A Bench of the Supreme Court consisting of Justices UU Lalit and Ajay Rastogi has held that a trust that misuses the status conferred upon it under section 12AA of the Income Tax Act is not entitled to retain and enjoy such status. The Court upheld the cancellation of the registration granted to a trust under section 12AA and 80G of the IT Act on the ground that the trust was not carrying out activities as per its objects.
The Bench was hearing an appeal in the case of Commissioner of Income Tax (Exemptions) Kolkata v. Batanagar Education and Research Trust. Section 12AA of IT Act outlines the procedure of registration of a charitable trust, which is entitled to tax benefits.
Facts of the Case
A survey was conducted on an entity named School of Human Genetics and Population Health, Kolkata under Section 133A of the Act by the trust. It was prima facie observed that the Trust was not carrying out its activities in accordance with its objects and served a show-cause notice by the CIT.
After receiving answers from the trust's Managing Director to the questionnaire issued by the Department, the CIT invoked the provisions of Section 12AA (3) of the IT Act and canceled the registration of the trust. This cancellation was upheld by the Tribunal but was set aside by the Calcutta High Court.
Findings of the Supreme Court
"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," the bench noted.
The apex court asserted that an entity that is misusing the status conferred upon it by Section 12AA of the Act is not entitled to retain and enjoy said status. The Court upheld the decisions of the CIT and the Tribunal, observing that both the authorities were right and justified in cancelling the registration accorded to the trust under section 12AA and 80G of the IT Act.
"The High Court had erred in entertaining appeal under section 260A of the IT 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," it observed.
The Supreme Court set aside the judgment and order of the High Court and allowed the appeal.