Entity Which Misuses Status Under Section 12AA Income Tax Act Not Entitled To Retain It: Supreme Court Upholds Cancellation Of Trust Registration

An entity which is misusing the status conferred upon it by Section 12AA of the Income Tax Act is not entitled to retain and enjoy said status, the Supreme Court observed while upholding the cancellation of a registration of Trust. 

Section 12AA of the Income Tax Act deals with the procedure for the registration of a charitable trust, which is entitled to tax benefits.

In this case, Commissioner of Income Tax (Exemption)  cancelled registration of the Trust under Section 12AA of the Income Tax Act, 1961 on the ground that the Trust had received bogus donation from School of Human Genetics and Population Health. The Income Tax Appellate Tribunal dismissed the appeals filed by the Trust. The Calcutta High Court allowed the appeal filed by the Trust and set aside the cancellation order.

In appeal, the bench comprising Justice Uday Umesh Lalit and Ajay Rastogi noted 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.", the Court said.

Setting aside the High Court order, the bench restored the cancellation order passed by the Income Tax Commissioner.

Case:  Commissioner of Income Tax (Exemption) vs. Batanagar Education and Research Trust 
Coram: Justices UU Lalit and Ajay Rastogi
Citation: LL 2021 SC 337

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