/s 115BBC) in the hands of the assessee as the claim of exemption u/s 11(1) has been denied and the assessee Trust has been treated as an AOP for tax purposes as explained in para no. 3 and the sub-paras of the assessment order. And the amounts are hereby added to the various assessment years as under:

Difference UNNAMED UNNAMED TOTAL DONATIONS A.Y amount to be DONATIONS DONATIONS 'taxed as AT 78% OF DECLARED unexplained THE TOTAL receipts DONATIONS Rs. 5,79,62,857 Rs. 6,26,74,719 Rs. 47,11,862 08-09 Rs. 8,03,52,204 Rs. 5,94,40,784 Rs. 75,49,953 Rs. 5,18,90,831 09-10 Rs. 7,62,06,133 Rs. 6,86,97,424 Rs. 87,25,410 Rs. 5,99,72,014 10-11 Rs.8,80,73,620 Rs. 7,61,21,074 Rs. 1,01,56,798 Rs. 6,59,64,276 11-12 Rs. 9,75,91,120 Rs. 12,88,68,411 Rs. 1,18,28,607 Rs11,70,39,804 12-13 Rs. 16,52,15,912 Rs. 16,80,24,087 (as Rs. 13,10,58,788 Rs.60,32,348 Rs.12,50,26,540 13-14 per Tally accounts seized) Rs. 13,28,76,088 Rs. 1,46,22,580 Rs. 11,82,53,508 Rs. 17,03,53,960 (as 14-15 per return of income )

8.31 Thus, the AO brought to tax the unexplained receipts Rs.11,70,39,804/- students advance fees as unexplained at Rs.11,21,04,014/-. Undisclosed capitation fees at Rs.6,83,38,000/- totalling Rs.38,98,33,342/-. Similar case in other assessment years before us. Against this revenue is in appeal before us.

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Page 55 of 68 Findings:-

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Page 56 of 68 the Act cannot be denied. However, we have observed that the assessee is not a charitable Trust in terms of section 2(15) of the Act and assessee is not entitled for exemption u/s 11 of the Act. The Order of the Tribunal relied by Ld. A.R. in the case of Sri Devaraj Urs Trust for Backward Classes (Regd) Vs ACIT in ITA Nos. 500 to 506/Bang/2020 cannot be applied to the facts of the present case, which was delivered on its own set of facts and each case takes colour from its facts and not otherwise. Being so, the said anonymous donations to be treated as income while computing the income of the assessee to the extent of unproved in case of donations where the identity of the donors has not been proved and section 115 BBC of the Act to be applied. Accordingly, the unproved donations to be considered as income of assessee and no extrapolation to be made. 9.1 This ground of revenue is allowed.

ITA Nos.65 & 66/Bang/2018:-

ITA Nos.235/Bang/2018 for the AY 2012-13:-

ITA Nos.2775, 2776 & 2777/Bang/2017 ITA Nos.64, 65 & 66/Bang/2018 & ITA Nos.235 & 236/Bang/2018

Page 57 of 68 substantive basis in the case of Shri Basaveshwar Veerashaiva Vidyavardhak Sangha, wherein we have confirmed the collection of capitation fees and also denied exemption u/s 11 of the Act. Being so, this protective assessment cannot stand on its own legs. Accordingly, this appeal filed by the revenue is dismissed.

ITA Nos.236/Bang/2018 for the AY 2013-14:-

ITA No.2776/Bang/2017:=-

ITA Nos.2775, 2776 & 2777/Bang/2017 ITA Nos.64, 65 & 66/Bang/2018 & ITA Nos.235 & 236/Bang/2018

Page 58 of 68 14.1 During the search of the premises of Mr. Onkar, the accountant of the appellant, certain loose papers marked as A- 1/AS004.3 was seized. These seized materials are placed at page 518 to 523 of the PB-2. These seized materials show that on a plain paper the parties have stated that they have received some amount. The details are as under: Name Amount — Rs. Page No. Shri Neeraj 20 lakh 519 Mr. Rajan 12.5 lakh 520 Nagaraj 10 lakh 521 Shri Reddy 17 lakh 533 Anurag 5 lakh 523 Ashok 4 lakh 524

