Calcutta High Court
Batanagar Education & Research Trust vs The Commissioner Of Income Tax ... on 9 October, 2018
Author: I. P. Mukerji
Bench: I. P. Mukerji
OD10
ITA No. 116 of 2018
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
Batanagar Education & Research Trust
Versus
The Commissioner of Income Tax (Exemptions), Kolkata
Before:
The Hon'ble Justice I. P. MUKERJI
And
The Hon'ble Justice AMRITA SINHA
Date: 9th October 2018
Appearance:
Mr. N. K. Poddar, Sr. Advocate
Mr. V. Tibrewal, Advocate
Mr. Avra Majumdar, Advocate
for the appellant
Mrs. Smita Das De, Advocate
for the respondent
The Court: Two appeals of the assessee were dismissed by the Income Tax Appellate Tribunal (hereinafter referred to as "the tribunal") on 13th September 2017. The assessee is in appeal before us against that order under section 260A of the Income Tax Act, 1961.
The registration of the appellant assessee as a trust was cancelled by the respondent in exercise of powers under section 12AA(3) of the said Act.
The said provision is as follows:
"12AA. Procedure for registration.-(1) ... ... ... ... ... ... ... [(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]], and subsequently the [Principal Commissioner of Commissioner] is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the 2 case may be, he shall pass an order in writing canceling the registration of such trust or institution:
provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard]."
Thus, before the section can be applied, the Principal Commissioner has to be satisfied that the activities of a trust were not genuine or were not being carried out in accordance with the objects of the trust or institution. In such circumstances, he could cancel its registration. The use of the expression "the activities of such trust or institution are not genuine" suggests that the trust, in the opinion of the Commissioner, should be proved to be carrying on some other activity in the garb of a trust with benevolent purposes. That would make the activity not genuine. Or the trust could be involved in any unlawful activity.
The second part of the said sub-section could imply that the trust was being utilised for some other purpose than one for which it was created. For example, a religious and charitable trust is found to be operating for the benefit of a particular person.
As is established by evidence, the trust in this case had several donors. Mr. Poddar argued, and in our opinion rightly, that when the trust received donations, it was under no obligation to verify the source of the fund of the donor or whether such fund was acquired by performance of any unlawful activity. At least the appellant trust did not make the inquiry and accepted donations innocently.
Mr. Poddar also submitted that these funds were applied for the purpose of the trust. There was no evidence to suggest that these funds were applied for any illegal or immoral purpose or that the trust was namesake and that some other activity was carried on with those funds in the garb of the trust. Any such fault could not be established by the respondent commissioner.
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Mr. Poddar cited the following authorities.
1. CIT v. Red Rose School reported in (2007) 163 Taxman 19, paras 28-32 & 42-45 (All)
2. CIT v. Islamic Academic of Education, an unreported judgment passed by the High Court at Karnataka dated 9th September 2014 in ITA No. 805 of 2008
3. CIT v. Apeejay Education Society reported in (2015) 232 Taxman 619, paras 6-9 (P&H)
4. CIT v. Mumbai Metropolitan Regional Iron and Steel Market Committee reported in (2018) 404 ITR 171 (Bom)
5. CIT v. Chaudhary Son Pal Singh reported in (2018) 401 ITR 509 (ALL)
6. CIT v. S. Khader Khan Son reported in (2015) 14 SCC 491 (SC)
7. CIT v. S. Khader Khan Son reported in (2008) 300 ITR 157 (Mad) However, Mrs. Smita Das De for the respondent revenue very strongly argued that there were many such trusts which have been created to be used for illegal purpose or for "money laundering".
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 side. The respondent is directed to restore its registration within three weeks of communication of this order.
However, this will not bar any action against the appellant in respect of any future activities.
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The appeal is hereby allowed to the extent above. Certified photocopy of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I. P. MUKERJI, J.) (AMRITA SINHA, J.) R. Bose