Cancellation of Registration u/s 12AA & 80G for bogus donations was right – Supreme Court

Cancellation of Registration of trust u/s 12AA and 80G for bogus donations was right. Entity misusing status conferred upon u/s 12AA not entitled to it – Supreme Court

In the instant case, the Income Tax Department had challenged the order passed by the High Court setting aside the order passed by Commissioner of Income Tax (Exemption) and Tribunal cancelling registration of the respondent Trust u/s 12AA of the Income Tax Act, 1961 (the Act)

ABCAUS Case Law Citation
ABCAUS 3537 (2021) (08) SC

The Trust was registered u/s 12AA and was also accorded approval u/s 80G(vi) of the Act.

In a survey conducted on another entity u/s 133A of the Act, prima facie revealed that the Trust was not carrying out its activities in accordance with the objects of the Trust.  

In response to the query from the CIT€, the managing trustee admitted that major part of the donations received and shown as corpus donation was in the nature of accommodation entries and part of the donation received was returned back to the donors through intermediaries. The list of such intermediaries and doners was also furnished.

On the basis of the material on record, the CIT came to conclusion that the trust had violated its objects, activities of the trust were not genuine as well as not being carried out in accordance with its declared objects and the case was covered within the 60th limb of Section 12AA(3).

It was also held that such ingenuine and illegal activities carried on by the trust through money laundering did not come within the conceptual framework of charity vis-a-vis activity of general public utility envisaged the Income Tax Act as laid down in Section 2(15).

The CIT(E), therefore, invoked the provisions of Section 12AA(3) of the Act and cancelled the registration granted u/s 12AA of the Act along with approval granted u/s 80G of the Act.

The Tribunal upheld that order passed by the CIT(E).

Before the Hon’ble High Court, the trust contended 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.

It was further submitted 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 and some other activities were being carried out.

The Hon’ble High Court held that the revenue had not been able to establish the case so as to warrant cancellation of the registration of the appellant trust under Section 12AA(3) of the Act as there was no proof of complicity of the trust in any illegal, immoral or irregular activity of the donors.

Accordingly, the Hon’ble High Court set aside the order of cancellation of the registration of the trust.

The Department took the matter to Hon’ble Supreme Court.

The Hon’ble Supreme Court pointed out 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 Hon’ble Supreme Court stated that those answers also showed that donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash.

The Hon’ble Supreme Court opined that the facts clearly showed that by obtaining bogus donations and the registration conferred upon it under Sections 12AA and 80G of the Act was completely being misused by the Trust.

The Hon’ble Supreme Court opined that 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 Sections12AA and 80G of the Act.

The Hon’ble Supreme Court allowed the appeal in favour of the Revenue and set aside the judgment of the Hon’ble High Court.

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