COMMISSIONER OF INCOME TAX (EXEMPTIONS), KOLKATA versus BATANAGAR EDUCATION AND RESEARCH TRUST on 2 August 2021

1. This appeal challenges the judgment and order dated09-10-2018 passed by the High Court at Calcutta in ITA No.116 of 2018setting aside (i) the order dated 25.02.2016 passed by Commissioner ofCIncome Tax (Exemption) (“CIT” for short) canceling registration of therespondent Trust (“Trust”, for short) under Section 12AA of the IncomeTax Act, 1961 (“the Act” for short); and (ii) the order dated 13.09.2017passed by the Income Tax Appellate Tribunal (“the Tribunal”, for short)dismissing appeals arising therefrom.

D2. The Trust was registered under Section 12AA of the Act videorder dated 06.08.2010 and was also accorded approval under Section80G(vi) of the Act.

3. In a survey conducted on an entity named School of HumanGenetics and Population Health, Kolkata under Section 133A of the Act,it was prima facie observed that the Trust was not carrying out itsEactivities in accordance with the objects of the Trust. A show causenotice was, therefore, issued by the CIT on 04.12.2015.

4. In answer to the questionnaire issued by the Department, ShriRabindranath Lahiri, Managing Trustee of the Trust gave answers tosome of the questions as under:F

“Q.11. Please confirm the authenticity of the abovementionedCorpus Donation.

Ans. A major part of the donations that were claimed exemptionu/s 11(1)(d) were not-genuine. The donation received in F.Ys.G2008-09, 2009-10 and 2010-11 were genuine Corpus Donationreceived either from the Trustees or persons who were close tothe 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 inthese two F.Ys. viz. 2011-12 and 2012-13, shown as CorpusDonation, were in the nature of accommodation entries to facilitatetwo things-

a) To procure loans from the Bank we had to show substantialamount of Capital Reserve in our Balance Sheet.

b) We require funds for the expansion of our college. Thefees received from the students along with genuine donations from the Trustees and their contacts were not sufficient to runthe institution.

Q.12. Why are you saying that a major part of the donationsreceived were not genuine?

Ans. In those cases, which I admit as accommodation entries, apart of the donation received was returned back to the donorsthrough intermediaries.

Q. 13. Who were the intermediaries and what were themodes of returning the money?

Ans. We were instructed to transfer funds through RTGS to thefollowing 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 thehead Building.

Q. 14. In response to the earlier question you have stated that youwere “instructed”. Who gave you the instruction?

Ans. I can remember only one name right now, that is Shri GulabPincha, Mob No. [REDACTED]. He was the key person for providing A

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SUPREME COURT REPORTS

Aa large part of bogus donation received which was immediatelyreturned back to the different parties in the guise of paymentstowards capital expenditure in building. We do now know anydetails in respect of the donors on behalf of whom Shri GulabPincha acted as a middle man. Shri Pincha provided us with thedetails of the donors, cheque of the donations, letters of corpusBdonations etc. He also provided us with the names and bank a/c.details of the seven (7) persons, mentioned in Answer 13 to whommoney has to be returned back through RTGS. He also collectedthe money receipts/80G certifications on behalf of the donors.

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Q.19. The ledger copy for the period from 01.04.2014 to04.09.2014 in respect of “General Fund” of your trust having detailsof the donors is being shown to you to identify the bogus donationsalong with bogus donors.

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Ans. After going through the list of the donors appeared in suchledger it is understood that the Donors whose names are writtenin capital letters under the sub-head “Donation-13”, “Donation-I”and “Donations-II” having total amount of Rs.6,03,07,550/- is bogusand out of which Rs.5,96,29,973/- was returned back throughRTGS to the above mentioned seven (7) persons following theinstructions of the mediators.”

