ITTA/337/2011 of VODITHALA EDUCATION SOCIETY Vs THE DIRECTOR OF INCOME TAX [EXEMPTIONS] on 12 February 2026

1. The instant appeals have been frled by the appellant/ assessee challenging the orders passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'ITAT] in ITA No.1138/H/06 (2OO3-04) and ITA.No.43olH/2ooB(2OO4-O51, dt.31.10.2007 and dt.30.09.2010, respectively, in respect of the assessment years 2OO3-O4 and 2OO4-05.

2. Since both appeals arise out of the proceedings relating to the same assessee and involve common issues, though pertaining to two different assessment years, they were analogously hea-rd and disposed of b-v this common judgment.

3' The brief facts of the case are that the appe,ant/assessee is a Society engaged in running educational institutions ald hostels within the state of the then composite state of Andhra pradesh and Maharastra. Further, for the assessment years 2oo3-0 4 and 2oo4-05, the assessee had filed returns on 03.12.2oo3 and 02. 1r 2oo4, respectivery, claiming exemption under sectio, r 1 of Income Ta-x Act, 196 i (for short .the ActJ. Before the assessments $,ere taken up for scrutiny, a survey was conducted on 20.07.2005 at the engineering co[eges run by the assessee at Ramtek, Nagpur of Maharastra, unclcr which, certain incrementing materia-l was alleged to have been seized b-r, the authorities and in the course of surve-y operal ions, statement of one of the employees of the assessee, namery Mr. R.Srini'as Rao, *'as recorded. In the statement, the said person alleged to h.r,e statcd as to certain irregurarities in collection of amounts in excess .f the fees prescribed by the Government from students, who w.ere admitted under the management quota. pursua,t thereto, incriminating materia-i *,as seized and basing on the same and along with the statement or Mr R.Srinivas Rao, the Assessing officer came to the conclusion that the assessee, rvho r.,r,as running educational institutions, hacr collected capitation fees from students, who were admitted under the management quota. Thus, the impugned assessment orders, dt.31.03.2006 and dt.26. 12.2006, respectively were passed for the assessment years 2003_O 4 and, 2OO4_05, respectivety, by rejecting the claim of the assessee for exemption under Section 1 I as well as under Section 1O(23C) of the Act. 4' Aggrieved by the said assessment orders, the appe[a,t/assessee preferred appeals before the commissioner of Income Tax (Appeals) (for short 'GIT(A)), inter a/la contending that due procedure had not been followed, that no opportunity was given to cross-examine Mr. R. Srinivas Rao, and that the amounts reflected in the seized material calnot be taken as excess collection or capitation fee. It was contended that the amounts collected represented the total fees payabre by the students admitted under the management quota for the entire four years course, collected at one time. 5' The GIT(A), upon considering the materia,I on record and the submissions made, dismissed the appea-ls hording that ttre assessee had violated the provisions of Section 13(1)(c) of the Act and the funds of the societ5r were utilized for the benefit of persons in the management. It was further held that the assessee was not entitred to exemption under Section 1 1 , as the educational trust has not derived income from the properties of the trust and that even the benefit under section 1o(23c) could not be extended, as the institution was not being run solely for a\

educational purposes. Thus, the CIT(A) dismissed the appeals holding that beneht of exemption under Section l1 ald Section 1O(23C) cannot be given to the assessee. 6 . The assessee carr jed the matters in further appeals before the learned ITAT in ITA.No ll3S|H/2OO6(AY 2003-04) axd ITA.No.430/Hyd/08(AY 2004-os).

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

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

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

"l' whether on the facts and in the circumstances of the case made in contravention of the mandatory provisions of section ttre ffni was ^ justified in upholding the ordei oi a"..""*ri 142(3) of the Act?

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

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

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

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

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

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

9. Whether on the facts and in the circumstances of the case, the ITAT was correct in law in hotding that the nppeffani is not holding any property undcr trust so as to entitle itself for exemption u/s 11 of thc Act?" to

I 1. Heard Sri A.V.Raghu Ram, learned counsel representing Sri K.Vasalt Kumar, learned counsel for appellart and Sri Vryay K Punna, learned Senior Stalding Counsel for lncome Tax Department for respondent/ Revenue.

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

13' It was also urged that the assessee, being an educational institution established for charitabre purposes, was entitled to exemption under Section 1 1 of the Act and that the authorities erred in denying such benefit. It was further submitted that the assessee had the option to claim exemption either under Section 1l or under Section ro(23c)(vi) of the Act and that rejection of exemption under both provisions was contrary to law.

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

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

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

77. Thc mzrin grievance of the appellant/ assessee is that the findings recorded bv the authonties are vitiated as they are founded primarily on the statement o[ Mr. R. Srinivas Rao, who has no nexus with the affairs ol the :rsscssec, and the assessing authority u,ithout affording the assessec a fair and effective opportunity to cross-examine the said R . Srinivas Rao. ar-rd that the amounts reflected in the seized m aterial were erroneoLlslv treated as excess or unaccounted collections I 18' In this backdrop, the only issue that arose for consideration before this court was whether the appenalt/assessee had offered a satisfactory ald credible explanation with respect to the incriminating material unearthed during the survey proceedings and whether the alleged collection of additionar amounts under the management quota had been duly accounted for in accordance with law. 19' A perusal of the record shows that the appertant/assessee had initially applied to the competent authority for exemption under Section lo(23c)(vi) of the Act, which was rejected. Subsequently, before the Assessing Authority, the assessee claimed that it had the option to choose between Sections 1O(23C)(vi) and 1 1 of the Act. However, the Assessing Authority denied the said craim on the ground that there was no income from propert5r held by the Trust and that the entire income of the assessee was derived from running educational institutions, and held that the provisions of Section 1O(23C) alone were applicable.

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

2l . Before the CIT(A), the issue was whether the assessee was entitled to claim exemption under Section 1 1 or under Section 1O(23C)(vi) of the Act. The CIT(A), n,ho is the fact {inding appellate authority, noted that the assessee's main activity u,as running educationa-l institutions and it did not derive anlr in('ome frtrm property held under trust, thereby making exemption under the provisions of Section 11 impermissible, and consequentlv, the provisions of Section 1O(23C) alone would apply

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

24. In the above circumstances, the submissions made by the appellant/assessee that the amounts reflected in the incriminating materia-l represented the total fees payable by candidates for four years collected at once, was not supported by any evidence. Further, had the said claim was true, the assessee wourd have maintained separate books of account for each candidate and deposited such arnounts in its bank accounts. No such e,,.idence was produced. There was also nothing on record to show that the amounts allegedly collected in excess of the prescribed fees had been properly credited to the bank accounts oi the assessee- However, a perusal of the statement of Mr. R. Srinivas Rao, revealed that notwithsta,ding his designation as a project officer, the manner in which he spoke about the a-ftairs of the management clearly t2 established that he rvas closely associated with the society and in that view of the matter, the question of gralting opportunity for cross- examination of Mr.R.Srinivasa Rao, does not amount to aly violation of principles of natural justice or doctrine of fair play.

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

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

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

1. The lncome Tax Appellate Tribunal, Hyderabad Bench 'B', Hyderabad

2. One CC to Sri. K Vasantkumar Advocate [OPUC] 3, One CC to Sri. Viihay K Punna (Senior Standing counsel for lncome Tax Department) [OPUC]

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

lT'l-A.Nos.152 of !008 & 337 of 201 1 HIGH COURT DATED: 1210212026

COMMON JUDGMENT

DISMISSING THE APPEALS o lHE Sfa (

0I R r\ H I

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