(Prayer: Appeal has been filed under Section 260A of the Income Tax Act, 1961,  against the order of the Income Tax Appellate Tribunal ‘B’ Bench Chennai,  dated 18.07.2011 in ITA No.204/MDS/2011.

Appeal has been filed under Section 260A of the Income Tax Act, 1961,  against the order of the Income Tax Appellate Tribunal ‘B’ Bench, Chennai,  dated 18.07.2011 in ITA No.205/MDS/2011.

Appeal has been filed under Section 260A of the Income Tax Act, 1961,  against the order of the Income Tax Appellate Tribunal ‘B’ Bench, Chennai,  dated 18.07.2011 in ITA No.100/MDS/2011.)

1. These three Tax Appeals are filed by the Department, being aggrieved by  the order passed by the Income Tax Appellate Tribunal, confirming the order  passed by the Commissioner of Income Tax(Appeals), Central Circle, Salem.

2. It is the case of search conducted in an Education Institution under  Section 132(4) of the Income Tax Act, 1961. On receipt of the information that  huge cash was collected as capitation fees for admission to the college, a search  of the college premises, where Dental College is established, yielded Rs.3,69,950/- and Rs. 20,00,000/- was recovered from the premises, where the Engineering College runs. The residence of the Managing Trustees led to the seizure of 5036 grams of gold jewellary. A statement of one Dr.B.Muthukumaran was recorded, who has allegedly confessed that they used to collect Rs.1,00,000/- as capitation fees. Admission of students in the Engineering College under the Management quota and Government quota were examined and a statement was recorded under Section 132(4) of the Income Tax Act, 1961. The Department has proceeded further and drawn a presumption that the assessee failed to disclose the income and also diverted the income for the personal use, instead of using it for the purpose of the trust, which runs the college. Section 11 of the Income Tax Act, 1961, exempts trusts from the  income tax on their income. Whereas the Managing Trustees of the institution under the guise of donation to the trust has collected donation and personally benefited by diverting the income, which formed the sum and substance of the assessment.

3. In the course of the enquiry before the first Appellate Authority, the  statement of Dr.B.Muthukumaan, was retracted and the search was conducted  based on the information that huge money was collected as capitation fees, has  not been substantiated by the material collected during the course of search.  The Appellate Authority has found that no statements were recorded from the  students during the course of search regarding capitation fees and even during  the assessment proceedings, none of the students were examined to corroborate  the sworn statement of Dr.B.Muthukumaran. Further, the material, namely, 56  slips containing details of the students admitted under the Management quota  and the Government quota for various courses, contained no allegation of  collecting of capitation fees or donations, whatsoever. Therefore, for want of  corroboration and co-relation between the alleged seizure of money and jewels  and the allegation that the trustees were collecting huge capitation fees,was  found to be false and there is no proof for the said allegation

4. Merely on suspicion, the premises were searched and though no  substantial material was collected, on presumption, tax has been assessed by the  Department under the following heads:-



5. Therefore, the first Appellate Authority had reversed the order made by the Assistant Commissioner of Income Tax as per the above said breakup. The  further Appeals to the Tribunal also ended in confirmation of the order passed  by the first Appellate Authority. Hence, the present appeals were filed for the  aforesaid prayer.

6. The learned Standing Counsel appearing for the Department  strenuously argued that both the first Appellate Authority as well as Tribunal  failed to appreciate the scope and ambit of Sections 132(4) and 132(4A) of the  Income Tax Act, 1961, which give statutory presumption, in favour of the  Revenue and the burden is on the assessee to prove that there is no evasion of  tax or violation of income tax provisions. The further submission is that as per  the definition under Section 212(A) of the the Income Tax Act, 1961 defines,  books of account, includes day book, cash book, accounts books and other  books. Therefore, the slips 56 in number were recovered during the search  process being books of account maintained in the regular course of  administering the college/trust. Sections 132(4) and 132(4A) of the Income Tax  Act, 1961, squarely apply to draw the statutory presumption. Having failed to  apply the statutory presumption, both the first Appellate Authority as well as the  Tribunal grossly erred.

