The Supreme Court, while upholding cancellation of registration of Trust, held that if an entity is found misusing the status conferred upon it by virtue of Section 12AA of Income Tax Act, 1961, it would not be allowed to retain and enjoy the entitlement.
In the case of Commissioner of Income Tax (Exemption) v Batanagar Education and Research Trust, the respondent had been awarded the status of a Trust by complying with Section 12AA of the Act, which provides for the procedure of registration of a charitable trust, which is further entitled to tax benefits.
Later, the appellant had cancelled the registration on the ground that the Trust had received bogus donation from the School of Human Genetics and Population Health. The Income Tax Appellate Tribunal had also dismissed the appeals filed by the Trust.
The Trust approached the Calcutta High Court which allowed the appeal and set aside the cancellation order. The appellant thus approached the apex court where the latter noted the answers which had been given to the questionnaire, by the Managing Trustee of the Trust.
The answers showcased the extent of misuse of the status which had been enjoyed by the Trust by virtue of its registration. The court stated that donations which were received by cheques, substantial amount of money was being returned to the donors in way of cash.
It was explained by the bench that such donations were bogus in nature and were simply a method to misuse the status extended by operation of Sections 12AA and 80G of the Income Tax Act, 1961.
The court, therefore, set aside the High Court order and upheld the cancellation order passed by the Income Tax Commissioner.
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