14.2 From the seized records it may be seen that in some cases the signature is not of the person to whom the payment has been made. It has been signed by somebody else. Mr. Onkar in his statement stated that the above sum represents return of the fees received from students. The learned assessing officer discusses this issue in paragraph 6.1 pages 50 and 51 of the assessment order. After referring to the answer of Mr. Onkar the learned assessing officer jumps to a conclusion that the above payments are paid to agents who procure MBBS students for the medical college. He comes to this conclusion on the basis that in some of these loose papers refers to MBBS seats. These persons are not students and therefore, they are commission agents and the amount paid to them is commission. Such commission is unexplained expenditure and is liable to be taxed u/s 69C of the Act. The appellant submits that the actual finding of the assessing officer that there is a reference to MBBS seats in these loose sheets is incorrect. Except in page 520 of PB-2, there is no reference to any MBBS seat. Merely based on these loose sheets the learned assessing officer comes to a conclusion that these

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Page 59 of 68 persons are commission agents. There is no material whatsoever before the assessing officer to come to this above conclusion. The conclusion of the assessing officer is perverse for the following reasons: i. None of the persons whose names have been mentioned have been examined. The appellant relies on the following decisions for the above proposition:

a. PCIT Vs Best Infrastructure (India) (P) Ltd 397 ITR 82 (Page No. 1263 of PB-6) b. CIT Vs Harjeev Aggarwal 70 Taxmann.com 95 (Page No. 1278 and 1279 of PB-6) c. Sri Devaraj Urs Educational Trust for Backward Classes (Regd) v. ACIT ITA Nos. 500 to 506/Bang/2018 (Para 188 at page 104 of ITAT order) ii. The seized documents are not in the letter head of the appellant nor these documents mention the amount has been received from the appellant. It is very clear from the seized materials that there is an acknowledgement for receiving certain sum. They do not state from whom it was received. Therefore, these documents cannot be relied. iii. The seized materials are a dumb document and they do not contain the signature of the trustees of the appellant or even employees of the appellant. Hence, they cannot be relied. The appellant relies on the following decisions:

a. Common Cause (A Registered Society) Vs UOI 394 ITR 220 b. ACIT Vs Layers Export P Ltd 53 ITR(Trib) 416 (Page No. 1332 of PB-6) iv. The materials were not seized from the office premises of the appellant. Hence, they cannot be relied on. The department must bring on record irrefutable proof that these materials relate to the appellant. S. 132(4A) of the Act states as under:

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Page 60 of 68 (4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may' reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. 14.3 It is clear from the above, there is a e presumption that any books of account, documents etc found in the possession or control of any person in the course of search that they belong to such person. It is an undisputed fact that the materials were seized from the premises of Mr. Onkar. It is to be noted that the presumption u/s 132(4A) is also available u/s 292C for the purpose of making assessment. Therefore, the presumption is that the material belongs to Mr. Onkar from whose possession they were seized. If the department wants to rebut this presumption it has to bring materials and acceptable evidence on record. The department has failed to do so. As stated earlier, the learned assessing officer merely states it as an ipsi-dixit that the sum of Rs. 68.5 lakh represents

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Page 61 of 68 commission paid which has not been accounted. This is contrary to S. 132(4A) and general principles of assessment.

14.4 The income of the appellant is to be computed u/s 11 of the Act. S.11 states that subject to provisions of S. 60 to 63, the income of a charitable trust/institution, shall not be included in the total income of the previous year of the person in receipt of the income. CBDT in Circular No. 5-P(XX-6) dated 19.6.1968 has clarified that the income referred to in S. 11 has to be computed on normal commercial principles and not under the provisions of the Act. S. 2(45) of the Act which defines total income states that the total income means the total income referred to in S.5, computed in the manner laid down in this Act. S.14 of the Act states that the total income of an assessee shall be computed under various heads mentioned therein. Chapter INT::V and VI of the Act deals with computation of income under various heads, inclusion of income of some other persons in assessee's total income and aggregation of income and set-off or carry forward of loss. Now it is well settled that income u/s 11 has to be computed under normal commercial principles and not in accordance with the provisions of the Act. Therefore, Chapter IV, V, VI will not apply while computing the income referred to in S. 11. S. 69C is placed at Chapter VI. Hence, the provisions of S. 69C cannot be invoked while computing the income u/s 11 of the Act.

