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Supreme Court of India
Commissioner Of Income Tax … vs Batanagar Education And Research … on 2 August, 2021Author: Uday Umesh Lalit
Bench: Uday Umesh Lalit, Ajay Rastogi
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4451 OF 2021
COMMISSIONER OF INCOME
TAX (EXEMPTIONS), KOLKATA APPELLANT(S)
VERSUS
BATANAGAR EDUCATION
AND RESEARCH TRUST RESPONDENT(S)
JUDGMENT
Uday Umesh Lalit, J.
1. This appeal challenges the judgment and order dated 09-10-2018
passed by the High Court at Calcutta in ITA No.116 of 2018 setting aside (i)
the order dated 25.02.2016 passed by Commissioner of Income Tax
(Exemption) (“CIT” for short) canceling registration of the respondent Trust
(“Trust”, for short) under Section 12AA of the Income Tax Act, 1961 (“the
Act” for short); and (ii) the order dated 13.09.2017 passed by the Income
Tax Appellate Tribunal (“the Tribunal”, for short) dismissing appeals arising
therefrom.
Signature Not Verified
Digitally signed by Dr.
Mukesh Nasa
Date: 2021.08.02
17:27:55 IST
Reason:
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2. The Trust was registered under Section 12AA of the Act vide order
dated 06.08.2010 and was also accorded approval under Section 80G(vi) of
the Act.
3. In a survey conducted on an entity named School of Human Genetics
and Population Health, Kolkata under Section 133A of the Act, it was prima
facie observed that the Trust was not carrying out its activities in accordance
with the objects of the Trust. A show cause notice was, therefore, issued by
the CIT on 04.12.2015.
4. In answer to the questionnaire issued by the Department, Shri
Rabindranath Lahiri, Managing Trustee of the Trust gave answers to some of
the questions as under:
“Q.11. Please confirm the authenticity of the abovementioned
Corpus Donation.
Ans. A major part of the donations that were claimed exemption
u/s 11(1)(d) were not-genuine. The donation received in F.Ys.
2008-09, 2009-10 and 2010-11 were genuine Corpus Donation
received either from the Trustees or persons who were close to
the Trustees or persons who were close to the Trustees. In F.Y.
2011-12 and 2012-13 a part of the donation were genuine like
the earlier years. However, a major part of the donations
received in these two F.Ys. viz. 2011-12 and 2012-13, shown as
Corpus Donation, were in the nature of accommodation entries
to facilitate two things-
a) To procure loans from the Bank we had to show
substantial amount of Capital Reserve in our Balance Sheet.
b) We require funds for the expansion of our college.
The fees received from the students along with genuine
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donations from the Trustees and their contacts were not
sufficient to run the institution.
Q.12. Why are you saying that a major part of the donations
received were not genuine?
Ans. In those cases, which I admit as accommodation entries, a
part of the donation received was returned back to the donors
through intermediaries.
Q. 13. Who were the intermediaries and what were the modes
of returning the money?
Ans. We were instructed to transfer funds through RTGS to the
following seven (7) persons:
1. Santwana Syndicate
2. P.C. Sales Corporation
3. Kalyani Enterprises
4. Riya Enterprises
5. Laxmi Narayan Traders
6. Hanuman Traders
7. Rani Sati Trade cum Pvt. Limited
These payments were booked as capital expenditure under the
head Building.
Q. 14. In response to the earlier question you have stated that
you were “instructed”. Who gave you the instruction?
Ans. I can remember only one name right now, that is Shri
Gulab Pincha, Mob No. 9831015157. He was the key person for
providing a large part of bogus donation received which was
immediately returned back to the different parties in the guise of
payments towards capital expenditure in building. We do now
know any details in respect of the donors on behalf of whom
Shri Gulab Pincha acted as a middle man. Shri Pincha provided
us with the details of the donors, cheque of the donations, letters
of corpus donations etc. He also provided us with the names and
bank a/c. details of the seven (7) persons, mentioned in Answer
13 to whom money has to be returned back through RTGS. He
also collected the money receipts/80G certifications on behalf of
the donors.
