Section 12AA(3)

Section 12AA(3) — the law in short

What the courts have decided on section 12AA(3), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT (Exemption) v Batanagar Education and Research Trust Supreme CourtHelps department
  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.
• Ananda Social and Educational Trust v CIT Supreme CourtHelps taxpayerNo later treatment found
  Our trust was formed weeks ago and has done nothing yet. Can registration be refused for that?
  No. Registration cannot be refused merely because a newly formed trust has not started activities. 'Activities' includes proposed activities, so at the registration stage the Commissioner looks at whether the objects are genuinely charitable and whether the proposed activities are genuine.
• Chromex v DCIT-17(1), Mumbai ITATHelps departmentNo later treatment found
  My client says the Explanation in s.35(1) protects him because the donee's approval was live on the day he paid. The department has the donee's own admission before the Settlement Commission that the money went back in cash. Is the statutory protection enough?
  No. The Mumbai Bench held that once the Revenue demonstrates through cogent material that the payment was an accommodation entry, the onus shifts to the donor to establish the genuineness of his own transaction, and failure to discharge it disentitles him to the weighted deduction. CIT v Chotatingrai Tea was distinguished on the footing that there was no finding of fraud there, whereas here the institution had admitted before the Settlement Commission that it did no significant research and refunded the donations.
• ACIT v Armee Infotech ITATHelps taxpayer
  The Assessing Officer says my s.80GGC deduction fails because he cannot trace what the party did with the money, and because the party did not file its return. Does the section require me to answer for that?
  No. Section 80GGC requires a contribution, otherwise than in cash, to a political party registered under s.29A of the Representation of the People Act 1951, by an assessee who is not a local authority or a Government-funded artificial juridical person. Nothing in the Act puts the donor under an obligation to ensure how the donee uses the funds, and an enquiry directed at that is misdirected.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.