2018 (10) TMI 870 - HC - Income Tax

Cancellation of registration u/s 12AA(3) - proof of charitable activities - Held that - 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. 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. - decided in favour of assessee.

Summary

Issues:
1. Cancellation of registration of the appellant assessee as a trust under section 12AA(3) of the Income Tax Act, 1961.

Analysis:
The High Court of Calcutta dealt with the appeal made by the assessee against the dismissal of two appeals by the Income Tax Appellate Tribunal. The primary issue was the cancellation of the appellant's registration as a trust under section 12AA(3) of the Income Tax Act, 1961. This section empowers the Principal Commissioner to cancel the registration if the activities of the trust are not genuine or not in line with its stated objectives. The court highlighted that for the section to be applied, the Commissioner must be satisfied that the trust is not operating genuinely or is engaged in unlawful activities. The trust could also be misusing its status for purposes other than those for which it was established, such as benefiting specific individuals.

The appellant argued that the trust had multiple donors, and there was no obligation to verify the sources of donations unless there was evidence of illegal activities. The funds received were utilized for the trust's purposes without any indication of illegal or immoral utilization. The court referenced various legal authorities cited by the appellant to support their argument. On the contrary, the respondent contended that many trusts are misused for illegal activities like money laundering.

After examining the evidence and legal precedents presented, the court concluded that the revenue failed to establish grounds for canceling the trust's registration under section 12AA(3) of the Act. There was no proof of the trust's involvement in any illegal or irregular activities related to the donors. Consequently, the court ruled in favor of the assessee, setting aside the order of cancellation and directing the restoration of the trust's registration within three weeks. However, the judgment clarified that this decision did not prevent any future actions against the appellant for new activities.

In conclusion, the High Court's judgment favored the assessee by overturning the cancellation of the trust's registration under section 12AA(3) of the Income Tax Act, 1961. The court emphasized the importance of proving genuine activities and adherence to the trust's objectives before canceling its registration, highlighting the lack of evidence to support the revenue's claims against the appellant trust.