7. We gave anxious consideration in the above submissions. The  presumption under Sections 132 (4) and Section 132(4A) of the Income Tax  Act, 1961 reads as below:-

    “132(4) The authorised officer may, during the course  of the search or seizure, examine on oath any person who is  found to be in possession or control of any books of account,  documents, money, bullion, jewellery or other valuable  article or thing and any statement made by such person  during such examination may thereafter be used in evidence  in any proceeding under the Indian Income-tax Act, 1922 (11  of 1922), or under this Act.  Explanation.—For the removal of doubts, it is hereby  declared that the examination of any person under this subsection  may be not merely in respect of any books of  account, other documents or assets found as a result of the  search, but also in respect of all matters relevant for the  purposes of any investigation connected with any proceeding  under the Indian Income-tax Act, 1922 (11 of 1922), or under  this Act.

   132(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.”

8. The statutory presumption as found in the above Sections is not a  conclusive presumption, but a rebuttable presumption. Even to draw the  presumption, at the first instance, the Department is bound to place material  facts to lay a foundation for drawing such presumption. In this case, the material placed, even after the enquiry before the first Appellate Authority as well the  Tribunal are the slips containing details of seats of the students, which  according to the learned counsel, fall within the meaning of books of account.  The other piece of evidence is the statement of one Dr.B.Muthukumaran, who is  the Managing Trustee and who at the time of search of the premises, had given a  statement that the management used to collect Rs.1,00,000/- as capitation fees  from the students joining under the Management quota.

9. “Books of account” as defined under Section 2(12A) of the Income Tax  Act, 1961 is an inclusive definition. It includes day books and other account  books maintained in the regular course of administration. Whereas, the exhibits  relied upon by the Department have nothing to do with the accounts. It is only  information about the students and the category under which they got admitted.  They do not fall within the definition of books of accounts.

10. Secondly, to draw the statutory presumption, a sworn statement of one  of the Managing Trustees, who remains uncorroborated, will not lead to a  presumption that the assessee has collected a sum of Rs.1,27,00,000/- from the  students who joined under the Management quota for Engineering. As pointed  out by the first Appellate Authority, the Department ought to have examined the  students admitted to the college or produced other corroborative material to  support the statement of Dr.B.Muthukumaran. Without corroboration, the  statement on oath, which has subsequently been retracted and contradicted by  the other Managing Trustees, will not form the foundation for drawing such  presumption. The further contention of the learned counsel is that the money  collected as capitation fees is not utilised for the purpose of trust and thus, there  is a subsequent violation.

11. We are of the view that the second contention of the learned counsel  regarding non-utilisation of the funds for the trust will not arise in the case in  hand, since the collection of funds for the purpose of the trust has not been  proved by the Department even by the preponderance of probabilities.

12. We find, in these appeals, the following Substantial Questions of Law  as framed by the Court as below:-  1.Whether on the facts and circumstances of the case,  the Tribunal was right in holding that the assessee is eligible  for exemption under Section 11 of the Income Tax Act,  without noting that the assessee society has used part of the  income for the personal benefit of the trustee as per Section  13(3)(c) of the Income Tax Act? and

   2.Whether on the facts and circumstances of the case,  the Tribunal was right in deleting the unaccounted cash  found during the course of search when the assessee was  unable to explain the source of income?

13. We find that the Substantial Questions of Law and the arguments  placed by the learned counsel before us are entirely different. It is  understandable that the learned counsel found that the questions framed are  either Questions of Law or Substantial Questions of Law. Therefore, he has  raised, during the course of arguments, a pertinent question regarding  presumption in these cases under Sections 132(4) and 132(4A) of the Income  Tax Act, 1961. We have answered that the material placed by the Department is  not sufficient to draw the statutory presumption under Sections 132(4) and  132(4A) of the Income Tax Act, 1961. So far as the Substantial Questions of Law framed are concerned, we find that they have been formulated under the  presumption that there was collection of capitation fees from the students. When  the very foundation for the case itself remains unproved, the question whether  the trust is entitled to exemption under Section 11 of the Income Tax Act, 1961,  does not arise. For the sake of repetition, we are enforced that the Department  at the first instance, should have established collection of capitation fees by the  trust. Merely on the statutory presumption, without corroboration, the collection  of capitation fee as found in the assessment order, remains unproved and  unsustainable. Hence, the order of the first Appellate Authority as well as the  Tribunal need to be upheld.

14. Accordingly, these Tax Case Appeals stand dismissed. No order as to costs.