2021 (8) TMI 139 - SC - Income Tax

Trust Registration Cancelled for Misuse & Bogus Donations: Supreme Court Reverses Decision

COMMISSIONER OF INCOME TAX (EXEMPTIONS), KOLKATA Versus BATANAGAR EDUCATION AND RESEARCH TRUST

The Supreme Court upheld the cancellation of a Trust's registration under Section 12AA of the Income Tax Act, emphasizing the misuse of registration ... Exemption u/s 11 - cancellation of registration of the Appellant granted u/s 12AA - HC setting aside the order passed by Commissioner of Income Tax (Exemption) canceling registration of the respondent Trust u/s12AA and the order passed by the Income Tax Appellate Tribunal dismissing appeals arising therefrom - HELD THAT:- 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. 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. 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. Appeal allowed - restore the order passed by the CIT and the Tribunal. Issues:Challenge to High Court's judgment setting aside the cancellation of registration of a Trust under Section 12AA of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Challenge to High Court's JudgmentThe appeal contested the High Court's decision setting aside the cancellation of registration of the Trust under Section 12AA of the Income Tax Act. The Trust was initially registered under Section 12AA and accorded approval under Section 80G(vi) of the Act. The Commissioner of Income Tax (Exemption) canceled the Trust's registration due to observations during a survey that indicated the Trust was not operating in line with its objectives. The CIT found that the Trust had received bogus donations and was involved in illegal activities, leading to the cancellation of its registration.Issue 2: Tribunal's DecisionThe Tribunal upheld the CIT's decision, stating that the Trust's activities were not genuine and that its registration should be canceled under Section 12AA(3) of the Act. The Tribunal found evidence that the Trust had received cash and given bogus donations, further supporting the cancellation of registration. The Trust's appeals were dismissed by the Tribunal based on the evidence presented.Issue 3: High Court's RulingThe High Court allowed the Trust's appeal, noting that the revenue failed to prove the Trust's complicity in any illegal activities related to the donations received. The High Court found insufficient evidence to support the cancellation of the Trust's registration under Section 12AA(3) of the Act. Consequently, the High Court set aside the order canceling the Trust's registration and directed its restoration within three weeks.Issue 4: Supreme Court's DecisionIn the Supreme Court, arguments were presented by both sides. The Assistant Solicitor General highlighted the Trust's tendency to return donations in cash, indicating misuse of its registration status. On the other hand, the Trust's Senior Advocate defended the High Court's conclusions. The Supreme Court found that the Trust had misused its registration status by receiving donations via cheques and returning substantial amounts in cash, confirming the bogus nature of the donations. The Court concluded that the Trust was not entitled to retain its registration status under Sections 12AA and 80G of the Act and allowed the appeal, restoring the orders passed by the CIT and the Tribunal.In summary, the Supreme Court upheld the cancellation of the Trust's registration under Section 12AA of the Income Tax Act, emphasizing the misuse of registration status and the receipt of bogus donations, thereby reversing the High Court's decision and restoring the orders of the CIT and the Tribunal.