The Commissioner has cancelled my trust's registration because some corpus donations are said to be bogus — can he do that when the money was actually spent on the trust's objects?
Yes. The Supreme Court held on 2 August 2021 that a trust which takes donations by cheque and returns the money in cash is misusing its section 12AA status and cannot keep it. The Managing Trustee had admitted in a survey that a major part of the corpus donations were accommodation entries, that part of each donation went back to the donors through named intermediaries by RTGS, and that those payments were booked as building capital expenditure. On that material the Commissioner and the Tribunal were right to cancel registration under section 12AA(3) and the consequent 80G approval, and the Calcutta High Court should not have interfered under section 260A.
Decided by the Supreme Court (Supreme Court of India; Uday Umesh Lalit and Ajay Rastogi JJ, judgment delivered by Uday Umesh Lalit J) on 2021-08-02, reported as AIR 2021 SUPREME COURT 3588; AIRONLINE 2021 SC 407. It bears on section 12AA(3), section 12AA, section 80G, section 260A of the Income Tax Act 1961, in Charitable Trusts & Exemption and Evidence & Burden of Proof matters.
This is the Supreme Court's short, blunt answer to the corpus-donation racket cases that followed the surveys on entities such as the School of Human Genetics and Population Health. Two things make it useful. First, it disposes of the standard defence — that a donee is not obliged to check the source of a donor's funds and that the money was in fact applied to the objects. Where the donation comes back to the donor, the trust is not a recipient of charity but a conduit, and section 12AA(3) is attracted on the ground that the activities are not genuine. Second, it is a reminder about section 260A: the High Court was criticised for entertaining the appeal at all without dealing with the admissions or showing how the findings of the Commissioner and the Tribunal were wrong. Concurrent findings of fact on material of this kind are not a substantial question of law.
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The Trust was registered under section 12AA in August 2010 and approved under section 80G(vi). A survey under section 133A on the School of Human Genetics and Population Health, Kolkata suggested that the Trust was not working to its objects, and a show cause notice followed in December 2015. In a survey on the Trust itself, the Managing Trustee answered a departmental questionnaire. He said that a major part of the donations on which exemption under section 11(1)(d) had been claimed were not genuine; that in financial years 2011-12 and 2012-13 much of what was shown as corpus donation was an accommodation entry, taken to show capital reserve for bank borrowing and to fund expansion; that part of each such donation was returned to the donors through intermediaries by RTGS to seven named concerns; and that those payments were booked as capital expenditure on building. He identified a middleman who supplied donors, cheques, corpus donation letters and the account details for the return leg, and accepted that donations totalling Rs.6,03,07,550 in one ledger were bogus, of which Rs.5,96,29,973 had gone back by RTGS.
The Revenue's appeal was allowed. The answers given by the Managing Trustee show the extent to which the status conferred by section 12AA was being misused: donations came in by cheque and substantial money was ploughed back or returned to the donors in cash, so the donations were bogus. An entity misusing the status conferred by section 12AA is not entitled to retain and enjoy it, and the Commissioner and the Tribunal were right and justified in cancelling registration under section 12AA and the approval under section 80G. The High Court completely erred in entertaining the appeal under section 260A; it did not attempt to deal with the answers to the questionnaire or to show how the conclusions of the Commissioner and the Tribunal were incorrect or invalid. The judgment of the Calcutta High Court of 9 October 2018 was set aside and the orders of the Commissioner and the Tribunal restored, with no costs.
The Court decided the case on the admissions. The Commissioner had cancelled registration with effect from 1 April 2012 on findings that the corpus donations were not voluntary but accommodation entries, that cheques received as corpus donation were converted into cash outside the objects, that the trust had been used in hawala activity, and that activities carried on through money laundering cannot be charity or an object of general public utility within section 2(15). The Tribunal traced how the case was built: the statements from the School of Human Genetics and Population Health described brokers bringing donations by cheque or RTGS which were returned to concerns the brokers named, the recipient keeping seven or eight per cent, and a later letter listed the Trust among those to whom donations were given against cash. The Tribunal accepted that those were third-party admissions not binding on the Trust — but the position changed when the Trust's own Managing Trustee admitted in its own survey that it gave cash and got back donations, and the Trust took no stand on the evidence in the cancellation proceedings. Against that, the Trust's argument that a donee need not verify the source of a donor's funds and that the money was applied to the objects did not meet the point. The vice was not the donor's conduct but the return of the money, which showed the receipts were not donations at all. Where activities are not genuine in that sense, section 12AA(3) is attracted, and the section 80G approval falls with the registration.