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E5. On the basis of the material on record, the CIT came to thefollowing conclusions:

“6.1. The intention of the legislature to grant registration u/s 12AAand 80G, to give the benefit u/s 11 to encourage medical relief tothe poor and needy persons, promote education among massesFand support to the poor section of the society. But time and againthese provisions have been misused for personal need and forbenefit of trustees/members of the trusts and societies. Surveyu/s. 133A conducted in the case of assessee elaborates the natureand volume of transactions in the alleged activities.

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6.2. Looking at the volume and depth of the illegal activitiesperformed and indulged by the society to use the provisions of theI.T. Act providing support and encouragement to the organizationsfor doing the benevolent activities, assessee society not only openedthe pandora’s box defying the sole benevolent purpose of provisionsas per the I.T. Act, but also challenged the cause of the H

constitutional provisions by maintaining certain well-neededobjectives as per the Act and performing the reverse in reality.

6.3 Based on the facts and circumstantial evidences as discussedin Para 1 to 5, it can be inferred: -

a) Assessee trust has received a sum of Rs.1,23,87,550/- as bogusdonation from M/s. School of Human Genetics & Population Healthand voluntarily offered as income. SHG & PH has admitted theirbogus transactions by filing application before the Hon’bleSettlement Commission, Kolkata and through confirmation filed.

b) They have received bogus corpus donation not only fromSGHG & PH but also from various parties in different years.

c) Society/Trust has grossly misused the provision of Section 12AAand 80G(5) (vi).

d) They have violated the objects of the trust as converting chequereceived through corpus donation in cash beyond-the-objects. Thesociety was found to be involved in hawala activities.

e) Corpus donation received is not voluntary, merely anaccommodation entry and fictitious.

f) Activities of the trust are not genuine as well as not being carriedout in accordance with its declared objects. Assessee’s case iscovered within the 60th limb of Section 12AA(3).

g) Even ingenuine and illegal activities carried on by assesseethrough money laundering do not come within the conceptualframework of charity vis-a-vis activity of general public utilityenvisaged the Income Tax Act as laid down in Section 2(15).

The CIT, therefore, invoked the provisions of Section 12AA(3) ofthe Act and cancelled the registration granted under Section 12AA ofthe Act w.e.f. 01.04.2012. Consequently, the approval granted to theTrust under Section 80G of the Act was also cancelled.

6. The matter was carried in appeal by the Trust by filing IncomeTax Appeal Nos.756 & 912 /Kol/2016 before the Tribunal.

After considering the entire material on record, the Tribunalconcluded as under:

“13. We have given a very careful consideration to the rival A

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submissions. It is clear from the statements of Secretary andTreasurer of SHG and PH that they were accepting cash andgiving bogus donations. In the statement recorded in the surveyconducted in the case of SHG and PH on 27.1.2015, it wasexplained that SHG&PH’s source of income was the moneyreceived in the form of donations from corporate bodies as wellas from individuals. In the said statement it was explained thatthere were about nine brokers who used to bring donations in theform of cheque/RTGS to SHG and PH. The Donations receivedwould be returned by issue of cheque/RTGS in the name ofcompanies or organization specified by the nine brokers. SHGand PH would receive 7 or 8% of the donations amount. It wasalso stated in such statement since the assessee was entitled toexemption u/s 80G and u/s 35 of the Act their organization waschosen by the brokers for giving donations to SHG and PH aswell as for giving donations by SHG and PH. Till now theAssessee’s name did not figure in the statement recorded on27.1.2015. However, pursuant to the Survey in the case of SHG& PH proceedings for cancellation of registration u/s 12A of theAct granted to them were initiated. In such proceedings, Smt.Samadrita Mukherjee Sardar (in a letter dated 24.8.2015) hadgiven a list of donations which were given by them after gettingcash of equivalent amount. It is not disputed that the name of theassessee figures in the said list and the fact that SHG & PH tothe Assessee were against cash received from them in FinancialYear 2012-13 of a sum of Rs.1,23,87,550/-. Even at this stage alladmissions were by third parties and the same were not bindingon the Assessee. However, in a survey conducted in the case ofthe Assessee on 24.8.2015, the Managing Trustee of the Assesseeadmitted that it gave cash and got back donations. We have alreadyextracted the statement given by the Managing Trustee. Even inthe proceedings for cancellation of registration, the Assessee hasnot taken any stand on all the evidence against the Assessee. Insuch circumstances, we are of the view that the conclusions drawnby the CIT(E) in the impugned order which we have extracted inthe earlier part of the order are correct and calls for no interference.It is clear from the evidence on record that the activities of theAssessee were not genuine and hence their registration is liableto be cancelled u/s. 12AA(3) of the Act, and was rightly cancelled by the CIT(E). We therefore, uphold his orders and dismiss boththe 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 of2018 before the High Court. By its order dated 04.07.2018, followingquestions were framed as substantial questions of law:

