Section 11 exemption, related-party remuneration and incidental business compliance were examined with factual verification on capitation fees and accounts.
Eligibility for exemption under section 11 was treated as distinct from approval under section 10(23C)(vi); prior approval was not mandatory where the assessee otherwise satisfied section 11 conditions. Salary paid to managing committee members was not treated as violation of section 13(1)(c) because it was found to be remuneration for services and not an excessive or undue personal benefit. The function-hall activity required separate books for incidental business under section 11(4A), and the absence of records led to remand for fresh verification. Alleged capitation-fee collections were also remitted for factual examination, since exemption would fail if amounts were collected over and above prescribed fees.
Issues: (i) Whether approval under section 10(23C)(vi) of the Income-tax Act, 1961 was mandatory before claiming exemption under section 11; (ii) whether payment of salary to managing committee members attracted section 13(1)(c); (iii) whether the function-hall activity and alleged collection of capitation fees justified denial of exemption under section 11.
Issue (i): Whether approval under section 10(23C)(vi) of the Income-tax Act, 1961 was mandatory before claiming exemption under section 11.
Analysis: The available exemption provisions were treated as alternative routes. The assessee had chosen to claim exemption under section 11, and the absence of approval under section 10(23C)(vi) was held not to bar that claim. The legal position applied was that an educational institution eligible under the statutory scheme is not compelled to seek approval under section 10(23C)(vi) if it otherwise satisfies the conditions of section 11.
Conclusion: The requirement of prior approval under section 10(23C)(vi) was held not mandatory for the assessee's claim under section 11, in favour of the assessee.
Issue (ii): Whether payment of salary to managing committee members attracted section 13(1)(c).
Analysis: The payments were examined as remuneration for services rendered and not as diversion of trust income for personal benefit. On the facts, the amounts were found to be commensurate with the services and not excessive or undue benefits to specified persons.
Conclusion: The allegation of violation of section 13(1)(c) was rejected, in favour of the assessee.
Issue (iii): Whether the function-hall activity and alleged collection of capitation fees justified denial of exemption under section 11.
Analysis: The Tribunal held that separate books of account were required for the incidental business activity under section 11(4A), but the records were not produced before the Assessing Officer. The issue of function-hall income was therefore remitted for fresh adjudication. On the capitation-fee aspect, the Tribunal applied the principle that collection of amounts over and above prescribed fees would disqualify the claim to exemption, and directed the Assessing Officer to verify the facts and decide accordingly.
Conclusion: These issues were remitted to the Assessing Officer for fresh consideration, with the assessee's entitlement under section 11 depending on the factual verification.
Final Conclusion: The Revenue succeeded only on the issues requiring factual verification, while the assessee succeeded on the mandatory approval point and the related-person salary issue.
Ratio Decidendi: A claimant otherwise entitled to exemption under section 11 is not barred merely because approval under section 10(23C)(vi) was not obtained, but exemption can be denied where the statutory conditions for incidental business activity or factual compliance are not established.