An entity which is misusing the status conferred upon it by Section 12AA of the Act is not entitled to retain and enjoy said status.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held on 2 August 2021 that a trust which takes donations by cheque and returns the money in cash is misusing its section 12AA status and cannot keep it. The Managing Trustee had admitted in a survey that a major part of the corpus donations were accommodation entries, that part of each donation went back to the donors through named intermediaries by RTGS, and that those payments were booked as building capital expenditure. On that material the Commissioner and the Tribunal were right to cancel registration under section 12AA(3) and the consequent 80G approval, and the Calcutta High Court should not have interfered under section 260A. This was decided by the Supreme Court (Supreme Court of India; Uday Umesh Lalit and Ajay Rastogi JJ, judgment delivered by Uday Umesh Lalit J) and bears on section 12AA(3), section 12AA, section 80G, section 260A of the Income Tax Act 1961. It is reported as AIR 2021 SUPREME COURT 3588; AIRONLINE 2021 SC 407. This is the Supreme Court's short, blunt answer to the corpus-donation racket cases that followed the surveys on entities such as the School of Human Genetics and Population Health. Two things make it useful. First, it disposes of the standard defence — that a donee is not obliged to check the source of a donor's funds and that the money was in fact applied to the objects. Where the donation comes back to the donor, the trust is not a recipient of charity but a conduit, and section 12AA(3) is attracted on the ground that the activities are not genuine. Second, it is a reminder about section 260A: the High Court was criticised for entertaining the appeal at all without dealing with the admissions or showing how the findings of the Commissioner and the Tribunal were wrong. Concurrent findings of fact on material of this kind are not a substantial question of law. If it applies to you, the first step is this: If your trust is facing cancellation, meet the specific material — the ledger entries, the RTGS trail, the named intermediaries — rather than arguing in the abstract that a donee need not verify a donor's source of funds.
The Trust was registered under section 12AA in August 2010 and approved under section 80G(vi). A survey under section 133A on the School of Human Genetics and Population Health, Kolkata suggested that the Trust was not working to its objects, and a show cause notice followed in December 2015. In a survey on the Trust itself, the Managing Trustee answered a departmental questionnaire. He said that a major part of the donations on which exemption under section 11(1)(d) had been claimed were not genuine; that in financial years 2011-12 and 2012-13 much of what was shown as corpus donation was an accommodation entry, taken to show capital reserve for bank borrowing and to fund expansion; that part of each such donation was returned to the donors through intermediaries by RTGS to seven named concerns; and that those payments were booked as capital expenditure on building. He identified a middleman who supplied donors, cheques, corpus donation letters and the account details for the return leg, and accepted that donations totalling Rs.6,03,07,550 in one ledger were bogus, of which Rs.5,96,29,973 had gone back by RTGS. The matter was decided on 2021-08-02 by the Supreme Court (Supreme Court of India; Uday Umesh Lalit and Ajay Rastogi JJ, judgment delivered by Uday Umesh Lalit J). On those facts the Supreme Court held as follows. The Revenue's appeal was allowed. The answers given by the Managing Trustee show the extent to which the status conferred by section 12AA was being misused: donations came in by cheque and substantial money was ploughed back or returned to the donors in cash, so the donations were bogus. An entity misusing the status conferred by section 12AA is not entitled to retain and enjoy it, and the Commissioner and the Tribunal were right and justified in cancelling registration under section 12AA and the approval under section 80G. The High Court completely erred in entertaining the appeal under section 260A; it did not attempt to deal with the answers to the questionnaire or to show how the conclusions of the Commissioner and the Tribunal were incorrect or invalid. The judgment of the Calcutta High Court of 9 October 2018 was set aside and the orders of the Commissioner and the Tribunal restored, with no costs.
