Supreme Court on ‘Bogus Donations’ made to Trust: Delves to know whether registration under S. 12AA of Income Tax Act was being misused or not

Supreme Court of India: Noting the donations being made to the Trust to be ‘bogus donations’ Bench of Uday Umesh Lalit and Ajay Rastogi, JJ., cancelled the registration of the Trust under Section 12AA and 80G of the Income Tax Act, 1963.

What transpired the present matter?

Present appeal challenged the decision of Calcutta High Court setting aside the order passed by Commissioner of Income Tax (Exemption) cancelling the registration of respondent Trust under Section 12AA of the Income Tax Act, 1961 and another order passed by the Income Tax Appellate Tribunal dismissing appeals therefrom.

Background

Trust was registered under Section 12AA of the Act and was also accorded approval under Section 80G (vi) of the Act.

It was stated that in a survey conducted on an entity named School of Human Genetics and Population Health, Kolkata under Section 133A of the Act, it was prima facie observed that the Trust was not carrying out its activities in accordance with the objects of the Trust. Hence a show-cause notice was issued by the CIT.

Hence CIT invoked the provisions of Section 12AA(3) of the Income Tax Act and cancelled the registration under Section 12AA of the Act. This resulted in cancellation of the approval granted to the Trust under Section 80G of the Act.

When the matter reached High Court, Trust submitted that it had received donations from various donors and the Trust was under no obligation to verify the source of the funds of the donor or whether those funds were acquired by performance of any unlawful activity.

Further, it was also added that the funds were applied for the purposes of trust and that there was no evidence to suggest that those funds were applied for any illegal or immoral purposes or that the Trust was a namesake.

High Court had allowed the appeal and set aside the order of cancellation of the registration of the Trust while directing for the restoration of its registration.

Analysis, Law and Decision

Bench noted that as per the answers to the questionnaire put forward to the Managing Trustee, it depicted the extent of misuse of the status enjoyed by the Trust by virtue of registration under Section 12AA of the Act.

The answers also showed that the donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash. As per the facts, the said donations were ‘bogus’ donations and that the registration conferred upon the Trust under Section 12AA and 80G of the Act was completely being misused by the Trust.

Hence, the authorities were right in cancelling the registration under Section 12AA and 80G of the Act.

Opinion on High Court’s decision

Supreme Court held that High Court erred in entertaining the appeal and it did not even attempt to deal with the answers to the questions and whether the conclusions drawn by the CIT and the Tribunal were in any way incorrect or invalid.

Conclusion

While setting aside the decision under challenge, Court allowed the present appeal and restored the order passed by the CIT and the Tribunal. [Commissioner of Income Tax (Exemptions) v. Batanagar Education and Research Trust, 2021 SCC OnLine SC 529, decided on 2-08-2021]


Advocates before the Court:

Pet. Advocate(s)   ANIL KATIYAR
Resp. Advocate(s)   ABHIJIT SENGUPTA[caveat]

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