Supreme Court Restores CIT Order Cancelling Registration of Trust for Receiving Bogus Donations
2nd August 2021, the Supreme Court in Commissioner of Income Tax (Exemptions), Kolkata vs Batanagar Education and Research Trust – CA no. 4451 of 2021 – set aside the Calcutta High Court judgment dated 9th October 2018 and restored the order dated 25th June 2016 passed by the Commissioner of Income Tax (Exemption) (CIT) cancelling the registration of the respondent Trust for receiving bogus donations.
The court held:
“The High Court completely erred in entertaining the appeal under Section 260A of the Act. It did not even attempt to deal with the answers to the questions as aforesaid and whether the conclusions drawn by the CIT and the Tribunal were in any way incorrect or invalid.”
In 2010, the respondent, Batanagar Education and Research Trust was registered as a Trust in accordance with the procedure enumerated under section 12AA and was also approved under section 80G(vi) of the Income Tax Act, 1961. The Act provides a deduction with respect to donations made to such approved Trusts (in favour of the assessee i.e., the one making donations).
While conducting a survey on M/s. School of Human Genetics & Population Health under the Act, it was found that the respondent Trust received bogus corpus donations from the said entity and also from other entities. With respect to the same, a show-cause notice was issued and then a questionnaire was communicated which was answered by the Managing Trustee of the respondent Trust, Shri Rabindranath Lahiri.
Thereafter, by an order dated 25th June 2016, the CIT cancelled the registration of the respondent Trust with effect from 1st April 2012. Further, the approval granted under section 80G(vi) of the Act was also cancelled.
Aggrieved, the respondent Trust filed an appeal before the Income Tax Appellate Tribunal, which was dismissed. Later, the respondent approached the Calcutta High Court. By an order dated 9th October 2018, the court held that the tax authorities failed to prove that the respondent was involved in any illegal, immoral or irregular activity of the donors and set aside the CIT order cancelling the registration of the respondent Trust.
Therefore, the appellant, CIT filed the present appeal challenging the decision of the Calcutta High Court.
After hearing the parties, the Division Bench of Justice Uday Umesh Lalit and Justice Ajay Rastogi observed:
“The answers given to the questionnaire by the Managing Trustee of the Trust show the extent of misuse of the status enjoyed by the Trust by virtue of registration under Section 12AA of the Act.”
The court held:
“These answers also show that donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash. The facts thus clearly show that those were bogus donations and that the registration conferred upon it under Sections 12AA and 80G of the Act was completely being misused by the Trust. An entity which is misusing the status conferred upon it by Section 12AA of the Act is not entitled to retain and enjoy said status. The authorities were therefore, right and justified in cancelling the registration under Sections 12AA and 80G of the Act.”
In conclusion, the Supreme Court allowed the appeal, set aside the Calcutta High Court judgment dated 9th October 2018 and restored the order dated 25th June 2016 passed by the CIT cancelling the registration of the respondent Trust.
Ankitha Subramanya | EduLegaL