A division bench of the Kolkata ITAT in Dr. B.G. Memorial Trust v. CIT (E), Kolkata, held that though the bogus donation can be a ground for denying exemption under section 11 of the Income Tax Act, 1961, the registration under section 12AA cannot be revoked on the same ground.
The decision was based on the ratio laid down by the Karnataka High court in the case of Islamic Academy of Education wherein it was held that even the donation is proved to be bogus then also the registration u/s 12AA of the Act cannot be cancelled but the said amount of donation will not be eligible for exemption u/s 11 of the Act.
In the instant case, the CIT(E) found that the assessee has been receiving money through corpus donation and same has been utilized by parking in the bank account as fixed deposit. He, therefore, came to a conclusion that the assessee has misused the provision of Section 12AA and 80G of the Act and therefore, the registration granted to the assessee must be revoked as there was no charitable activity carried out by assessee.
The bench noted that the activities of the trust have not been doubted except the donation received by the assessee from two parties. The most the exemption u/s 11 of the Act will be denied to such donation.
“The provisions of section 12AA of the Act prescribe conditions for registration of trust and make obligatory to the trust or the institution to seek registration under section 12AA of the Act, if such trust or institution intends to have the benefit of the provisions of section 11 and 12 of the Act. These provisions thus make it clear that if the trust or the institution is not registered under section 12AA of the Act, it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable to be excluded under any of the clauses of section 11 of the Act,” the bench said.
The Income-tax Act through section 12AA has made it obligatory for charitable trusts and institutions to get themselves registered with the income-tax authorities failing which the benefit of exemption from income-tax would be denied, the bench added.
After analyzing the provisions of section 12AA, the bench held that the CIT (Exemption) before granting the registration certificate shall conduct necessary enquiries as he thinks fit in order to satisfy himself about the genuineness of activities of the trust. Once the ld CIT(Exemption) is satisfied with the genuineness of the activities then he will grant the registration certificate.
Read the full text of the Order below.