14.5 Even assuming but without admitting that the sum of Rs. 68.5 lakh was the commission paid by the trust to various agents, the same has to be allowed as a deduction while computing the income u /s 11 of the Act. In view of the above facts the Ld. A.R. requested us that the appeal may be allowed.

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Page 62 of 68 D.R’s Submissions:- 15. the Ld. D.R. submitted that during the search in the case of Shri A.S. Onkar, Accountant of BVV Sangha, a note book No.A- 1/ASO/4 was seized. As per the contents of this notebook, which are in the handwriting of Sh. Onkar, some payments have been made to various persons. The notings indicate that these payments are nothing but payments made to agents for procuring students for S.N. Medical college. The note book contains 6 written pages. The relevant notings are:- Date Amount Narration Page no. 27 21.11.12 Paid to Anurag N 5,00,000 2 ……… Paid to Ashok Bagmar 4,00,000 35 28.08.12 Paid to Shri Niraj 20,00,000 33 11.10.12 Paid Rajesh towards Paransaddeep MBBS 12,50,000 31 30. 08.1.43 Paid to Nagaraj 10,00,000 . 29 Paid to Shri Reddy Davangeri# 10,00,000 10.09.12 29 --------- Paid to Shri Reddy Davangeri# 7,00,000 Total 68,50,000

# on the page opposite to page 29 the following words are written in the handwriting of Sh. A.S.Onkar- "Davangeri MBBS two seats 8.50 x 2 = 17.00".

15.1 When Sh. Onkar was asked to explain the notings, he said that the entries pertain to refund of advance amounts received for admission to MBBS for the academic year 2012- 13. However, he failed to produce any proof related to the receipt of the advances. Also, the names above are not of MBBS students. However, the reference to MBBS seats indicates that these are payments made to agents for procuring MBBS students for S.N.Medical College. These payments are indeed

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Page 63 of 68 related to BVV Sangha and are in the nature of unexplained expenditure. Therefore, the above mentioned amount of Rs. 68,50,000/- are hereby treated as unexplained expenditure u/s 69C and brought to tax for A.Y- 13-14. Further considering the assessee, a charitable trust claiming exemption u/s 11 of the Act. the unexplained expenditure impliedly also stands to be utilized for the purposes other than the charitable purposes as per the objectives of the trust which is against the provisions of section 11(1) of the Act.

Findings:-

16.1 The evidence unearthed during the search action itself shows the various incriminating transactions carried out by the assessee and same is the basis for addition and addition cannot be deleted on the reason that there is no evidence. The contention of the Ld. D.R.

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Page 64 of 68 is that section 292C of the Act creates a deeming presumption that any books of account, other documents, money, bullion, jewellery or other value articles or things are found in the possession and control of any person in the course of search action u/s. 132 or survey u/s. 133A of the Act as it may be, it should be presumed that it is belonging to the concerned assessee and it is the duty of assessee to explain that it is not belonging to the assessee. In the present case, the assessee failed to explain the contents of seized material found in the search action in its case and Ld. A.R. submitted that it represents the refund made to the students. However, this plea found to be false as the name mentioned therein the loose slips which are not names of students of MBBS. In our opinion, the assessee not able to controvert the seized material found during the course of search action. More so, the assessee accepted the seized material only making the plea that it does not represent the commission payment to the persons who procured the MBBS students for admission. On the other hand, it was the plea of the Ld. A.R. that it shows the refund of amount to the MBBS students. However, the assessee not able to give the names & addresses of the persons to whom it was refunded after accepting the seized material. The assessee hiding the true facts mentioned in the seized material. The onus to prove that apparent, is not the real one, is on the party who claims it be so, as held by the Hon’ble Supreme Court in the case of CIT Vs. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) and CIT Vs. V. Durga Prasad More (1971) 82 ITR 540 (SC). In the case of CIT V. Durga Prasad More (supra), it has been held by the Apex Court that though an apparent statement must be considered real, until it was shown that there were reasons to believe that apparent was not the real, in a case where an authority relied on self serving recitals in documents. It was for the party to establish the proof of those recitals; the taxing authorities were entitled to look into the