“(i) Whether the Tribunal and the Commissioner of Income Tax(Exemptions) were right in law in directing the cancellation ofregistration of the Appellant granted under Section 12AA to theAppellant Trust on the ground that the Trust had received bogusdonation from School of Human Genetics and Population Health?

(ii) Whether statement recorded in the course of survey underSection 133A of the Act has any probative or evidentiary value?

8. It was submitted on behalf of Trust that it had received donationsfrom various donors and the Trust was under no obligation to verify thesource of the funds of the donor or whether those funds were acquiredby performance of any unlawful activity. It was further submitted thatthe funds were applied for the purposes of trust and that there was noevidence to suggest that those funds were applied for any illegal or immoralpurposes or that the Trust was a namesake and some other activitieswere being carried out.

9. After considering rival submissions, the High Court allowed theappeal with following observations:

“On the basis of the evidence and the authorities cited before theadjudicating bodies below, we say that the respondent revenuehas not been able to establish the case so as to warrant cancellationof the registration of the appellant trust under Section 12AA(3) ofthe Act. The respondent also has not been able to prove anycomplicity of the appellant trust in any illegal, immoral or irregularactivity of the donors.

In that view of the matter, we answer the question (i) in theorder dated 4th July 2018 in the negative and in favour of theassessee. We have not found it necessary to go into the issueraised in question (ii).

The order of cancellation of the registration of the trust isset aside. The respondent is directed to restore its registrationwithin three weeks of communication of this order. However, this A

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Awill not bar any action against the appellant in respect of anyfuture activities.

The appeal is hereby allowed to the extent above.”

10. In this appeal, we have heard Mr. N. Venkataraman, learnedASG in support of the appeal and Mr. Rana Mukherjee, learned SeniorBAdvocate for the Trust.

It is submitted by the learned ASG that the answers given to thequestionnaire clearly show a definite tendency on part of the Trust toreturn in cash, the donation it received from several entities.

CMr. Mukherjee, learned Senior Advocate appearing for the Trustsubmitted that the conclusions drawn by the High Court were quite correctand did not call for any interference.

11. The answers given to the questionnaire by the ManagingTrustee of the Trust show the extent of misuse of the status enjoyed byDthe Trust by virtue of registration under Section 12AA of the Act.

These answers also show that donations were received by wayof cheques out of which substantial money was ploughed back or returnedto the donors in cash. The facts thus clearly show that those were bogusdonations and that the registration conferred upon it under Sections 12AAand 80G of the Act was completely being misused by the Trust. AnEentity which is misusing the status conferred upon it by Section 12AA ofthe Act is not entitled to retain and enjoy said status. The authoritieswere therefore, right and justified in cancelling the registration underSections 12AA and 80G of the Act.

12. The High Court completely erred in entertaining the appealFunder Section 260A of the Act. It did not even attempt to deal with theanswers to the questions as aforesaid and whether the conclusions drawnby the CIT and the Tribunal were in any way incorrect or invalid.

In our view, this appeal, therefore, deserves to be allowed.

G13. Setting aside the judgment and order presently under challenge,we allow this appeal and restore the order passed by the CIT and theTribunal. No costs.

Devika GujralH