Pankaj Bajpai

New Delhi, August 3, 2021: While allowing an appeal of the Revenue Department, the Supreme Court has ruled that a ‘Trust’ which was misusing the status conferred upon it by Section 12AA of the Income Tax Act was not entitled to retain and enjoy the said status. 

A Division Bench of Justice Uday Umesh Lalit & Justice Ajay Rastogi observed that bogus donations completely misused by ‘Trusts’ calls for cancellation of registration granted to it u/s 12AA & 80G of the Act. 

Going by the background of the case, the registration granted to the assessee trust u/s 12A was cancelled, mentioning that its activities were not genuine or were not being carried out properly. 

When the matter reached the High Court, it was held that the Revenue Department was not been able to establish the case so as to warrant cancellation of the registration of the assessee u/s 12AA(3). The High Court noted that the Revenue Department was also not able to prove any complicity of the assessee in any illegal, immoral or irregular activity of the donors. 

This resulted in the preset appeal before the Apex Court. 

It was submitted on behalf of the Trust 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. 

After going through the contentions, the Supreme Court found that the answers given in 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 u/s 12AA. 

“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 u/s 12AA and 80G of the Act was completely being misused by the Trust,” observed the Division Bench. 

Thus, holding that an entity which is misusing the status conferred upon it by Section 12AA is not entitled to retain and enjoy the said status, the Apex Court upheld the action of I-T Authorities in cancelling its registration u/s 12AA and 80G of the Act.

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