Supreme Court Cancels a Trust's Registration over receiving Bogus Donations

Supreme Court Cancels a Trust's Registration over receiving Bogus Donations

The Court found that the donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash

The Supreme Court of India cancelled the registration of the Respondent – Trust u/S 12AA of the Income Tax Act, 1961 on account of its misuse by receiving bogus donations.

A Division Bench of the Supreme Court, comprising Justices Uday Umesh Lalit and Ajay Rastogi, dealt with this matter titled Commissioner of Income Tax (Exemptions), Kolkata v Batanagar Education And Research Trust.

The facts leading up to this appeal are that the Petitioner – Authority had cancelled the registration granted u/S 12AA of the Income Tax Act, 1961 of the Respondent – Trust and consequently, the approval granted to the Respondent – Trust under Section 80G of the Act was also cancelled. Thereafter, the Income Tax Appellate Tribunal dismissed the appeals preferred by the Respondent – Trust.

The primary source for the said cancellation was a survey conducted on an entity named School of Human Genetics and Population Health, Kolkata u/S 133A of the Act where it was prima facie observed that the Respondent – Trust was not carrying out its activities in accordance with the objects of the Trust.

However, the Calcutta High Court set aside the order of cancellation on the ground that the authorities were unable to establish the case so as to warrant cancellation of the registration of the Trust.

The Petitioner – Authority contended that the answers given to the questionnaire in the survey clearly showed a definite tendency on part of the Respondent – Trust to return in cash, the donations, which it received. On the other hand, the Respondent – Trust submitted that the conclusions drawn by the High Court were quite correct and should not call for any interference.

The bench observed that the answers given to the questionnaire by the Managing Trustee of the Trust showed the extent of misuse of the status enjoyed by the Trust by virtue of registration under Section 12AA of the Act.

The Court through the answers found that the donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash.

The Court concluded that that the registration conferred upon the Respondent – Trust under Sections 12AA and 80G of the Act, was completely being misused by the Trust as they were receiving bogus donations. Therefore, the following observation was made by the Court:

"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."

The Court, therefore, set aside the order of the High Court as it erred in entertaining the appeal u/S 260A of the Act and restored the original order of cancellation of registration as it agreed with the conclusions of the Petitioner – Authorities.