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Page 65 of 68 surrounding circumstances to find out reality of such recitals. It is also a settled legal proposition, if no evidence is given by the party on whom the burden is cast, the issue must be found against him. In this case, the onus lies on the assessee, to prove the transaction mentioned in the impugned document and the assessee has failed to discharge such onus cast on it. The Hon’ble Supreme Court in the case of Chuhar Mal V. CIT (1988) 172 ITR 250, highlighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle, since the AO is not fettered, by technical rules of evidence, as held by the Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills V. CIT (1974) 26 ITR 775. The Hon’ble Supreme Court in the case of Chuhar Mal cited (supra) held that what was meant by saying that Evidence Act did not apply to the proceedings under the I.T. Act was that the rigors of Rules of evidence, contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of Evidence Act, in proceedings before them, they were prevented from doing so. In Income Tax proceedings, strict rule of evidence is not applicable as rightly pointed out by the ld. DR. Being so, in our opinion, the contents recorded in the impugned seized material to be considered as true and the addition to be sustained to the extent of transaction mentioned therein. Accordingly, this ground of assessee is dismissed. 16.2 In view of the above, this ground of appeal of the assessee is dismissed. In the result, ITA No.2776/Bang/2017 is dismissed.

ITA No.234/Bang/2018:-

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Page 66 of 68 No.64 to 66/Bang/2018, the A.O. denied the exemption u/s 11 of the Act and brought to taxation the unexplained receipts, capitation fees and also disallowed unexplained expenditure. Thus, he computed the income of the assessee as below:- Gross receipts returned 152,37,51,862/- by the assessee Less: Administrative (-) 125,00,41,371/- expenditure Additions: 12,50,26,540/- 1) Unexplained receipts 2) Unexplained 68,50,000/- expenditure u/s 69C of the Act 3) Undisclosed 2,90,05,000/- capitation fees Income assessed 43,45,92,031/-

17.1 The A.O. after completion of assessment invoked the provisions of section 271AAB of the Act and levied penalty at Rs.4,82,64,462/- i.e. 30% of addition made by AO i.e. Rs.16,08,81,540/-. Against this assessee carried the appeal before Ld. CIT(A), who deleted the penalty. Hence, the revenue is in appeal before us by way of following grounds:- 1. “Based on the facts and circumstances of the case, whether Ld. CIT(A) was correct in allowing exemption u/s 11 of the IT Act, 1961 especially when capitation fee was collected from the students over and above the fees prescribed. 2. Based on the facts and circumstances of the case, whether Ld. CIT(A) was correct in allowing unexplained receipts/unnamed donation when incriminating documents against the assessee were found and seized and confirmed by the third parties. 3. Based on the facts and circumstances of the case, whether Ld. CIT(A) was correct in deleting the Penalty Order u/s 271AAB of the IT Act, 1961 4. Any other Grounds which may be urged at the time of hearing.”

17.2 We have heard the rival submissions and perused the materials available on record. The Ld. CIT(A), in his order stated that assessee has not collected any capitation fees and there was no unexplained receipts and also there was no unexplained expenditure

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Page 67 of 68 incurred by the assessee. However, in our order in quantum appeal in ITA No.65/Bang/2018 vide order of even date, we have observed that assessee has collected capitation fees as well as made unexplained expenditure and assessee not entitled for exemption u/s 11 of the Act. The Ld. CIT(A) have no benefit of going through the order of the Tribunal cited (supra) in quantum appeal. Hence, in the interest of justice, we remit this issue to the file of Ld. CIT(A) to consider the penalty appeals in the light of the findings of the Tribunal in quantum appeal in ITA No.65/Bang/2018 and in accordance with law. The appeal of the revenue is partly allowed for statistical purposes.

Order pronounced in the open court on 29th Aug, 2022

Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 29th Aug, 2022. VG/SPS

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Page 68 of 68 Copy to:

Asst. Registrar, ITAT, Bangalore.