Uncorroborated Retracted Statement Can’t Prove Capitation Fee

Case Details: Commissioner of Income-tax, Central vs. Saveetha Institute of Medical, Technical Sciences Erode - [2026] 185 taxmann.com 81 (Madras)

Judiciary and Counsel Details

Dr G. Jayachandran & Shamim Ahmed, JJ.
J. Narayanasamy, Standing Counsel for the Appellant.
A.S. Sriraman for the Respondent.

Facts of the Case

The assessee was an educational trust running a Dental College and an Engineering College. Pursuant to information that huge cash was collected as capitation fees for admissions, a search under section 132 was conducted in the college premises and at the residence of the managing trustees. A statement of a managing trustee was recorded under section 132(4) stating that capitation fees were collected for management quota admissions. Slips containing details of students admitted under management and government quotas were seized.

Based on seized material and statements, the AO made additions on the presumption, including capitation fees collected from students, unaccounted cash, and excess income as per the Income and Expenditure Account, under the proviso to section 164(1), assessing total income at a certain amount.

On appeal, the CIT(A) deleted the additions. The Tribunal confirmed the order of CIT(A), and the matter reached the Madras High Court.

High Court Held

The High Court held that the statutory presumption as found in the Sections is not a conclusive presumption but a rebuttable presumption. Even to draw the presumption at first instance, the Department is bound to place material facts to lay a foundation for it.

In this case, the material placed, even after the enquiry before the first Appellate Authority and the Tribunal, consists of slips containing details of students admitted under management and government quotas. The other piece of evidence is the statement of one of the managing trustees, who at the time of the 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.

“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. At the same time, 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.

Secondly, to draw the statutory presumption, a sworn statement by one of the Managing Trustees, uncorroborated, will not suffice. 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 a presumption.

The further contention of the learned counsel is that the money collected as capitation fees is not utilised for the trust and, therefore, there is a subsequent violation. Merely on the statutory presumption, without corroboration, the collection of the capitation fee as found in the assessment order remains unproven and unsustainable.