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Commissioner of Income Tax (Exemptions), Kolkata v. Batanagar Education and Research Trust

Civil Appeal · 2021 INSC 369Decided 2 Aug 2021
Civil Appeal No. 4451 of 2021
Justice Uday Umesh Lalit · Justice Ajay Rastogi

Background

The Income Tax Department had cancelled the Trust's registration under Section 12AA of the Income Tax Act, 1961, after a survey revealed the Trust had received large "corpus donations" that were actually bogus accommodation entries: money routed back to the donors in cash through intermediaries, which the Trust's own Managing Trustee admitted to. The Income Tax Appellate Tribunal upheld the cancellation, but the Calcutta High Court reversed it and restored the Trust's registration, prompting the Department's appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that the High Court had erred in entertaining the appeal without properly engaging with the detailed admissions made by the Trust's Managing Trustee during the survey, which clearly showed that donations were routed back as cash to specific entities and booked as capital expenditure. The Court found these facts demonstrated that the Trust's registration and tax-exempt status under Sections 12AA and 80G were being misused for money-laundering-like activity rather than genuine charitable work. It set aside the High Court's judgment and restored the orders of the CIT and Tribunal cancelling the Trust's registration.

Lesson Learnt

Tax-exempt charitable status is a privilege tied to genuine charitable conduct; if an organisation is shown, including through its own officials' admissions, to be laundering donations rather than using them for its stated charitable objects, courts will uphold cancellation of its tax-exemption registration.

Official source (sci.gov.in)View Judgment (PDF)

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