by TIOL News Service

NEW DELHI, FEB 01, 2019: THE issue at hand before the Apex Court bench was whether an order of the High Court reversing cancellation of registration of a trust, would be sustainable if it runs contrary to the provisions of Section 12AA. NO is the verdict. The bench also held that a high court order entertaining an appeal against a remand order passed by the Tribunal, would be invalid.

Facts of the case

THE assessee, a trust registered u/s 12AA & also approved u/s 80G(5)(vi) of the Act, had been created for public & charitable purposes. It is also engaged in running an engineering college. During the relevant AY, Survey proceedings were conducted at its premises, upon which the Revenue noted that the assessee received donation of about Rs 37 lakhs in two tranches. The Revenue alleged that such amount was not actually donated such entry was shown by receiving the amount in cash from the assessee, by retaining commission. Hence the Revenue proceeded to cancel the assessee's registration on grounds that receiving donations in cash was not its stated objective, due to which such activity became illegal. On appeal, the Tribunal remanded the matter for fresh verification. Later, the High Court held that it was possible that a particular donation could be bogus or fictitious, the same could be made taxable. However, a single transaction could not lead to conclusion that the trust's activities were not genuine or not in accordance with its stated objectives. Hence the Revenue's appeal.

On appeal, the Apex Court was of the view that,

++ in the proceedings initiated for the cancellation of registration, mainly it was the case of the assessee that proceedings for cancellation were initiated only on the ex parte statement of the representative of the donor, without giving any opportunity to the assessee. It is further submitted that though a survey was also conducted on the assessee, but nothing adverse was found during such survey to support the case of the Revenue, to cancel the registration. From the perusal of the order passed by the High Court, it is clear that the it allowed the Writ Petition mainly on one ground, namely, that one bogus donation would not establish that the activities of the trust are not genuine;

++ such a reason assigned by the High Court is erroneous and runs contrary to the plain language of Section 12AA(3) of the Act. In view of the serious allegations made against the assessee, it is a matter for consideration of the issue, after giving opportunity as pleaded by the assessee but the High Court has committed error in entertaining the appeal against the remand order passed by the Tribunal, and in quashing the order of cancellation of registration. Hence such order must be quashed & set aside. No opinion expressed on merits.

(See 2019-TIOL-48-SC-IT)