Q. 19. The ledger copy for the period from 01.04.2014 to
04.09.2014 in respect of “General Fund” of your trust having
details of the donors is being shown to you to identify the bogus
donations along with bogus donors.
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Ans. After going through the list of the donors appeared in such
ledger it is understood that the Donors whose names are written
in capital letters under the sub-head “Donation-13”, “Donation-
I” and “Donations-II” having total amount of Rs.6,03,07,550/- is
bogus and out of which Rs.5,96,29,973/- was returned back
through RTGS to the above mentioned seven (7) persons
following the instructions of the mediators.”
5. On the basis of the material on record, the CIT came to the following
conclusions:
“6.1. The intention of the legislature to grant registration u/s
12AA and 80G, to give the benefit u/s 11 to encourage medical
relief to the poor and needy persons, promote education among
masses and support to the poor section of the society. But time
and again these provisions have been misused for personal need
and for benefit of trustees/members of the trusts and societies.
Survey u/s. 133A conducted in the case of assessee elaborates
the nature and volume of transactions in the alleged activities.
6.2. Looking at the volume and depth of the illegal activities
performed and indulged by the society to use the provisions of
the I.T. Act providing support and encouragement to the
organizations for doing the benevolent activities, assessee
society not only opened the pandora’s box defying the sole
benevolent purpose of provisions as per the I.T. Act, but also
challenged the cause of the constitutional provisions by
maintaining certain well-needed objectives as per the Act and
performing the reverse in reality.
6.3 Based on the facts and circumstantial evidences as discussed
in Para 1 to 5, it can be inferred: –
a) Assessee trust has received a sum of Rs.1,23,87,550/- as
bogus donation from M/s. School of Human Genetics &
Population Health and voluntarily offered as income. SHG &
PH has admitted their bogus transactions by filing application
before the Hon’ble Settlement Commission, Kolkata and
through confirmation filed.
b) They have received bogus corpus donation not only from
SGHG&PH but also from various parties in different years.
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c) Society/Trust has grossly misused the provision of Section
12AA and 80G(5) (vi).
d) They have violated the objects of the trust as converting
cheque received through corpus donation in cash beyond-the-
objects. The society was found to be involved in hawala
activities.
e) Corpus donation received is not voluntary, merely an
accommodation entry and fictitious.
f) Activities of the trust are not genuine as well as not being
carried out in accordance with its declared objects. Assessee’s
case is covered within the 60th limb of Section 12AA(3).
g) Even ingenuine and illegal activities carried on by assessee
through money laundering do 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, therefore, invoked the provisions of Section 12AA(3) of the
Act and cancelled the registration granted under Section 12AA of the Act
w.e.f. 01.04.2012. Consequently, the approval granted to the Trust under
Section 80G of the Act was also cancelled.
6. The matter was carried in appeal by the Trust by filing Income Tax
Appeal Nos.756 & 912 /Kol/2016 before the Tribunal.
After considering the entire material on record, the Tribunal concluded
as under:
“13. We have given a very careful consideration to the rival
submissions. It is clear from the statements of Secretary and
Treasurer of SHG and PH that they were accepting cash and
giving bogus donations. In the statement recorded in the survey
conducted in the case of SHG and PH on 27.1.2015, it was
explained that SHG&PH’s source of income was the money
received in the form of donations from corporate bodies as well
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as from individuals. In the said statement it was explained that
there were about nine brokers who used to bring donations in the
form of cheque/RTGS to SHG and PH. The Donations received
would be returned by issue of cheque/RTGS in the name of
companies or organization specified by the nine brokers. SHG
and PH would receive 7 or 8% of the donations amount. It was
also stated in such statement since the assessee was entitled to
exemption u/s 80G and u/s 35 of the Act their organization was
chosen by the brokers for giving donations to SHG and PH as
well as for giving donations by SHG and PH. Till now the
Assessee’s name did not figure in the statement recorded on
27.1.2015. However, pursuant to the Survey in the case of SHG
& PH proceedings for cancellation of registration u/s 12A of the
Act granted to them were initiated. In such proceedings, Smt.