The Court decided the case on the admissions. The Commissioner had cancelled registration with effect from 1 April 2012 on findings that the corpus donations were not voluntary but accommodation entries, that cheques received as corpus donation were converted into cash outside the objects, that the trust had been used in hawala activity, and that activities carried on through money laundering cannot be charity or an object of general public utility within section 2(15). The Tribunal traced how the case was built: the statements from the School of Human Genetics and Population Health described brokers bringing donations by cheque or RTGS which were returned to concerns the brokers named, the recipient keeping seven or eight per cent, and a later letter listed the Trust among those to whom donations were given against cash. The Tribunal accepted that those were third-party admissions not binding on the Trust — but the position changed when the Trust's own Managing Trustee admitted in its own survey that it gave cash and got back donations, and the Trust took no stand on the evidence in the cancellation proceedings. Against that, the Trust's argument that a donee need not verify the source of a donor's funds and that the money was applied to the objects did not meet the point. The vice was not the donor's conduct but the return of the money, which showed the receipts were not donations at all. Where activities are not genuine in that sense, section 12AA(3) is attracted, and the section 80G approval falls with the registration. In the words reproduced by the source cited on this page: "An entity which is misusing the status conferred upon it by Section 12AA of the Act is not entitled to retain and enjoy said status."
It was decided by the Supreme Court on 2021-08-02 and is reported as AIR 2021 SUPREME COURT 3588; AIRONLINE 2021 SC 407. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 12AA(3), section 12AA, section 80G, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The Revenue's appeal was allowed. The answers given by the Managing Trustee show the extent to which the status conferred by section 12AA was being misused: donations came in by cheque and substantial money was ploughed back or returned to the donors in cash, so the donations were bogus. An entity misusing the status conferred by section 12AA is not entitled to retain and enjoy it, and the Commissioner and the Tribunal were right and justified in cancelling registration under section 12AA and the approval under section 80G. The High Court completely erred in entertaining the appeal under section 260A; it did not attempt to deal with the answers to the questionnaire or to show how the conclusions of the Commissioner and the Tribunal were incorrect or invalid. The judgment of the Calcutta High Court of 9 October 2018 was set aside and the orders of the Commissioner and the Tribunal restored, with no costs. It arises in Charitable Trusts & Exemption and Evidence & Burden of Proof matters, on section 12AA(3), section 12AA, section 80G, section 260A of the Income Tax Act 1961, and was decided by Supreme Court of India; Uday Umesh Lalit and Ajay Rastogi JJ, judgment delivered by Uday Umesh Lalit J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Treat any statement by a trustee in a survey as the centre of the case; here it decided the appeal, and nothing said afterwards displaced it. Reconcile every corpus donation with the bank trail on both sides, and be able to show that nothing went back to the donor or to anyone at his instance. Do not expect the High Court to reappraise the evidence under section 260A where the Commissioner and the Tribunal have concurred on the facts; frame a genuine question of law or do not appeal.
Still good law. A Supreme Court judgment of 2 August 2021, reported at AIR 2021 SC 3588. No citator check for later authority, and no check on subsequent amendment of the registration provisions, was possible; only the judgment text was before me. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The High Court had framed a second substantial question — whether a statement recorded in the course of a survey under section 133A has any probative or evidentiary value. Neither the High Court nor the Supreme Court answered it: the High Court found it unnecessary, and the Supreme Court decided the appeal on the content of the admissions without addressing their evidentiary status in terms. Anyone relying on this decision for the proposition that a section 133A statement is by itself sufficient should read it carefully, because that point was left open. The judgment also does not record the assessment years affected beyond the cancellation taking effect from 1 April 2012. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was allowed. The answers given by the Managing Trustee show the extent to which the status conferred by section 12AA was being misused: donations came in by cheque and substantial money was ploughed back or returned to the donors in cash, so the donations were bogus. An entity misusing the status conferred by section 12AA is not entitled to retain and enjoy it, and the Commissioner and the Tribunal were right and justified in cancelling registration under section 12AA and the approval under section 80G. The High Court completely erred in entertaining the appeal under section 260A; it did not attempt to deal with the answers to the questionnaire or to show how the conclusions of the Commissioner and the Tribunal were incorrect or invalid. The judgment of the Calcutta High Court of 9 October 2018 was set aside and the orders of the Commissioner and the Tribunal restored, with no costs.
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