Samadrita Mukherjee Sardar (in a letter dated 24.8.2015) had
given a list of donations which were given by them after getting
cash of equivalent amount. It is not disputed that the name of the
assessee figures in the said list and the fact that SHG & PH to
the Assessee were against cash received from them in Financial
Year 2012-13 of a sum of Rs.1,23,87,550/-. Even at this stage
all admissions were by third parties and the same were not
binding on the Assessee. However, in a survey conducted in the
case of the Assessee on 24.8.2015, the Managing Trustee of the
Assessee admitted that it gave cash and got back donations. We
have already extracted the statement given by the Managing
Trustee. Even in the proceedings for cancellation of registration,
the Assessee has not taken any stand on all the evidence against
the Assessee. In such circumstances, we are of the view that the
conclusions drawn by the CIT(E) in the impugned order which
we have extracted in the earlier part of the order are correct and
calls for no interference. It is clear from the evidence on record
that the activities of the Assessee were not genuine and hence
their registration is liable to be cancelled u/s. 12AA(3) of the
Act, and was rightly cancelled by the CIT(E). We therefore,
uphold his orders and dismiss both the appeals by the Assessee.”
With this view, the appeals preferred by the Trust were dismissed.
7. The Trust being aggrieved, filed Income Tax Appeal No.116 of 2018
before the High Court. By its order dated 04.07.2018, following questions
were framed as substantial questions of law:
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“(i) Whether the Tribunal and the Commissioner of Income Tax
(Exemptions) were right in law in directing the cancellation of
registration of the Appellant granted under Section 12AA to the
Appellant Trust on the ground that the Trust had received bogus
donation from School of Human Genetics and Population
Health?
(ii) Whether statement recorded in the course of survey under
Section 133A of the Act has any probative or evidentiary value?
8. It was submitted on behalf of 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.
9. After considering rival submissions, the High Court allowed the appeal
with following observations:
“On the basis of the evidence and the authorities cited before the
adjudicating bodies below, we say that the respondent revenue
has 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. The respondent also has not been
able to prove any complicity of the appellant trust in any illegal,
immoral or irregular activity of the donors.
In that view of the matter, we answer the question (i) in the
order dated 4th July 2018 in the negative and in favour of the
assessee. We have not found it necessary to go into the issue
raised in question (ii).
The order of cancellation of the registration of the trust is
set aside. The respondent is directed to restore its registration
within three weeks of communication of this order. However,
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this will not bar any action against the appellant in respect of
any future activities.
The appeal is hereby allowed to the extent above.”
10. In this appeal, we have heard Mr. N. Venkataraman, learned ASG in
support of the appeal and Mr. Rana Mukherjee, learned Senior Advocate for
the Trust.
It is submitted by the learned ASG that the answers given to the
questionnaire clearly show a definite tendency on part of the Trust to return
in cash, the donation it received from several entities.
Mr. Mukherjee, learned Senior Advocate appearing for the Trust
submitted that the conclusions drawn by the High Court were quite correct
and did not call for any interference.
11. 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
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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.
12 The High Court completely erred in entertaining the appeal under
Section 260A of the 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.
In our view, this appeal, therefore, deserves to be allowed.
13. Setting aside the judgment and order presently under challenge, we
allow this appeal and restore the order passed by the CIT and the Tribunal.
No costs.
………………………………..J.
(UDAY UMESH LALIT)
……………………………….J.
(AJAY RASTOGI)
NEW DELHI,
AUGUST 02, 2021.
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